Why Is My Mortgage Stuck in Underwriting? (And How Refinancing Affects Your Credit Score)

How long does mortgage underwriting take?

Freddie Mac describes the underwriter as the professional who decides whether you are eligible for the loan, approving or rejecting the application based on your credit history, employment history, assets, debts and other factors. A loan processor prepares the file first, and Freddie Mac notes that a well-processed loan file can decrease the time it takes to get a decision.

There is no single standard underwriting timeline; it depends on the lender, the loan type and how quickly conditions are cleared. A few fixed timing rules do apply near the end of the process:

• The CFPB says your lender is required to give you the Closing Disclosure at least three business days before you close.
• Fannie Mae requires lenders to verify employment no more than 10 business days before the note date for borrowers using employment income (with limited extensions).
• For military borrowers, Fannie Mae allows a Leave and Earnings Statement (LES) dated within 120 days of the note date.

Common underwriting delays and how to avoid them

Most delays come from something the underwriter still needs. The usual culprits:

• Missing or incomplete documents. Pay stubs, bank statements, tax returns and letters of explanation the underwriter asks for as conditions.
• The appraisal. The lender needs the value of the home to support the loan.
• Large or unexplained deposits. Expect to document where money in your accounts came from.
• Job or credit changes. The CFPB advises avoiding new credit cards, car loans or other credit right before or during the mortgage process.
• Employment verification. Fannie Mae requires a verbal verification of employment, confirming "as late in the process as possible" that you are still employed.
• Third parties. Condo associations, insurers and property managers can hold up a file that is otherwise ready.

The longest delay Scott has seen

Third parties can be the hardest to control. In Scott's words: "The longest underwriting delay I have seen is about 30 days. It was caused by a condo complex not having the proper approval for an FHA loan. They lost it due to how they setup their insurance and the property management company was very slow to rectify it. The Sellers and the Buyers were ready and the loan could not close until the complex took care of their insurance issue."

Last-minute employment verification

Scott explains: "Last minute UW issues that can delay a closing can be things such as getting a verbal work verification. If a buyer works at a company and the UW cannot confirm employment verbally, that can cause a delay. That is something that is outside the control of the buyer and the lender as it relies on the HR department at work." If you can, give your HR department a heads-up that your lender will call.

How to move from conditional approval to clear to close

Treat every condition as urgent. Send complete documents (every page), answer questions directly and do not open new credit, move large sums between accounts or change jobs while the file is in review. Freddie Mac says that once your lender approves the loan you should receive a commitment letter, which you usually must accept by returning a signed copy within five to 10 days.

Staying ahead of the process matters as much as speed. "We keep closings on track by working from a processing checklist," Scott says. "We know the steps and when they are due by. We do not wait until the last minute to check on everything. We stay on top of the process on a regular basis with our clients."

And if your file goes quiet? "If a file is sitting at UW for a week, we find out why. It can be an issue, but it might not. If there is an issue, we work the problem. If it is not an issue and the file is just in a backlog, we want to know that too so we can stay on it."

VA loans at Fort Meade: COE, BAH documentation and PCS timing

Get your Certificate of Eligibility (COE) first

The VA calls the COE the first step in getting a VA-backed home loan: it confirms for your lender that you qualify for the benefit. Active-duty service members need a statement of service signed by their commander, adjutant or personnel officer, and veterans need their DD214. Your lender may be able to get your COE online through the VA's Web LGY system; the VA notes that mail requests may take longer. After that, the lender requests a VA appraisal and reviews the appraisal, your credit and your income.

BAH documentation: keep your LES current

Fannie Mae's Selling Guide (B3-3.3-05, Military Income) lets lenders include allowances, including quarters' allowance, as qualifying income as long as there is no indication the amount will be lowered or discontinued. The lender needs your most recent LES dated within 120 days of the note date plus a verbal verification of employment. National Guard and Reserve income needs a 12-month history; active-duty pay has no set minimum history.

PCS timing

If you are PCSing to or from Fort Meade, tell your lender your report date up front so the settlement date and document deadlines line up. If a long closing pushes past 120 days, expect to provide a newer LES, and send any amended orders to your lender right away so the underwriter is not working from outdated information.

How refinancing affects your credit score

The hard inquiry

The CFPB says a lender's credit check is reported as an inquiry, which typically has a small negative effect on your scores. myFICO says that for most people one additional inquiry takes less than five points off their FICO Scores, and that inquiries affect FICO Scores for only a year even though they stay on the report for up to two years.

The rate-shopping window

Shopping lenders does not multiply the hit. According to the CFPB, multiple mortgage credit checks within a 45-day window are recorded as a single inquiry. myFICO adds that older FICO Score versions use a 14-day window and newer versions use 45 days, and that FICO Scores ignore mortgage inquiries made in the 30 days before scoring. Keep your rate shopping within a focused period.

The new account and average age

A refinance pays off your old loan and opens a new one. myFICO says length of credit history makes up 15% of a FICO Score and considers the age of your newest account and the average age of all your accounts, so a brand-new loan can weigh on that factor.

How long the dip lasts

It depends on why you refinanced and what else is going on. Scott's experience: "Yes, credits can dip a little bit. If a client uses a refinance to payoff other debt, their credit can rebound and move higher within a month or two of the refinance. If a client is using a refinance to get more favorable loan terms it may take a few months for the credit to come back. The other issue is what else is happening with their credit during that time too."

Related reading from The Scott Smolen Team

• Pre-Qualification vs. Pre-Approval: What Maryland Buyers Need Before Making an Offer
• The Four C’s of Credit: How Lenders Qualify You for a Mortgage
• How Your Credit Score Impacts Your Ability to Buy a Home