The Veridian Blog

Are purchase loans processed and underwritten the same way as refinance loans?

While the principal elements of creditworthiness (income/credit/assets) do not change in regard to loan purpose (rate & term, purchase or cash-out), they are treated differently in most underwriting departments. Purchase loans are widely considered more urgent than refinance loans and are more often than not, given priority in any underwriting queue due to the contracted close of escrow date. In addition, many lenders offer discounts and broker incentives for closing purchase loans.

The underwriting for purchase loans is often more complex because of the significant amount of additional paperwork that needs to be reviewed. Underwriters must verify and paper-trail down payment assets in addition to required reserves. For first time homebuyers, they will require a Verification of Rent to demonstrate a satisfactory house payment history. Underwriters must also examine the purchase contract to determine if there are extensive repairs required or excessive credits given back to the buyer that may jeopardize the appraised value.

Cash-out loans are more or less underwritten in the same fashion as rate & term loans however most lenders will have maximum loan-to-value ratios for cash-out loans as well as a cap on the nominal dollar value allowed on cash-out loans.