A Guide to the Mortgage Underwriting Process

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If you want to purchase a home by taking out a mortgage, you will have to go through the mortgage underwriting process. Mortgage underwriting is used by lenders to review a borrower’s loan application and determine what risk the lender faces if they were to lend money to this borrower to purchase a home.

What You Should Know

  • Mortgage underwriting is the process lenders use to determine if a borrower qualifies for a loan or not
  • The mortgage underwriter will review your application and documents to assess how likely you are to pay back the mortgage based on your income, assets and credit history
  • The mortgage underwriting process can last a few days or a few weeks depending on your financial circumstances, your application, the loan type, delays in intermediate processes, and demand for mortgages

What is Mortgage Underwriting?

Mortgage underwriting is the process that determines whether you are eligible for a loan or not. Once you submit your mortgage application and all of your documents, the lender needs to review these documents and assess the risk that you present as a buyer given your specific financial situation, your sources of income, assets, etc. In other words, they need to assess how likely you are to pay back the loan. If the mortgage underwriting process classifies you as too risky of a borrower, then your loan application may be denied.

The process of mortgage underwriting can be automated or manual. With automated underwriting, a software is used by the lender to review the borrower’s loan application and make a decision of whether they are eligible for a loan. Automated underwriting makes it easier and faster to process large volumes of loan applications. However, some borrowers have unique financial circumstances, where a real person, in this case, the underwriter, would be needed to determine the credibility of the borrower. An example of this would be if the person has an inconsistent stream of income.

A Step-By-Step Guide to Mortgage Underwriting


The process of mortgage underwriting can be broken down in 5 steps.

  1. Get pre-approved for a mortgage

    Before you even start looking for a house, it is a good idea to get pre-approved for a mortgage. The mortgage pre-approval will assess your financial situation and give you an estimate of the amount of funds that you will be able to borrow when you officially apply for a mortgage. A mortgage pre-approval is an important asset when searching for a house. It shows sellers that you are a serious buyer who will most likely be able to obtain financing when the time comes.

    To get pre-approved, you will basically need to apply for a loan and submit the required documents. Most of these documents will be needed to prove your identity, income and assets. These may include:

    • Government ID
    • Employment verification
    • Bank statements
    • Credit history
    • Pay stubs
    • Income tax returns
    • Investment accounts
  2. Verifying income and assets

    Your application and documents will then be reviewed by a mortgage underwriter to determine your credibility as a buyer. To do this, the mortgage underwriter will look at a number of factors and how you “score” as a borrower in these areas. Some of these include:

    • Assets - One of the aspects a mortgage underwriter will look at when reviewing your loan application are your assets. When taking out a mortgage, not only will you need to make regular payments to the lender, but you will also have to pay a large sum upfront in down payment, closing costs and other fees associated with purchasing a house. To do this, the borrower will have to prove that they have enough liquid assets to afford paying these costs.

    • Employment History - By reviewing your employment history, a lender will be able to see how long you have stayed in a position or with a company. This is important because it can indicate how consistent your income will be. Lenders prefer borrowers who have worked in a position or company for at least two years.

    • Income - Another important aspect of your loan application will be your sources of income. The mortgage underwriter will need to assess if you can make your monthly mortgage payments as well as cover your other debt obligations with your sources of income. The Debt-to-Income ratio is an important tool in measuring this. Lenders prefer borrowers with a DTI ratio less than 36%.

    • Credit History - The mortgage underwriter will also have to look at whether you have been able to pay back your debt obligations in the past, accurately and in a timely manner. This will show them how reliable you are as a borrower in making your mortgage payments. To assess your reliability, lenders will perform a hard credit inquiry from one of the three big credit bureaus. They will review your credit score, the age of your accounts, the number of your accounts, the types of credits and the amounts that you have already borrowed against your total available credit.

      Based on these, the mortgage underwriter will make a decision on whether the borrower is creditworthy enough or not.

  3. Wait for the house appraisal

    Once you have found a house and the seller has accepted your offer, the lender will need to perform an appraisal on the property. The appraisal will determine the value of the property. This value will be compared to the sale price of the house. The lender will not agree to lend you the full amount of the purchase price if this is higher than what the house is worth. This is because the lender will need to be certain that in the case you default on your loan, they will be able to recover the amount by selling the house. The lender may agree to lend you if you can cover the difference between the value of the house and the purchase price in addition to the down payment required.

  4. Wait for the title search and buy title insurance

    The lender will require a title search to be conducted on the property. The title search protects you and the lender from properties that have liens. If the property has any third-party ownership claims, then the lender will not approve your mortgage for that property. This is because in the case that you default on your mortgage, the lender will have to sell the property in order to recover the money that they lent you, which is difficult to do if someone else has an ownership interest in it.

    You will also need to purchase title insurance to protect the lender from future claims, in the case that the title search conducted initially was inaccurate. An optional insurance property to protect yourself from these third-party claims is the owner’s title insurance.

  5. Underwriting decision

    Once all the aforementioned steps have been conducted successfully, the mortgage underwriter will make a final decision on your mortgage application for a specific property. They will either approve, deny or suspend your mortgage loan application.

    Approved: This means that your mortgage loan application has been approved and the lender has agreed to provide you financing. The title search came back clear and the documents provided were sufficient to prove your creditworthiness. The next step would be to set a closing date and sign all the paperwork.

    Approved with conditions: This status shows that your loan application will be approved once the additional documentation required is received. This can include more pay stubs, marriage certificates, tax forms, mortgage insurance , etc.

    Suspended: The status “suspended” means that there is missing documentation in your application. Without the full documentation required, the mortgage underwriter cannot make a final decision on your mortgage loan application. An example of this can be when the underwriter cannot verify your employment.

    Denied: You are not qualified to receive financing through a mortgage right now. In order to improve your chances of being approved next time, make sure to identify the reason why your application was denied. It may have been denied because you have too much debt, a low credit score, low down payment or for many other possible reasons.

How Long Does the Process of Underwriting Take?

The process of mortgage underwriting can take any time between a few days and a few weeks. Exactly how long it will take will depend on certain factors, such as:

  • The completeness of your application - If your mortgage loan application is missing documentation, then the underwriter will not be able to assess certain aspects of your creditworthiness. Some back-and-forth communication will take place in order to receive those documents which may delay the underwriting process.

  • Your financial situation - If your loan application presents unique financial circumstances, then the mortgage underwriter may require more time to review your documents and application.

  • Loan type - Loans with stricter financial requirements may require more time to process than regular conventional mortgages. Government-backed loans such as FHA loans, VA loans and USDA loans are examples of these. If you choose a loan with a more complex structure, such as Portfolio Loans, you may have to wait for even longer for the lender to conduct a thorough risk assessment.

  • Appraisal and title search - If there are delays in the process of home appraisal or the title search, then the whole mortgage underwriting process will be delayed. This is because the lender cannot approve your loan application without completing these two first.

  • Market Demand - If you are applying for a mortgage at a time where there’s a lot of demand for housing, then the underwriting process may be longer than usual since the lender is receiving a large volume of mortgage loan applications.

8 Tips for a Smooth Underwriting Process

It is useful to take a number of steps beforehand if you are looking to increase your chances of approval as well as to make the underwriting process as quick as possible.

  1. Organize your documents - Learning about which documents you will have to submit and starting to gather them prior to applying for a mortgage is useful in making the process faster. This way you will ensure that nothing is missing from your mortgage loan application and the underwriter will not have to constantly contact you to ask for additional information.

  2. Review your credit report - You can get a credit report for free on the websites of the 3 big credit bureaus. It is useful to check if there are any errors that need fixing on your credit report before applying for a mortgage. If you do find errors, you should contact the agency directly as these may negatively impact your credit score.

  3. Review your finances - Take a look at your income and your monthly debt obligations beforehand. These obligations can include car loan payments, student loan payments, credit card bills, etc. Would your current monthly income cover your monthly debt if you were to also add a mortgage payment?

  4. Get pre-qualified - Pre-qualification is an easier process than mortgage pre-approval that you can conduct in the very beginning of your home buying process. This will help you have a rough estimate of the amount you will be able to borrow and to also check if your finances are on the right track.

  5. Respond quickly to lender’s requests - At any time during the mortgage underwriting process, the underwriter may need additional documentation or clarification on existing ones. You will need to be ready to quickly respond to their requests in order to make the process faster.

  6. Don’t take on new debt - It is important that you do not take on new debt while your mortgage loan application is being reviewed. This will make the process more complicated as your credit score and DTI ratio will be impacted by this change.

  7. Save for a larger down payment - If you are unsure whether you will be able to qualify for a mortgage with the down payment you can currently afford, then it may be a good idea to wait and save some more money before applying for a mortgage.

How strict are underwriting rules?

The mortgage underwriter will assess the borrower’s creditworthiness against the criteria for the specific mortgage the borrower is applying for. Conventional loans follow the criteria set by Freddie Mac or Fannie Mae, while government-backed mortgages follow ones set by government departments such as the Federal Housing Administration, the Department of Veterans Affairs or the U.S. Department of Agriculture.

There may also be differences from lender to lender on the requirements that they set for the loans they offer. For example, lenders may differ in the DTI ratio, LTV ratio or credit score that they require.

Mortgage Underwriting - FAQ

What happens if your mortgage application is rejected?

If you are rejected for the mortgage you applied for, the first step to take is to find out why your application got denied. This way you can learn on what to improve so that you qualify next time. Your credit report will show that you applied for a mortgage, however, it won’t show whether you were approved or not.

How does a mortgage affect your credit score?

When you first apply for a mortgage, the lender will need to check your credit which will trigger a hard credit inquiry. A hard credit inquiry typically lowers your credit score temporarily. However, in the long term, if you make your mortgage payments on time, then your credit score will increase.

How to become a mortgage underwriter?

To become a mortgage underwriter, you would typically need to have a college degree and training in mortgage underwriting. Most mortgage underwriters have a bachelor’s degree in either business or finance.

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