What Is Mortgage Underwriting? What Are The Stages? How Long Does It Take?

If you’re planning to buy a home and need to take out a loan, or refinancing an existing loan, you will have to find a lender. That lender will require that you provide certain documents along with your loan application before going through a mortgage underwriting process, which determines whether your loan application will be approved. The actual underwriting is done by a mortgage underwriting specialist that either works in-house with the lender or by an outside company. Knowing what the mortgage underwriting process entails will help you to better prepare for it, and potentially give you a better chance of qualifying for the loan.

Why Do Lenders Require This Process?

Lenders take on a risk whenever they provide a loan to a homebuyer. Mortgage loans are some of the biggest loans that you can take out, and if the borrower can’t make their payments and defaults on the loan, the lender will have to foreclose on the property. This entire process is time-consuming and can be expensive. The lender will have to put the house up for auction and use the proceeds to cover the balance left on the loan. However, there’s no guarantee that the lender will make back what was borrowed–especially if the house went down in value. If this happens, the lender could lose money.

Because of this very real possibility, lenders perform a mortgage underwriting process to determine exactly how big of a risk the borrower is of potentially defaulting. This process involves looking into the financial history of the borrower as well as their current financial situation.  


What Do Underwriters Check For?

Underwriters will check three main things during the underwriting process on behalf of the lender to determine whether you are a risk or not. These things include your credit reputation, your capacity, and your collateral. 

Credit Reputation

The underwriter will obtain a credit report, which will provide them with information pertaining to your creditworthiness. Your credit report states your credit score, which paints an overall picture of your financial responsibility and situation. The higher your credit score is, the less of a risk you’ll be considered. They will also use your credit report to identify debts, late payments, non payments, collections, foreclosures, and bankruptcies. This allows lenders to predict whether you will have issues paying your mortgage on time and/or in full. 


Your capacity refers to how capable you are of making your monthly mortgage payments on time and in full. The underwriter will look into a variety of factors that determine your capacity, including:

  • Your employment history – Most lenders require that you have stable employment and that you have been working for the same employer or in the same line of work for at least two years.
  • Your income – Your income must be able to comfortably cover the mortgage payments.
  • Your debt – It doesn’t matter how much you make if your debt far exceeds your income. Lenders will look at your debt-to-income ratio, which generally can’t be more than 43 percent.
  • Your accounts – Lenders will review certain assets in your name, such as savings accounts, checking accounts, 401(k) accounts, and more. The more assets you have, the more capable you are of paying your mortgage even if you lose your job or become ill. 


The house itself will act as the collateral for the loan. If you don’t pay your mortgage, the lender will have the right to take your home as collateral and sell it to recover the money they lent to you. The loan amount needs to meet the loan-to-value (LTV) requirements. If it doesn’t, the lender could lose the unpaid balance of the loan should the borrower default. As a result, they will require an appraisal of the house you’re taking a loan out for. The type of house you purchase will have an effect as well–investment property loans tend to be riskier for lenders to approve than primary residence loans.

Steps Involved

Mortgage underwriting consists of the following five steps:

Verification: Get Pre-Qualified

The first step involves verifying that the information on your application is accurate. To do this, the underwriter may require certain documents, such as tax returns and pay stubs. They will also contact your employer to make sure that you work where you say you work. If you’re self-employed, you will likely need to provide additional documents to prove your income.


The underwriter will have an independent appraisal done of the proposed property to determine its value. They want to make sure that the loan doesn’t exceed the value of the property. If it does, the lender is likely to lose money if you default. The appraisal will be based on the condition of the house (determined by a physical inspection) and by comparing it to similar properties that have recently sold within the same neighborhood. 

Title Search And Title Insurance

A title company will need to look at the legal history of the property in question. The last thing a lender will want to do is lend you money to buy a house that’s not even owned by the seller. The title company will  make sure the seller owns the house outright and that no one else has a claim on it. They will also look for any existing liens, mortgages, easement rights, unpaid taxes, zoning ordinances, restrictive covenants, and pending legal action concerning the property. A title insurance policy will then be issued to back up the accuracy of the title search to protect both the lender and the borrower. 

Flood Certification

Lenders require borrowers to purchase homeowner’s insurance; however, regular homeowner’s insurance does not include flood insurance. Lenders will hire specialists to analyze the property to determine whether it’s vulnerable to flooding. If it is, you will be required to add a flood insurance rider to your homeowner’s insurance policy.


The last step involves having a survey performed of the property to determine exactly where the boundaries are so that you know exactly what land is being purchased. 


Practical Tips During This Process

There are a number of things you should do (or not do) during the mortgage underwriting process to make sure that everything goes as quickly and smoothly as possible, including the following:

  • Be honest when filling out your application – If you fudge the facts or leave out important information, it will only delay the underwriting process since you won’t be approved without certain information. You’re less likely to be approved if you lie on your application since the lender is less likely to trust you.
  • Keep your credit score intact – Your credit score will be checked in the beginning and end of the process, so don’t do anything that can affect your score negatively. Avoid opening up new lines of credit and using your credit cards for major purchases.
  • Avoid major life changes – Because the underwriter is checking your employment history and income, do not quit your job or change jobs during this time. Even changing banks during this time can be problematic.
  • Provide information that’s requested ASAP – If the underwriter requests additional documents or information, respond as quickly as possible.  A slow response will only delay the process.
  • Be proactive – Tell your employer that the underwriter may be contacting them. Don’t just assume the underwriter is going as quickly as possible. They may be busy so periodically check in with your lender to check the status of your application. Keep a record of your conversations with your lender as well. 


What Happens If You Are Not Approved For Underwriting?

If you’re working with a good lender, they should let you know what to expect before the application process. This means that if you’re not approved, it shouldn’t come as a surprise. Ask the lender why you were turned down. Just because you were turned down this time doesn’t mean you can’t reapply later. For example, if you had too much debt, you may need to work on paying down your debt. Once your debt-to-income ratio improves, you may be more likely to qualify. Additionally, if you were declined as a result of poor credit, you might be able to find a different lender with less strict credit score requirements. 

Period Before Reapplication

When a loan is turned down, many times its conditional. If you are able to meet the conditions, you can reverse the decline. It’s best to exhaust all avenues before reapplying with a different lender. Most all lenders sell their loans on the secondary market and will have similar conditions.  

Does This Affect Your Credit Score?

Being declined won’t hurt your score, but the credit inquiry that underwriters make to view your credit history will. It will only knock your score down by about five points, but if too many hard inquiries are made into your credit history within a short period of time, it could affect your credit score more. It’s generally recommended that you wait between 30 and 45 days to reapply for a loan of any kind. 

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