What does a mortgage underwriter do?

An underwriter determines what rates to offer you and loan approval is contingent on the underwriter's decision.

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Elissa SuhSenior Editor & Disability Insurance ExpertElissa Suh is a disability insurance expert and a former senior editor at Policygenius, where she also covered wills, trusts, and advance planning. Her work has appeared in MarketWatch, CNBC, PBS, Inverse, The Philadelphia Inquirer, and more.

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Key takeaways

  • Underwriting is necessary for getting mortgage approval

  • Underwriters evaluate the borrower’s financials, like credit score, income, and debt, to see how much of a risk they pose to the mortgage lender

  • They also appraise the property, and check the title to ensure no one else can legally claim the property

  • To ensure a smooth underwriting process, know your financials ahead of time and provide all loan documents

Buying a home is a costly purchase that usually requires a mortgage. But why would a lender ever let someone borrow such a large amount of money? That’s where underwriting comes in. During the mortgage underwriting process, the mortgage company evaluates your financial standing as well as the property you’re buying with the help of professionals called underwriters.

What happens during the underwriting process?

Underwriting is one facet of the mortgage process.

Many people get preapproved for a mortgage, which is just an estimate of what the bank is willing to lend you. Afterall, you may end up choosing to buy a house that’s more or less expensive than the estimated loan included in the preapproval letter.

Once you put in a purchase offer on the home and the seller accepts, you’ll reach out to your mortgage broker who gives you the loan estimate — including the monthly mortgage payment, interest rate, and closing costs.

Next you’ll provide your loan officer with all the necessary paperwork — like, paystubs, tax returns, bank statements, and more — and then the underwriter will get to work.

The lender wants to know that you can repay the loan, so the underwriter will assess your financial situation and ability to do so. It’s the underwriter’s job to do all of the following:

Check your credit score

Lenders, including mortgage lenders, use your credit score to measure your creditworthiness. Many mortgage lenders use the underwriting guidelines set by Fannie Mae or Freddie Mac, which specify a qualifying minimum score or range.

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The underwriter will also look at your credit history for any derogatory marks. If they see that you’ve recently experienced foreclosure, then they’ll likely deny your application.

Learn more about the highest credit score and how to get it.

Verify income and debt

Do you make enough money to afford the house? The underwriter will verify your income with your employer and look at your tax returns. They’ll also take a look at how much debt you have and calculate the debt-to-income ratio, which simply measures how much money you make versus how much debt you owe.

The underwriter will also check to see that you have enough money for a down payment. If someone else is helping you pay for it, they’ll examine and verify your gift letter.

Appraise the property value

The lender wants to make sure the home you’re buying isn’t being sold at an inflated price. They will hire a professional to appraise the home, which you’ll have to pay for, to find out what it’s worth.

The underwriter will take the appraised market value and compare it to your loan amount to calculate the loan-to-value ratio. The loan-to-value ratio measures the size of your loan against the value of the house. If you have a $400,000 loan on a $500,000 house, then your LTV ratio is 80%. Mortgage lenders want to see a lower LTV ratio. Making a bigger down payment will lower your LTV ratio, as would buying a cheaper house.

Learn more about down payments on a home and how they affect your LTV.

The mortgage underwriter will check the property’s title to see if there are any existing liens or ownership issues with the house. A title search could reveal that there is a tax lien on the home because the seller didn’t pay property taxes or any other types of taxes, or that the seller doesn’t own the home to begin with.

How long does it take an underwriter to approve a mortgage?

You can get mortgage approval in a few days — but the underwriting process can take longer, up to a few weeks, if you’re missing paperwork or made errors when filling out your loan documents.

How long it takes also depends on how the mortgage application is being processed. In automated underwriting, a computer will evaluate your risk using by using basic personal data like your Social Security number and address.

When a borrower doesn’t have a huge paper trail regarding their finances — maybe they are a younger borrower or have experienced identity theft — the underwriting process may have to be done manually. In manual underwriting, the underwriter will have to dig deeper and look into the details by themselves without the help of electronic underwriting systems.

In mortgage lending, it’s not uncommon for the underwriter to use both methods with evaluating a borrower.

Will the underwriter approve my mortgage loan?

After the underwriting process has concluded, the lender will decide on one of the following regarding your loan application:

  • Approved. Congratulations! You’re on your way to owning a home.

  • Approved with conditions. It’s common to get conditional mortgage approval that’s contingent upon one extra thing, like disclosing the source of a large bank deposit.

  • Suspended. Underwriting is put on pause, usually due to missing loan documents.

  • Denied. The mortgage lender does not approve your loan application.

Read more about the different steps to buying a home.

What to do if your loan application is denied

When the lender does not approve your mortgage loan application, they will typically tell you why — if they don’t, you should ask. Knowing why you were denied can help you take the necessary steps to get approved in the future.

For example, if you were denied because of a high debt-to-income ratio, you can take time to pay down your debts. If you were denied because of inconsistent income history, then you might wait until you get a steady job. Borrowers with low income or a subpar credit score might consider an FHA loan, a government-insured mortgage that has lower barriers to entry.

Learn more about FHA loans here.

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