Get to Know Your Homebuying Team: Part Three

Underwriter, Investor, Guarantee Agency

Like many big goals, purchasing a home requires teamwork. A whole network of industry professionals is involved in the process to connect a homebuyer to the right loan for their unique financial circumstances, help them find that dream home and make sure that the home is safe and affordable.

Get to know a few of the key players below and read previous installments in this series for information on the rest of the homebuying team.

Part One: Lenders, Real Estate Licensees, and Home Inspectors.

Part Two: Appraisers, Contractors and Energy Raters.

Some of these professionals will become familiar faces throughout the homebuying process while others work behind the scenes to make your home purchase happen.

Underwriter

Underwriters are trained mortgage professionals who evaluate a borrower's documents alongside details about the property they are applying to buy. They are the ones who officially approve or deny a mortgage application. 

The underwriter is an essential part of the homebuying process; underwriting helps protect the borrower from taking out a loan they can’t afford and protects the lender from making an unsafe investment.

Prospective borrowers are required to submit extensive paperwork to their lender along with their mortgage application, including:

• Income documentation
• Debts and available cash
• Recent work history
• Tax returns
• Credit information & more

Once the lender receives a borrower’s verifying documents and the property documentation, the mortgage underwriter steps in to review the file for eligibility. In analyzing a mortgage loan application, underwriters commonly use the Five C’s of Credit, shown in the graphic below.

​​​​​Image taken from the HomeChoice™ workbook.

Investor

As a homebuyer you won’t deal with the investor yourself, but their work in the background is what keeps the mortgage lending market flowing.

The mortgage investor purchases mortgages from lenders – this is what ensures that lenders have sufficient funds to lend to new borrowers. Often, the investor is a government sponsored enterprise like Fannie Mae or Freddie Mac. In the case of an AHFC mortgage loan, Alaska Housing Finance Corporation is the investor.

In addition to providing cash flow to lenders, investors set guidelines for the mortgages they purchase. These guidelines might relate to borrower credit scores, debt-to-income ratios, down payment requirements and private mortgage insurance. The guidelines investors set also determine which loans borrowers may be eligible for. 

Guarantee Agency

Guarantee agencies are U.S. Federal Agencies that back home loans funded by private investors.

If a borrower defaults on a guaranteed loan, the guarantee agency repays the lender. This assurance reduces risk for the lender and means that borrowers can benefit from lower down payments and credit requirements.

Primary mortgage guarantee agencies include: Department of Veterans Affairs (VA Loans), Department of Housing and Urban Development (FHA and HUD-184 Loans) and U.S. Department of Agriculture (USDA Loans).

Guarantee agencies don’t provide the actual investment for the loan, they provide backing to help borrowers access loans while protecting lenders.

Learn More

There’s a lot more to learn in HomeChoice™: Steps to Homeownership! Sign up for the no-cost homebuyer education class to learn more about the terminology you’ll encounter during the homebuying process.