What Is Mortgage Underwriting?

Mortgage underwriting is the process through which a lender evaluates the risk of approving you for a mortgage.
Linda Bell
By Linda Bell 

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You were preapproved for a mortgage and then found the house of your dreams. Now that your offer’s been accepted, that means you’re clear to get the mortgage and become a homeowner, right? Not so fast. You still have to go through underwriting.

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A mortgage preapproval is not a guarantee you will get a loan. After finding a house, you have to complete a full mortgage application, whether that’s with the lender that gave you the preapproval or a different one. During underwriting, the lender takes a much deeper dive into your finances before approving the loan.

What is an underwriter?

After the loan processor has compiled your mortgage application, it goes to the underwriter. A mortgage underwriter’s job is to determine how risky it would be to give you a home loan.

With manual underwriting, a human being decides whether to approve your application. With an automated underwriting system, a computer algorithm will render a decision. However, a person is still needed at the end of the process in case any additional documentation is required and to make the final call.

The mortgage underwriting process

Underwriting is an unavoidable part of buying a home. This is when a lender reviews your application and decides whether you will be able to repay the loan.

While you may have already submitted documents to your lender during preapproval, be prepared to provide bank statements, your monthly debt, W-2 forms, tax returns, pay stubs or other sources of income when completing the home loan application.

The financial review

After you have filled out the application, the underwriter will go over your finances, including your credit score and report, employment history, debt-to-income ratio, assets, income and the amount of your mortgage.

Brigitte Morrow Killings, vice president at Wells Fargo Home Mortgage, says an underwriter looks at “five C’s” when reviewing an application.

  • Character: Does the applicant have a stable work history?

  • Credit history: How has the applicant managed credit?

  • Capacity: What is the applicant’s ability to repay the loan?

  • Collateral: Does the property’s value support the loan?

  • Conditions: How stable are the economy and the job market?

The appraisal

The lender will order a home appraisal to make sure the loan is not greater than the value of the property. The value is determined by factors including the size and age of the house and recent sales of comparable homes in the area.

The title search

The lender will order a title search to confirm that the property is free of any outstanding claims, including unpaid taxes or judgments. Your closing costs, which are 2% to 5% of the loan’s cost, will include the appraisal, title search and other fees.

The decision

In the final step, the underwriter will decide whether to approve, deny or suspend a decision on your loan.

If your application is approved, you are clear to close on the loan. If you are approved with conditions, you may have to supply more documents before your loan is accepted.

If your loan is denied, you should find out why. You may need to improve your credit score or pay down debt before reapplying.

The underwriter may suspend your application if some documents are missing from your file. You will need to supply the lender with the requested information in order for the application to proceed.

How long does underwriting take?

Underwriting can be completed in a few days or a few weeks, but everyone’s situation is different. An incomplete application, the type of loan, or issues with the appraisal or title search can affect the timeline.

Mistakes to avoid

To increase the chances of closing on your mortgage, avoid these mistakes during the underwriting process:

Don’t apply for new credit, pay bills late, make large purchases, or close accounts. Lenders can pull your credit and recheck your finances any time before you close on the loan. Any changes to your financial profile could torpedo the application.

Don’t change jobs. A career change can alter the amount the lender has approved for you to borrow.

Don’t ignore lender inquiries. If your lender contacts you for additional information, respond to it as quickly as possible or your application may be delayed.

Barry Rothman, housing counseling program manager at Consolidated Credit, a nonprofit credit counseling agency, says it’s harder to get a mortgage today than in years past because of the 2008 mortgage meltdown and the coronavirus pandemic.

“That’s why the process is constructed the way it is,” he says. “Lenders are much more careful about who they want to lend to. Rates are really low, but it’s a matter of getting approved for those rates, or any rates.”

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