Banks are among the financial institutions people come to whenever they need loans to finance big purchases. However, as most people know, banks don't typically approve any loan without an intensive vetting process. This process is known as underwriting and is critical in determining whether a customer will be approved or rejected for the loan they applied for with the bank.
Banks understand risk exposure and want to be exposed as little as possible, so they use a thorough process to ensure that each client is legitimate. With technology evolving, their banks can now use underwriting software to determine the client's viability quickly.
These programs allow banks to make decisions quicker and at a more optimal speed, increasing their efficiency. They wouldn't have to pore on many documents as the application can crunch the existing data and provide necessary information to help the service representative make the right call.
Here are some underwriting tips for your bank this 2023.
Fully vet income streams
One of the primary steps in underwriting is verifying the client's income. They can bring the usual paperwork regarding their employment, income statements, and other paperwork to substantiate that they are financially capable. However, with the emerging freelancing culture, some potential clients may lack the necessary documents but have a considerable amount of cash coming into their accounts regularly.
A thorough service representative can determine the various income streams that the client has to integrate fully into the process. At times, the client may not look much initially, but upon further scrutiny, they are high-earners in their field.
Conduct due process
In the process of underwriting a loan, the service representative will determine why you're taking out a loan in the first place. It's not being nosy but being diligent in the process. Banks must determine whether the loan would be used properly. They cannot lend a person money unless there's collateral they can use should the individual default on their loans.
If the person wishes to purchase a house, the bank must determine whether it is worth it in the real estate market. The same thing is true if the person wishes to buy a vehicle. The bank officer will also consider the future market value of the car before they can approve anything.
Check credit history thoroughly
Among the things that bank officers scrutinize is your credit history. Your credit history paints your capability as a loan client and tells the officer whether you are an acceptable risk. Your timeliness in paying dues and your current debt-to-income ratio will be among the things your underwriter will look into to determine if you'll be worth it.
If your credit history is spotty, they may decide to reject your application for a loan. Therefore, it's important to maintain a good credit score to ensure that banks provide good deals at the right rates.
Underwriting is one of the most important processes in the banking industry as it determines whether banks will provide clients with loans and other services. The advancement of technology helps banks make the process more efficient.