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How Upfront Underwriting Works

Published on: March 29, 2022

upfront underwriting

Upfront underwriting is when a lender processes a mortgage before the borrower chooses a property. Because upfront underwriting takes place prior to the buyer making an offer on a home, it can give shoppers an advantage in a competitive market. Many homebuyers use upfront underwriting as a strategy to beat out competing bids. 

Learn more about how upfront underwriting works and when it might be a good idea to pursue it.

What is upfront underwriting? Upfront underwriting meaning

Upfront underwriting a mortgage is when a lender reviews and processes a borrower’s loan early in the homebuying process — before the buyer makes an offer on a property or even before they begin house hunting.  

Also called preliminary, or head-start underwriting, upfront underwriting makes the mortgage process run smoothly and quickly once the buyer has a signed purchase agreement. At Finance of America Mortgage, upfront underwriting is called HeadStart Underwriting. A local Mortgage Advisor can help you with this process.

Because upfront underwriting happens before buyers submit an offer on a home, they can shop more confidently knowing their financing is approved. They can also close on the house faster than other borrowers. These advantages can give homebuyers a leg up on the competition in a hot housing market.

Underwriting vs. upfront underwriting

All mortgages go through underwriting. During this step of the homebuying process, a lender reviews a buyer’s loan application and transaction details to determine if they should finance the mortgage. The underwriting process can take several days or weeks and leads to either an approval or denial of the loan.  

Upfront underwriting is the same as traditional underwriting except for the timing and available information. Typically, loan underwriting happens after a borrower makes an offer on a home and the seller accepts it. However, upfront underwriting takes place before a buyer submits a bid.  

Because the borrower hasn’t chosen a property, some events that usually occur during the underwriting process, like a home appraisal and title services, will happen after the buyer selects a property and has a signed purchase agreement. 

Preapproval vs. upfront underwriting

During the preapproval process, a lender confirms your information and checks your credit. They make a preliminary decision on whether they will lend to you and how much. However, preapprovals are not final loan decisions; they are contingent on further verification of your information and the underwriting process.  

Upfront underwriting is a step beyond a preapproval. Lenders perform the same verification and thorough check of your information as they would during traditional underwriting, except for the property details. Upfront underwriting is more of a guarantee than a preapproval because the lender has done their due diligence. Some lenders refer to upfront underwriting as an underwritten preapproval.

What do lenders look at in upfront underwriting?

During the underwriting process, lenders follow their guidelines to determine if you have the means to repay the loan. They will thoroughly review and verify the information you provided regarding your employment, income, credit score and history, assets, and debts. If necessary, lenders may request additional information during underwriting. 

Since upfront underwriting takes place before you choose a property, a few aspects of the underwriting process will remain pending until you have a signed purchase agreement. As a result, when a lender is upfront underwriting a mortgage, they will approve it conditionally, meaning a few things will need to happen before the loan is final, including:

  • Appraisal. Once you have a signed purchase agreement, the lender will order a home appraisal to verify the property’s value. The appraisal helps the lender determine your loan-to-value ratio. 
  • Inspection. You will be responsible for having the property inspected. 
  • Title work. Your lender will require a title search and title insurance.

When should you consider upfront underwriting?

Not every situation calls for upfront underwriting, and not every lender offers it. However, some scenarios may warrant pursuing an underwritten preapproval, such as:

  • During a seller’s market. If you’re facing a competitive market and are likely to run into a multiple-offer scenario, upfront underwriting can help your offer stand out. Sellers look favorably upon offers where financing is guaranteed. 
  • Competing with cash buyers. If you’re purchasing a fixer-upper or facing another scenario where you’re competing with cash buyers, upfront underwriting is the next best thing to shopping with cash. 
  • Needing a fast closing. Going through the underwriting process before you’ve made an offer and have a signed contract may shave time off the closing process.

Potential challenges of upfront underwriting a mortgage

While upfront underwriting has advantages, it does pose some challenges that buyers should consider. Since property details are not available when a lender is upfront underwriting a mortgage, buyers can encounter issues or even a denial later in the process.  

Keep these factors in mind as you consider upfront underwriting: 

  • You’ll waive the financing contingency. Because your financing is approved, you don’t need a financing contingency. Having fewer contingencies will make your offer favorable to sellers, but it can be risky if the loan falls through later.  
  • The appraisal could come in low. If the home appraises for lower than the purchase price, you may have to make up the difference or walk away from the deal and risk losing your deposit. 
  • You may run into issues during the inspection. Similar to the above point, should any home inspection issues arise that affect the purchase price, you may not be able to secure the additional financing. You may be responsible for paying for the repairs out of pocket or end up walking away from the deal. 
  • Your lender can deny the loan. If your financial information changes or other issues surface, your lender could deny the mortgage.  

To learn more about our HeadStart Underwriting process or other mortgage options, contact a local Finance of America Mortgage Advisor today.

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