The Process of Lender Underwriting

Have you ever wondered what all takes place in the process of lender underwriting? Sure, you are probably aware that when you apply for a loan, the banker or lender needs to look at a number of different things to see if you qualify for a loan, and if so how much and at what rates. But there is a lot more that goes into the process of underwriting loans, and especially when it comes to underwriting commercial loans.

Lender underwriting is the process that involves the time period after a loan is applied for until the loan decision is made by the lender. This can either mean the loan is going to be approved, not approved or at times the lender will have to gather more information from the borrower before they reach their decision. Different lenders have different timelines that they use for the underwriting process, a lot of it depends on if it is a current borrower or a new borrower and the amount of the loan that is being applied for. Over the past few years the underwriting process has taken on a lot more responsibility and a lot stricter of processes that takes place. With all of the mortgages and loans that have gone bad over the past couple of years, lenders are feeling the crunch to impose stricter guidelines and a much more involved process during the underwriter process.

Because of the more involved process that is becoming part of the underwriting job for lenders, borrowers can expect to have to provide more information and documentation than before. Lenders are needing to see more kinds of financial documents and information that can show them the business and business owners are capable of paying back the commercial loan and that they are qualified and have enough credit established to become eligible for the loan. Once the lenders have gathered all of the information that they need, they will then proceed to conduct a number of different methods to decide the amount and rates of the loan if it is improved. They use certain methods such as the debt to income ratio, fair market value, cash flow analysis and other such methods that can help them plug in the numbers from the business documentation that they have and perform calculations to determine if they are going to be able to approve the loan or if they will have to turn them down.

Lender underwriting usually involves not only the lenders but processors who work for the lenders who gather the information and do any additional fact finding that needs to be done to approve the loan. Other professionals are also typically involved in the process including closers, brokers and if the commercial loan request is for the purpose of purchasing a property, than an appraisal also needs to be conducted by a professional appraiser. This can be done by someone that the lender has a working relationship with, or in some cases can be someone that the business owner suggests. It may seem frustrating for the business owner during the time the lender is doing the underwriting, but all of the guidelines and steps that take place in underwriting are there to not only protect the lenders but also the business owners and ensure a smooth transaction.