Money Management

Underwriting comes after mortgage pre-approval when your loan goes to a professional who assesses risk. Here’s what can happen during underwriting. 

Getting a mortgage to buy a house can be a long and complicated process. You first need to shop around for mortgage quotes, then you need to submit an application for pre-approval. Your lender will review your financial info, offer you a rate, and you can move forward with the full application.

When you’ve submitted your full application, including details on the house you are buying, your loan goes to underwriting. During this process, a professional underwriter carefully reviews all of the details to assess the risk that you will default on the loan (stop paying on it). Underwriting occurs after you’ve already made an offer, had your home appraised, and provided all your financial paperwork, so you may feel as if you’re in the clear by the time things get to this stage.

But are you? Will you absolutely get a mortgage loan once you’ve made it through pre-approval and are into the underwriting phase?

Your loan isn’t a sure thing yet when it goes to the underwriter

Unfortunately, your loan making it to the underwriting phase does not mean you will definitely have the money to buy the home in hand. The underwriter’s job is to conduct a thorough and detailed investigation of all of your financial details as well as to review information about the transaction. If the underwriter spots red flags and determines the risk is too great, you’ll be denied your loan.

It’s not terribly common for loans to end up being denied in underwriting because loan officers — those who help you get to that phase — usually try to review your details and make sure they aren’t sending a loan to underwriting that is destined to fail. But it can happen. In fact, about 8% of mortgage applications end up being denied in underwriting.

The rest of the time, the underwriter will often give conditional approval first, which means that your loan will be approved if you meet certain requirements such as providing additional documentation. Once you’ve satisfied all requirements, you’ll be able to get full approval and finally be cleared to close.

Why would an underwriter deny a loan?

Underwriters have the tough job of verifying all of the information you provided on an application, looking at the big picture of your personal finances and the house you’re purchasing, and making an assessment about whether you’re likely to default or not. If they don’t do their jobs and expose a mortgage lender to too much risk, the lender could find themselves with bad debts and become insolvent. And the underwriter obviously would lose their job if they kept approving loans that ended up in default.

Underwriters review your data with a fine-toothed comb because they know their job is to protect the lender’s interest. They may end up denying a loan if:

They spot red flags on your credit report, such as recent missed payments or too many new debts taken on.There’s a problem with the house, such as a health and safety defect that can’t be corrected before closing.They aren’t convinced you’ll be using the property for your intended purpose (for example, if you’re trying to claim a house as a primary home when it seems pretty clear it will end up being an investment or second home).There are financial transactions you can’t explain that are cause for concern. They discover your employment situation is unstable. They determine you don’t have enough money in reserve.

These are just some of the many risks that could raise red flags and cause a denial in underwriting. If your loan gets to this phase, be sure not to charge too much on your credit cards, open up new accounts, miss payments, change jobs, or give your lender any reason to worry about your financial stability.

Keep the status quo, provide the documents they need, be ready with good answers to inquiries, and hope that the underwriter sees you as a good risk. Otherwise, you could find yourself facing a mortgage denial and be left without the loan you hoped to get.

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We’re firm believers in the Golden Rule, which is why editorial opinions are ours alone and have not been previously reviewed, approved, or endorsed by included advertisers.
The Ascent does not cover all offers on the market. Editorial content from The Ascent is separate from The Motley Fool editorial content and is created by a different analyst team.Discover Financial Services is an advertising partner of The Ascent, a Motley Fool company. Christy Bieber has no position in any of the stocks mentioned. The Motley Fool recommends Discover Financial Services. The Motley Fool has a disclosure policy.

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A large percentage of adults don’t feel comfortable investing. Check out three ways starting out as a teen can make a difference. 

Each of my sons has grown up to be an adult who prioritizes investing over living large. For that I am grateful. However, if I knew years ago what I know now, I would have supercharged their efforts by teaching and encouraging them to invest as teens. Here’s why.

1. Time is their friend

Ask 100 people what they would change if they could go back in time, and chances are, a fair number would say they regret not investing earlier. Once a person learns the power of compound interest, they realize that time is a friend to investors. Here’s what I mean:

Morgan began investing $12,000 per year at age 45. Their investment netted them an average annual return of 7%. By the time Morgan was 67, they had over $588,000 put away.Taylor began investing $12,000 per year at age 30, and their investment also brought in an average annual return of 7%. By the time Taylor hit age 67, they had over $1,924,000 ready for retirement.Cameron began investing at age 15, and like Morgan and Taylor, enjoyed an average annual return of 7%. They only managed to invest $100 per month ($1,200 per year), but it was over a long timeline. The year Cameron turned 67, they had a $561,000 nest egg.

Giving compound interest time to do its thing is pure magic. The earlier your teen opens a brokerage account (with your help) and begins investing — even if it’s only a small amount — the better the outcome.

2. There’s nothing like real-life experience

For some reason, investing is often treated as one of the great mysteries of the world, like where Cleopatra’s tomb is located or the fate of the Ark of the Covenant. It’s honestly not that mysterious. At its core, investing is buying assets in a company that you believe will increase in value over time.

Sometimes you get it right, and sometimes you get it wrong. The best any of us hope for is to get it right more often than we get it wrong. And historically, it’s worked out pretty well.

The point is, waiting to invest does nothing to demystify the process. The earlier your teen gets their feet wet, the more comfortable they’re going to feel diving all the way into the pool. Later, when they’re reading about a startup or listening to the daily farm report (yeah, it felt funny to write it) they’ll gradually understand more of the terms and feel more comfortable.

In a survey by Talker News in 2022, 76% of people shared their desire to learn more about the important financial decisions they’ll have to make in life. Simply put, there are not a whole lot of grown-ups who feel financially confident. Watching shows, listening to podcasts, and reading about investing are all good ways to gain insight, but there’s nothing like real-life experience to gain confidence.

3. Mistakes are part of the equation

That same Talker News survey found that seven in 10 adults are intimidated by investing. Since no one is intimidated by the idea of succeeding, it’s natural to assume that they’re intimidated by the thought of making mistakes or failing.

Allowing a teen to make investment mistakes while living safely at home gives them room to learn that investing mistakes happen, and they don’t have to be earth shattering. Investing is a bit like floating on a dinghy in the middle of the ocean. The lifts feel as dramatic as the drops, but as long as they’re still afloat, they’re doing okay.

It shouldn’t take long to realize that it’s silly to concentrate on each tiny lift or drop in the market. All that matters is the big, long-term picture.

One reason it may feel scary for a 30-year-old with a young family to begin investing is because even a small loss is perceived as a threat to their family’s well-being. A teen who begins investing may lose a few dollars (on paper), but since they’re not worried about feeding a family, it’s easier to accept mistakes and loss and move on.

Perhaps the best part of encouraging your teen to invest is how much easier it is for them to make it a habit. Say your 16-year-old begins investing. By the time they’re 32, they’ve been doing it for half their life. By then, they understand how it works, are comfortable with the ups and downs associated with investing, and are confident in their own abilities.

What most parents want for their kids is to send them out into the world as confident, capable adults. If teaching them to invest helps accomplish this goal, it feels like a win-win.

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Gas cards aren’t something typically recommended. Read on to find out what situation they may make sense in. 

I’m not shy about telling you when a credit card is junk. Most store cards? Junk. Gas station cards? Super junk.

Well, most of the time.

Believe it or not, there is actually one time when I’d argue it makes sense to get yourself a cobranded gas station credit card, and it requires two things to be true:

There’s a substantial welcome offerYou’re about to move long distance

If you can say yes to both points, then you have my blessing to sign up. Here’s why.

Moving trucks advertise 10 mpg

According to the EPA, average fuel economy for vehicles made in 2020 was 25.4 miles per gallon (mpg). The average moving truck isn’t so economical; they advertise 10 mpg. (From experience, I can tell you the reality is closer to 7 mpg, but we’ll use 10 mpg for the sake of this argument.)

AAA says the average price of a gallon of gas right now is about $3.83. So, here’s what you’re looking at for gas on a move:

For context, it’s about 1,000 miles to move from Florida to New York. And a move from Seattle to Boston will take you about 3,000 miles.

I’ve seen up to $0.50 a gallon in savings

Now to the gas cards. I’ve seen welcome bonuses offering up to $0.50 per gallon off for the first month. So if you were to take advantage of this offer right before you’re set to move, you’re looking at a decent amount of savings on gas for your moving truck.

At the high end, this is on par with a typical cash back rewards card welcome bonus.

Gas cards vs. regular rewards cards

Alright, before you say it, I know. When you’re going to spend $1,000 in gas — not to mention the cost of the truck — you can easily get a much better welcome bonus from a regular rewards card — plus you’ll earn rewards on the purchases. (Heck, if you’re going to charge everything for your move, you could even get the bonus on a travel rewards credit card. That could cover a free vacation once your move is done.)

However, there are a couple cases in which you may want a gas card instead:

You don’t have excellent credit. The best rewards cards tend to require good to excellent credit. Gas cards, on the other hand, are easier to get approved for, even with average credit.You’re in welcome-bonus time out. A lot of major issuers have rules about how often you can earn welcome bonuses on each card. Some even limit how many cards you can have. If you can’t qualify for a bonus from a rewards card, a gas card could be a good way to still earn rewards on your move.

Some credit cards are a no-brainer at any time. Others only make sense in special circumstances. Gas cards are definitely in the latter category. But the right gas card can actually be fairly valuable under those special circumstances. Moral of the story? Don’t judge a rewards card by its cover.

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We’re firm believers in the Golden Rule, which is why editorial opinions are ours alone and have not been previously reviewed, approved, or endorsed by included advertisers.
The Ascent does not cover all offers on the market. Editorial content from The Ascent is separate from The Motley Fool editorial content and is created by a different analyst team.The Motley Fool has a disclosure policy.

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New to the workforce? Read on for ways to make the most of your initial paycheck. 

So you’ve graduated college and, after several months of interviews, landed your first job. Congrats! That’s a big milestone. And while it’s not easy to adjust to a full-time work schedule, the arrival of your first paycheck should make all of that hard work worthwhile.

If this is the first time you’re looking at a sizable paycheck, you may be tempted to go out and spend that money on a host of items on your wishlist. And that’s understandable. But before you spend your first paycheck on splurges and other such fun things, consider these important uses for it instead.

1. Start building an emergency fund

Did you know that 63% of Americans do not have enough money in their savings account to cover an unplanned $500 expense? Such were the findings of a recent SecureSave survey.

Chances are, if you’re about to collect your first paycheck, it means your cash reserves are limited, too. But it’s really important to have money in the bank to cover unexpected expenses. If you don’t, you might instantly be forced into debt when those bills arise. So it’s a smart idea to use your first paycheck to begin building an emergency fund.

In fact, your goal should be to sock away enough money to cover three full months of living expenses. If you’re brand-new to a job, your living expenses may not be set in stone, though. For example, you might still be living with your parents because it’s hard to qualify for a rental of your own until you can show proof of a steady income.

But do your best to estimate your monthly costs so you can set an emergency fund target. And then, ideally, allocate money not just from your first paycheck, but also subsequent ones, to get to that goal.

2. Chip away at credit card balances

You may have racked up some credit card debt in the course of getting your degree or moving to the city where you found the job that’s about to hand you a pile of money. The sooner you’re able to whittle down that balance, the less interest you’re apt to pay on it. So if you can use some of your paycheck for that purpose, it might result in nice savings.

Meanwhile, perhaps you owe money on more than one credit card. In that case, a good bet is to focus on the balance with the highest interest rate first, since it’s what’s costing you the most.

3. Put some of it into an IRA or 401(k)

Did you know that you might not have to pay taxes on all of your first paycheck? If you put some of that money into an IRA or 401(k) plan for retirement savings, you’ll exempt a portion of your income from taxes. Plus, you’ll be doing your part to help set yourself up for a financially sound future.

If you’re getting your first paycheck, it likely means you’re pretty young. So let’s say you’re 22 and put $100 from your first paycheck into a retirement account. Over the past 50 years, the stock market has averaged an annual 10% return. If you score that same return in your IRA or 401(k), then at age 67, your $100 investment will have grown into almost $7,300.

What’s more, let’s say you’re able to contribute $100 from every monthly paycheck you get over 45 years. At that same 10% return, you’re looking at $863,000 in savings.

Your first paycheck is truly something to celebrate. Make the most of it by building emergency savings, paying off debt, and seeding your nest egg.

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We’re firm believers in the Golden Rule, which is why editorial opinions are ours alone and have not been previously reviewed, approved, or endorsed by included advertisers.
The Ascent does not cover all offers on the market. Editorial content from The Ascent is separate from The Motley Fool editorial content and is created by a different analyst team.Maurie Backman has positions in Target. The Motley Fool has positions in and recommends Target. The Motley Fool has a disclosure policy.

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