The Origination and Underwriting Processes
When applying for a Fannie Mae mortgage, there are origination and underwriting requirements established by the company that you and your lender must meet. Otherwise, Fannie Mae will dismiss your application from the securitization process and you will not receive your mortgage loan. While this requires that you have a good financial background, your mortgage loan originator must also create a loan that meets the government-sponsored enterprise (GSE) guidelines. For example, your loan must not exceed the loan limit set for your area the year you apply.
The origination and underwriting process was put into place to ensure that lending companies refrain from issuing subprime loans to unqualified applicants incapable of meeting their monthly payments. Trained lenders are able to assess and identify high-risk applicants based on a variety of factors, such as their income, employment, assets and liabilities. All applicants applying for Fannie Mae loans must be comfortable with providing personal financial information and required supporting documentation. The lender will then follow the Fannie Mae selling guide to conduct a comprehensive risk evaluation. To learn more what you can expect from the process, read the following sections.
What to Expect from Your Mortgage Loan Originator
Not to be confused with the underwriting process, loan origination involves applying for a loan and having a lender process your application. The process of underwriting involves providing substantial information about your finances so that the mortgage underwriter can come to a conclusion of your risk as a borrower.
When originating a loan, your mortgage loan originator will need you to provide an overview if your financial situation. He or she will then be able to recommend an achievable type of loan and interest rate based on whether or not you meet the eligibility requirements. Additionally, you will learn more about fixed-rate mortgages and adjustable-rate loans while weighing their pros and cons. You will then complete a Fannie Mae loan application in which your lender will perform a preliminary review with the information provided.
Learn more about eligibility requirements and more in our in-depth guide.
What will the loan application include?
A Fannie Mae loan application will require that you provide complete and accurate information regarding your finances. This may include your employment history, income, debts and any declarations you may have had in the past. Furthermore, you must provide information regarding the property you would like to purchase. Any questions you may have when filling out this application can be answered by the lender assisting you with your Fannie Mae mortgage loan. He or she will recommend that you provide supporting documentation as necessary. This may be to clarify or verify a claim that you made on your application.
Determining the Type of Loan You Will Receive
Your mortgage underwriter will go over all of your home loan options. He or she will discuss your chances of receiving a home loan that meets Fannie Mae guidelines based on your eligibility. Your lender will also help you originate the right loan depending on the type of housing you would like to finance. For example, it is much easier to get a Fannie Mae loan for a single-family home than for an investment property.
Your underwriter will also determine a mortgage that meets the loan limit set each year by the Federal Housing Administration (FHA). If the loan limit for a single-family home in Texas is $453,100, the loan your mortgage loan originator creates cannot exceed this amount. Furthermore, the mortgage loan cannot match the exact market value of the home you are purchasing. These are all important factors to keep in mind while thinking about the type of loan you would like to obtain for your home. Being knowledgeable of the FNMA guidelines will help give you a better idea of what you can afford on the housing market.
Download our comprehensive guide to learn more about Fannie Mae loans.
The Underwriting Process
What does an underwriter do? A mortgage underwriter assesses your risks as a borrower and decides whether or not you are eligible to receive a loan that Fannie Mae will buy. The FNMA provides lending companies with a manual comprehensive risk assessment approach and access to an automated desktop underwriter. The manual approach is much more dependent on your underwriter’s critical thinking skills and ability to evaluate your financial background.
On the other hand, the Fannie Mae Desktop Underwriter (DU) generates a risk assessment based on the information inputted by the lender. However, it is important that lenders pay close attention to the system’s recommendations, as there may be unique eligibility and underwriting considerations that the DU fails to identify. Underwriters must also make sure that the information they have inputted is accurate and complete.
Comprehensive Risk Assessment
The comprehensive risk assessment is designed to determine whether homebuyers meet Fannie Mae underwriting guidelines. Furthermore, the underwriter must determine whether the property itself meets Fannie Mae loan requirements. While your lender performed a preliminary review, this assessment involves a more in-depth approach to understanding your finances. Your underwriter will need to evaluate your credit report and identify any negligent components. Moreover, he or she must consider any blemishes on your report that are low risk but could potentially become high risk.
Your lender will utilize the Eligibility Matrix provided by Fannie Mae to complete the loan eligibility evaluation. He or she will be required to document the entire assessment and record his or her decision on paper. In the event that your lender is unsure of your eligibility, he or she may utilize the Fannie Mae Desktop Underwriter system.
The Fannie Mae Desktop Underwriter (DU) was created to help simplify the underwriting process. The system will generate your debt-to-income ratio and credit score based on the input by your lender. Your lender will be able to get a complete overview of your financial situation, including any debt that has been reported to the credit bureaus. The type of information requested by the system may include your income, assets, liabilities and employment history. Additionally, your lender will perform a risk assessment on your property to ensure that the home you would like to purchase meets Fannie Mae guidelines. This includes meeting all appraisal requirements and project standards.