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What is mortgage underwriting?

A thorough financial review determines your eligibility to borrow

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Mortgage underwriting is the behind-the-scenes review of an applicant’s financial information and credit history to determine their qualification 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.

What does a mortgage underwriter do?

When you apply for a mortgage, your main contact is a loan officer. Their 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.

The 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. Their main job is to review your financial information and the property to determine your risk as a borrower and whether the loan amount is appropriate for the home.

Mortgage underwriting process

Underwriting involves multiple considerations, including the borrower’s credit history, income, assets and debt, and the home's value. The underwriting process is primarily focused on assessing a borrower’s "3 C’s": credit, capacity and collateral.

Underwriters first obtain recent copies of your credit report from TransUnion, Equifax and Experian, the three credit bureaus. 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.

Underwriting focuses on a borrower’s "3 C’s": credit, capacity and collateral.

To predict your ability to repay the loan, the underwriter analyzes factors like your income, debts and assets. They use this data to calculate your debt-to-income ratio, which is your total monthly debt payments divided by your gross monthly income. Most lenders are looking for a DTI of 36% or lower for a conventional mortgage loan.

Finally, the underwriter looks at your collateral, or the asset of value the lender could take control of and sell if you don’t pay back the loan. With a mortgage, the home is collateral for the loan, so the underwriter will require a home appraisal to ensure it’s valued at or above the loan amount.

Underwriting process timeline

Underwriting takes anywhere from a few days to a few weeks to complete. The process has four key steps.

1. Review of finances

The underwriter will likely start by asking for proof of your identity, your Social Security number and signed permission to obtain your credit report. You must also submit W-2s, tax returns, bank statements, pay stubs and investment account statements. This first step can take about one to two weeks, so be patient and 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 are asked for one of these explanation letters doesn’t mean you’re going to be denied loan approval.

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 value. Underwriters use this information to ensure that 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.

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    How long does underwriting take?

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

    • 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 long is it from underwriting to closing?

    The amount of time from when an application is submitted to closing is generally from 30 to 60 days. In most cases, a large part of this time is the underwriting process.

    What happens after an underwriter approves a loan?

    After the underwriting process is finished and the loan is approved, the lender prepares the Closing Disclosure ; it must send this five-page form at least three business days before closing.

    How often does an underwriter deny a loan?

    The overall denial rate for home purchase applications was 9.3% in 2020, according to a 2021 report from the Consumer Financial Protection Bureau. Conventional conforming loans had the lowest denial rate, at 7.6%; FHA loans had the highest, at 14.1%. It’s your right to know why you are denied — your lender must provide their reasoning in writing. The most common causes of denial are low credit scores and high DTI ratios.

    Bottom line

    Underwriting is an integral part of the mortgage process. Lenders focus on a borrower's “3 C’s” — credit, capacity and collateral — to determine whether to approve a home loan. Your credit shows how well you’ve managed debt in the past, your capacity is your ability to repay the loan based on your income and assets, and your collateral is the home value, which protects the lender’s financial interest in the transaction.

    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.

    ConsumerAffairs writers primarily rely on government data, industry experts and original research from other reputable publications to inform their work. To learn more about the content on our site, visit our FAQ page.
    1. Consumer Financial Protection Bureau, “Data Point: 2020 Mortgage Market Activity and Trends.” Accessed Feb. 21, 2022.
    2. Federal Trade Commission, “Mortgage Discrimination.” Accessed March 2, 2022.
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