What Is Underwriting?

Mortgage underwriters are the fact-checkers of the home loan approval process, ensuring that the financial picture you portrayed in your application and the documentation you provided are accurate. The loan underwriting process not only assesses your creditworthiness and ability to repay a mortgage, but it also verifies that you and the property meet all requirements of the loan program. Basically, underwriting is the final yes or no decision. Although mortgage underwriters don’t have a lot of wiggle room with approval criteria, the more information you can provide to show you’re creditworthy, the better.

“If you are looking to buy a house, you need to be forthcoming and candid about your financial picture because you are really building a story,” says Joe Thweatt, branch manager at Axia Home Loans in Austin, Texas.

Here’s more about what you can expect from the mortgage underwriting process.

[Read: Best Mortgage Lenders.]

What Is Underwriting?

Underwriting is a mortgage lender’s process of evaluating the risk of borrower default. Underwriting begins after your application is accepted.

What Is an Underwriter?

An underwriter is a person who analyzes your credit and financial information, as well as the value of the home you’re hoping to buy, to decide whether to approve your loan. Your loan application and documentation will be reviewed to ensure its accuracy.

“Regardless of whether a loan is for $100,000 or $10 million, the question centers around the ability to repay it,” Thweatt says. “An underwriter verifies documentation like tax returns, pay stubs and W-2s. We have to answer the question, ‘How will the borrower repay that loan?'”

What Is the Underwriting Process?

If you’re wondering what happens in underwriting, underwriters determine the risk of lending by looking at the three C’s: credit, capacity and collateral.

Credit: Your credit history is an important influence on a lender’s decision because it shows how you’ve handled credit in the past. In addition to your credit score, an underwriter will look at your credit report for any negative information, such as bankruptcy or foreclosure.

Capacity: Even if your credit is stellar, an underwriter wants to know about your ability to make your monthly payments. That depends on your income and debt.

“They’re looking at what (your) capacity is to service this additional debt,” Thweatt says.

The underwriter considers what happens after you close and have a mortgage payment to maintain. “We never want to put borrowers in a position in which they will not succeed,” he says.

Underwriters also consider factors such as how many people are on the loan, how much cash you’ll have in reserve after covering the down payment and closing costs, and whether you receive a salary or are self-employed.

Collateral: This refers to the home itself — the property that is acting as collateral in your mortgage loan. A lender wants to make sure the home you’re buying meets its standards. Some loan programs may require that the property satisfies certain safety conditions and that the loan amount doesn’t exceed program maximums.

Also, lenders require that you have an appraisal done on the home because they want to ensure that appraised home values are enough to recoup their costs in case of default. A lender also considers the size of your down payment, the type of property and whether the mortgage is for a primary residence, a second house or an investment property.

Finally, lenders will request a title search on the property to determine who legally owns the property and whether there are any other claims. If the seller doesn’t have the legal right to sell you the property, it may be a nonstarter for the lender.

[Read: Best Mortgage Refinance Lenders.]

Is Underwriting Automated or Manual?

In most cases, mortgage applications are submitted electronically to an automated underwriting system, such as the Fannie Mae Desktop Underwriter. This automated process analyzes the information you shared on your application to determine your loan eligibility.

“All loans are run through an automated underwriting system that makes sure whatever the system asks for is adequate,” says Scott Hastings, owner of Mortgages by Scott in Davidson, North Carolina. “It either meets the guidelines or not.”

If an automated system sends a red flag, then the process moves to manual. “When we talk about manual underwriting, that is because it failed the automated underwriting and now the requirements get much stricter,” Hastings says.

In those instances, underwriters provide a human touch to mortgage applications. They’ll take the information you shared in your application and the analysis from the automated system to determine your eligibility.

How Long Does Loan Underwriting Take?

The length of the underwriting process can vary based on the underwriter, application volume and complexity. That said, you can expect it to take anywhere from two days to more than a week.

You can anticipate longer waits when mortgage interest rates are low and people rush to refinance. Delays can also occur during the spring and summer, when more people buy homes.

Sometimes underwriters might request additional documents if they need more information to make a decision. That can prolong the process as well. Approval also takes longer for borrowers who are self-employed.

How Often Does an Underwriter Deny a Loan?

An underwriter can deny your loan if you don’t meet the eligibility requirements. According to data provided by lenders under the Home Mortgage Disclosure Act, 9.3% of home-purchase mortgage applications were denied in 2020. Here’s how the denial rates break down for each loan type:

Conventional loans: 7.6%.

VA loans: 8.6%.

USDA loans: 10.3%.

Jumbo loans: 11%.

FHA loans: 14.1%.

Mortgage underwriters can make one of four decisions about your loan application: conditionally approve, suspend, counteroffer or decline.

Conditional Approval

Conditional approval means you must meet certain conditions to ensure final approval: generally, maintaining your credit, capacity and collateral. Loan underwriters can’t guarantee that your loan will be approved when you close on your home because a lot can happen in the meantime.

If you take out another loan, for example, it could affect your debt-to-income ratio. Or if you miss a payment on a loan you already have, your credit score could drop.

“I’ve had borrowers go out and, even though we advised them not to, buy a nice BMW or purchase another home that they didn’t disclose. And we found out about it, and that affected their eligibility,” Thweatt says.

Those three C’s will be reassessed shortly before you close on your home.


In this scenario, the underwriter doesn’t have enough information to approve your application.

“Instead of declining a loan, an underwriter might request more information to make a decision of yes or no,” Thweatt says.

You can prevent a suspended application by presenting a full application and verifying with your loan officer that you have all the necessary documents for underwriting.


Counteroffer situations are rare, Thweatt says, but happen when you can’t qualify for a loan without making some type of adjustment.

You may be asked to put more money down or to change loan programs. A borrower might not qualify for a Federal Housing Administration loan but be a good fit for a conventional loan, for example.

“Or you could start out trying for a conventional loan and maybe something comes up on your credit and FHA is more lenient,” Thweatt says.


This decision is straightforward: You don’t meet the lender’s criteria for a home loan, but you could still qualify for a different type of mortgage or with another lender.

Rejections aren’t common, Hastings says, estimating that in 2020 his company denied about 2% of loan applications.

[Read: Best FHA Loans.]

How to Get Through Underwriting Quickly

You can go into underwriting ready for success by taking these steps:

Complete every document. Resist the temptation to speed through the documentation; be methodical with it. A missing signature, figure or document could derail underwriting.

Tell the truth. Avoid fudging the numbers on your application. Underwriting is fact-checking, so the truth will come out — and lying could result in an immediate denial or even legal trouble.

Address potential concerns. Buying a home can be an emotional experience, and the excitement of having your own place can make the wait hard. But if you think that you might benefit from improving your credit score, paying off debt or saving for a bigger down payment, do it. You could qualify for a bigger loan or better terms if you take some time to work on your financial position before you apply.

Work with a pro. A mortgage banker or broker can help if you think you might have a tough time with approval. This could be the case if you’re self-employed, especially as mortgage lenders have tightened credit standards during the coronavirus pandemic, Hastings says. “The underwriting has gotten a lot stricter,” he says, noting that self-employed borrowers must show business activity within 20 days of closing a loan. “Call a mortgage banker, someone you can go in and see.”

More from U.S. News

7 Ways to Pay Off Your Mortgage Years Earlier

How Soon Can I Refinance My Mortgage?

Which Type of Mortgage Is Best For You?

What Is Underwriting? originally appeared on usnews.com

Update 03/22/22:

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