Top Reasons for Delays in Underwriting and How to Prevent Them

Introduction

Some applicants view the underwriting procedure as the last obstacle to obtaining a loan, and for some, it feels like an endless wait. Underwriting delays can result in lost opportunities as well as financial hardship for both lenders and borrowers. If you are a first-time homebuyer or a seasoned investor, this blog will help you understand key factors that cause delays in the underwriting process and actionable solutions to make your financial journey more efficient.

Uncover the Top 5 Reasons Behind Underwriting Delays and Expert Tips to Prevent Them

#1. Incomplete Documentation or Inaccurate Information

In order to make an informed decision, underwriters need complete and accurate information in your documents; any discrepancy from recent pay stubs missing to unverified large deposits in bank accounts to the absence of homeowners association documents for a property can cause the need for additional verification and delay in the process.

How to Prevent the Delay?

• For a more seamless process, you can create a checklist of all documents required, from pay stubs to bank statements to tax returns. It is always beneficial to provide additional documents for verification of recent large deposits or transactions.
• If you are starting a new job, then keep documents like a contract, recent pay stub, offer letter, and more ready with you. 
• Make sure your tax returns are completed, including all schedules and forms, as lenders frequently need the last two years’ data. Address and provide an explanation for any anomalies in your tax filings to avoid future delays.
• Double-check all small details like personal address, contact number, email ID, etc., as discrepancies in these details can delay your underwriting process.
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#2. Regulatory and Compliance Challenges

Imagine you have applied for a loan with an attractive interest rate. Everything seems to be going well until the underwriter notices a regulatory roadblock due to a new compliance requirement that the lender must adhere to or a recent modification in lending regulations. 

Now, underwriters need to analyze these new rules, request more supporting documents, or reevaluate the application. These delays are unavoidable if people are unaware of these changes or if documents do not align with the recent regulatory requirements.

How to Prevent the Delay? 

• Be ready for AML (anti-money laundering) inspections (if needed)
• Verify your eligibility for loans supported by the government.
• Stay up to date with industry news and local state regulations.
• Be open and honest about your work position.
• Observe the rules unique to your property.
• Check the lender’s preparedness for compliance.
• Be ready for changing financing requirements.
• Keep your financial profile steady.
• Answer regulatory questions as soon as possible.

#3. Discrepancy in Credit Report 

You feel confident with your credit financial history, but when it is submitted for underwriting, there are discrepancies that underwriters highlight, like a missed payment that you thought was settled. Red flags like these can lead to a delay in the process due to additional verification or clarifications from the credit bureau or you. 

How to Prevent the Delay?

• It is important to get a credit report in advance to check if there are any discrepancies so they can be addressed in a timely manner. If there are any errors in the credit report, they can also be resolved by consulting the credit bureau.
• If you see any unusual activity in your credit report, like late payments, then you can write a clear explanation and submit it with your loan application.

#4.  Property Appraisal Issues

Property appraisals help evaluate if the value of the property aligns with the loan amount. If your appraisal is lower than the expected value, then the underwriter may require documents for additional checks or go for changing loan terms, which can cause delays in the underwriting process.

How to Prevent the Delay?

• Select an experienced appraiser for fair property evaluations.
• To make sure the property is worth enough and to prevent unpleasant surprises later on, think about getting a pre-appraisal done before applying for a loan.
• Make sure the property is in good condition with necessary improvements and repairs so you don’t get a lower property value.

#5. Lack in Communication

Underwriting delays can be caused by poor communication between all important parties like the lender, title companies, underwriter, appraiser, etc. For example, you have sent all the required paperwork for your loan, but days pass, and you never hear back from the underwriter or lender.

Now, you are left wondering why the application is not moving forward. Here, the entire loan procedure may be delayed if loan officers/underwriters lack communication for your inquiries or other clarification.

How to Prevent the Delay?

• It is important to be responsive to your underwriter regarding any change in documentation, financial status, or any important information that can cause delay.
• With your lender, having a clear communication channel is important; the channels can be in the form of emails, secure online portals, messages, and more.