Underwriting 101: The Basics of Mortgage Underwriting

Cardinal Financial January 27, 2021 | 5 min read
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Let’s explore what an underwriter does, and why this step is critical for your home loan.

What the heck is an underwriter? For many people, underwriting is just one of those terms that you hear a lot, but you’re not quite sure what it means. And even if you’ve never heard the word “underwriting” in your life, it’s not exactly self-explanatory, but that’s why we’re here to teach you the basics of mortgage underwriting.

The first thing you need to know? Underwriters don’t write anything! Who knew!

There’s a lot more to learn, so here, in this very blog, we’ll explain an underwriter’s job and the underwriting process. Are you confused yet? Good. Let’s get started.

Lesson 1: An introduction to underwriting

Good news! Despite having nothing to do with actual writing, the concept of underwriting isn’t too challenging to grasp. Basically, underwriting is the process of a lender verifying your income, assets, credit history, debt, and property details to determine if you are approved for your loan.

Now, as you can probably tell, this isn’t the most exciting part of the mortgage process, so underwriting typically happens behind the scenes and the time it takes an underwriter to review can vary depending on the complexity of your financial history, how soon you submit the required documentation, and mortgage industry volumes.

Underwriting is the process of a lender verifying your income, assets, credit history, debt, and property details to determine if you are approved for your loan.

Lesson 2: What underwriters do

The underwriting process typically starts after your application is submitted, and your loan is locked.

While your future home is getting appraised, underwriters take a close look at your financial background and determine how much of a risk your lender will be taking on if they choose to give you a loan. This might sound a little scary, but the process helps both sides.

Ensuring borrowers can pay back their loans protects the borrowers from taking on too much debt and the lender from taking on unnecessary risks.

While evaluating your financial situation, underwriters:

  • Check your credit history
  • Order an appraisal
  • Verify your income and employment history
  • Check your debt-to-income ratio (DTI)
  • Comb through your financials to ensure that the down payment you’ve agreed to is manageable

While your loan is going through underwriting, it’s a good idea to stay in contact with your lender and not make any major decisions or purchases that will impact your financial picture.

What Are Lenders Looking For On My Credit Report?

Lesson 3: After the underwriter’s decision

The underwriting process concludes with one of three outcomes: final approval, conditional approval, and denial. Obviously, approval is the best outcome here. When your loan has “final approval,” you’re finished with processing and free to move on to closing. That means you’re one step closer to completing the loan process.

Conditional approval happens when you’ve submitted all of the required documentation, and it looks good for the most part, but the underwriter wants you to take care of a few more things before final approval.

You may need to submit additional documents such as a letter of explanation, gift letters, or tax documentation to clear some things up for the underwriter.

If a conditional approval is issued, there probably aren’t any major red flags standing in the way of your final approval.

Denial isn’t the outcome we want to see, but it doesn’t mean you can never be a homeowner. Mortgage loans can be denied for a number of reasons, but a few of the most common are low appraisals, lack of down payment and closing funds, a high DTI, and low credit scores. All of which can be corrected.

Talk with your loan originator to discuss your options. If you get denied, consider it a minor setback and take the initiative to save more money for a down payment and fix your credit. You can also look into home loan assistance if low income is what’s holding you back.

Reviewing the lessons

Let’s recap what we learned in Underwriting 101?

Underwriting is the process of your lender verifying your financial situation and double-checking to make sure your mortgage can be approved.

Underwriters don’t write, but they do check your income, assets, credit history, debt, property details, and your loan amount to evaluate the risk in giving you a mortgage.

The time it takes to underwrite your loan can vary, but being prepared and having your paperwork submitted as quickly as possible can go a long way in speeding up the process.

The underwriting process can result in your mortgage being final approved, conditionally approved, or denied.

You see? Underwriting isn’t as confusing as you’d think! If you’re looking for a lender with an efficient underwriting process that gives you the ability to keep an eye on your loan throughout the entire process, you’ve come to the right place. Contact us today to get started with our simple and transparent mortgage process.

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