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Mortgage Underwriting: A Guide for Home Buyers

Mortgage underwriting is when a lender reviews your finances, analyzes the risk of giving you a loan and decides whether to approve your application.

Linda Bell
Barbara Marquand
Alice Holbrook
Michelle Blackford
Updated
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You're preapproved for a mortgage and made a winning offer on a home. Now you're cleared to get the home loan and the house keys, right? Not so fast. The application still has to go through underwriting.
A mortgage preapproval isn't 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 deeper dive into your finances before making a final decision.

What is a mortgage underwriter?

A mortgage underwriter verifies and analyzes information about your finances and the home you want to buy, estimates the risk of issuing the loan and decides whether to approve or deny your application.
With manual underwriting, a person reviews and decides whether to approve the application. With an automated underwriting system, a computer algorithm makes the recommendation. However, even with automated underwriting, the process still requires a person to request further documentation if necessary and make the final call.

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, a complex loan, or problems with the appraisal or title search can lengthen the timeline.

The mortgage underwriting process

Here's how underwriting works:

Review of your finances

The underwriter will go over your finances, including your credit score and report, employment history, debt-to-income ratio, assets, income and the mortgage and down payment amounts. Although you already submitted information to get preapproved, you may need to provide more documentation, such as bank statements, W-2 forms, tax returns and pay stubs.
» MORE: Understanding debt-to-income ratio for a mortgage
The lender requires a home appraisal to make sure the loan is not greater than the value of the property. Home value is determined by various factors, including the size and age of the house and recent sales of comparable homes in the area.
A title search confirms that the property is free of any outstanding claims, including unpaid taxes or judgments. Your closing costs, which are 2% to 6% of the loan’s cost, will include the appraisal, title search and other fees.

A decision is made

In the final step, the underwriter will approve or deny your application or suspend a decision.

Your mortgage is approved

You can move forward to closing. If you're approved with conditions, you may have to supply more documents before the loan can be finalized.

Your mortgage is denied

You'll find out why your mortgage was denied. Under the Equal Credit Opportunity Act, a lender is required to provide reasons or a notice on how to obtain reasons for the decision. You may need to build your credit score or pay down debt before reapplying.

Your mortgage application is suspended

The underwriter may suspend your application if the lender needs more information. You'll have to supply the requested documents to start the process.

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Tips to get through mortgage underwriting

Follow these tips to move through underwriting without a hitch.

Protect your credit

Lenders can recheck your credit any time before the loan closes. Any changes to your financial profile could torpedo the application. To maintain good credit:
  • Avoid applying for new credit, such as a car loan.
  • Avoid making big purchases. This will decrease your cash reserves, or if purchased on a credit card, increase your credit utilization, or the percentage of available credit used. It's a good idea to keep credit utilization below 30%, but lower is even better for your credit score.
  • Pay bills on time.
  • Keep current credit accounts open. Closing an account would decrease your available credit and increase credit utilization.

Keep your job

Income and employment history are key factors in a lender's decision. A job change could alter the amount you're qualified to borrow.
» MORE: What happens if you lose your job right before closing on a mortgage?

Respond quickly to lender requests

Avoid delays by responding quickly if the lender asks for additional information.
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