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What is mortgage underwriting?

A thorough financial review determines your eligibility to borrow

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Anytime you apply for a mortgage, you can expect someone to dig fairly deep into your financial situation. After all, the mortgage lender has to confirm you meet the criteria for the home loan you want, including that you have the ability to pay back the funds.

A large portion of the mortgage approval process, called mortgage underwriting, takes place behind the scenes. Generally speaking, mortgage underwriting involves a lengthy review of your financial information and credit history to determine your qualifications for a mortgage loan. Underwriting takes anywhere from several days to several weeks; once it’s complete and you’re cleared to close, you’re just days away from owning a new home.

Key insights

  • Mortgage underwriting takes place when a lender confirms a range of details you shared in a mortgage application, including your income, employment, down payment, cash reserves and more.
  • Where some mortgage underwriters take on this process manually, automated underwriting relies on technology and various computer algorithms to underwrite loans.
  • The main factors mortgage underwriters consider for loan approvals include credit history, income and employment, debt-to-income ratio and the borrower's assets.

What does a mortgage underwriter do?

When you apply for a mortgage, your main contact is the loan officer you started the process with. The loan officer's job is to help facilitate the loan process and act as a go-between for you and your mortgage lender. They can answer any questions you have about your loan application and ensure you’ve supplied the proper documentation to the underwriter.

In the meantime, the loan underwriter acts behind the scenes to help the lender determine whether to approve your loan. You’ll probably never meet the underwriter in person — they’ll ask the loan officer to relay any questions they have for you.

According to mortgage professional Jason Lerner of George Mason Mortgage, a mortgage underwriter's main job is reviewing a borrower’s qualifications and documentation to ensure their application fits into a mortgage program’s guidelines. While the loan officer and other loan professionals may look over your file, Lerner said the underwriter is responsible for providing an "unbiased and deeper review." Lerner also said the underwriter completes the final approval of the loan.

» MORE: Best mortgage lenders

Mortgage underwriting process

Mortgage underwriting can take anywhere from a few days to a few weeks to complete, and Lerner said the timeline for the process can be influenced by the complexity of the loan, the completeness of the loan package and the workload of the underwriter.

From start to finish, the process has four key steps.

1. Review of finances
The underwriter will review a wide range of financial documents, all of which help them make recommendations to lenders. These documents include:
  • Proof of your identity. This includes your Social Security number and signed permission to obtain your credit report.
  • Your full credit report . The underwriters will obtain recent copies of your credit report from the three credit bureaus — TransUnion, Equifax and Experian. How each bureau determines credit scores may be different — if your scores vary across the reports, the underwriter may use the median. The credit score required for a loan depends on factors like the lender and the type of mortgage.
  • W-2s, tax returns, bank statements, pay stubs and investment account statements. An underwriter uses these documents to analyze factors like your income, debts and assets. They use this data to calculate your debt-to-income (DTI) ratio , which is your total monthly debt payments divided by your gross monthly income. Most lenders are looking for a DTI ratio of 36% or lower for a conventional mortgage loan, although it's possible to get approved with a higher DTI ratio if credit score and cash reserve requirements are met.

This first step can take about one to two weeks, so be patient and be ready to respond to any requests for additional documentation.

At some point, the lender may ask you to write a letter explaining something in your financial details, like a negative mark on your credit report or a gap in your employment history. Just because you’re asked for one of these explanation letters doesn’t mean you’re going to be denied loan approval, so don’t worry.

2. Appraisal
Your lender will order an appraisal prior to closing. The appraiser will inspect the condition of the home and review comparable home sales to determine the home's approximate value.

Underwriters use this information to ensure the home is at least worth what they’re lending. If the appraised value is less than the mortgage amount, the underwriter may suspend or deny the loan application.

3. Title search
This step ensures that the legal ownership of the property can be successfully transferred from the seller to the buyer at closing. The title search protects both the lender and the buyer from future ownership claims that could compromise their investment in the property.

The underwriter will require a completed title search before the closing.

4. Approval/denial
Even if you receive preapproval early in the process, it doesn’t mean your loan will ultimately be approved. The underwriter has to be satisfied with the appraisal, the title search results and your financial information. As long as you meet the credit, capacity and collateral requirements, you’ll receive a verified approval before closing. Once you’re approved, the funds will be yours to transfer to the seller at closing.

Lerner also added that, sometimes, home loans are denied due to factors discovered during the underwriting process. For example, some information in the loan application could be untrue or exaggerated, or something may have happened during the buying process (e.g., a dramatic drop in one's credit score) that makes them ineligible for the loan.

In that scenario, borrowers typically need to make some financial changes to get back on track and have their mortgage approved. For example, they may have to pay off some of their debts, save up a larger down payment, reduce the amount they plan to borrow or increase their credit score before applying for a mortgage again.

What factors do mortgage underwriters look at?

Underwriting involves multiple considerations, including the borrower’s credit history, income, assets and debt, employment history and the home's value. The underwriting process is primarily focused on assessing a borrower's "5 C's," which include the following:

  • Capacity: This factor uses income and other debts to determine if the borrower can afford to repay the loan.
  • Character: Applicants can score well in this category by having a stable work history and a solid credit score.
  • Collateral: A home's value is assessed through a home appraisal to determine if the property supports the amount being borrowed.
  • Conditions: This factor considers whether the applicant can meet other conditions for borrowing, such as having enough cash reserves and having an appropriate debt-to-income ratio.
  • Credit history: The applicant's credit history plays a major role in whether they can get approved for a home loan.

» MORE: What credit score is needed to buy a house?

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Frequently asked questions

How long does underwriting take?

Underwriting takes from a few days to multiple weeks, depending on a variety of factors. These include:

  • Complexity of loan package
  • Your lender’s standards and policies for underwriting
  • The volume of applications your lender is handling
  • Your financial situation
  • How quickly you respond to requests for further materials and information
How often does an underwriter deny a loan?

According to Home Mortgage Disclosure Act (HMDA) data analyzed by the Urban Institute, 16.1% of all mortgage applications in 2020 were denied. The data also shows that people of color saw their mortgage applications denied at a higher rate than average. 27.1% of Black mortgage applicants had their mortgage application denied that year, along with 21.9% of Hispanic applicants.

Can a bank override an underwriter?

A lender cannot necessarily override an underwriter to get a loan through to approval since most loans (e.g., conventional, FHA, VA, USDA) have universal guidelines that apply to all banks and lenders.

"A bank cannot override these guidelines and expect the loan to still be secured by the governing bodies and investors," explained Lerner.

However, a bank can disagree with the underwriter’s interpretation of the guidelines or interpretation of the borrower’s qualifications and override the underwriter’s decision. Lerner also added that some banks have overlays — or additional requirements they have added to universal guidelines. If an underwriter denies a loan based on additional bank requirements, the bank may be able to override the underwriter's decision for approval.

Can borrowers speak with their underwriter?

Lerner said a borrower’s main contacts are typically their loan officer and processor. If needed and on rare occasions, an underwriter may reach out to a borrower directly for additional information.

What is automated mortgage underwriting?

Automated underwriting relies on technology and various computer algorithms to underwrite loans, whereas manual underwriting has a human being evaluate a loan application.

Bottom line

Underwriting is an integral part of the mortgage process since it helps the lender know for sure you’re eligible and financially ready for a home loan. This process can even go off without a hitch if you accurately and truthfully filled out your loan application and you can easily back up claims about your assets, credit and income.

To make sure underwriting goes as smoothly and quickly as possible, pay close attention to what documents you need to submit and respond to requests for information quickly. This will help ensure that you receive an approval decision in time to buy your new home.

Article sources
ConsumerAffairs writers primarily rely on government data, industry experts and original research from other reputable publications to inform their work. Specific sources for this article include:
  1. Office of the Comptroller of the Currency, " Underwriting " Accessed April 17, 2023.
  2. Rocket Mortgage, " What Is Manual Underwriting And How Does It Work? " Accessed April 18, 2023.
  3. Fannie Mae, " Selling Guide ." Accessed April 18, 2023.
  4. Rocket Lawyer, " How to Do a Property Title Search for Free ." Accessed April 18, 2023.
  5. Ruoff Mortgage, " Can Underwriters Make Exceptions? " Accessed April 18, 2023.
  6. Urban Institute, " What Different Denial Rates Can Tell Us About Racial Disparities in the Mortgage Market ." Accessed April 18, 2023.
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