The Role of Mortgage Underwriter in the Home Loan Process

In this guide, we will cover the role of a mortgage underwriter during the home loan approval process. The role of a mortgage underwriter is to underwrite the borrower’s file and make sure they qualify for a home mortgage.  Tanhia Romero, NMLS 489760, a senior mortgage loan originator at Gustan Cho Associates, says the following:

Fannie Mae defines underwriting as taking a comprehensive view of the borrower’s credit and employment history, income, assets and reserves, and other financial information. Freddie Mac describes underwriting creditworthiness as the ability to repay the loan and provide appropriate collateral.

The mortgage underwriter is hands down the most important person during the mortgage process. The mortgage underwriter determines whether or not a borrower is approved for a mortgage loan. The mortgage underwriter decides whether or not a borrower qualifies and meets the lending guidelines. In the following paragraphs, we will cover the role of the mortgage underwriter in the home loan approval process.

Mortgage Underwriting During the Loan Process

It is the mortgage underwriter’s role to determine whether the borrower has qualified income and the ability to repay their new housing payment. The underwriter will determine the assets, liabilities, income, credit, derogatory credit tradelines, and other important factors before issuing a conditional home loan approval. There are many other stages of the mortgage process before the file gets to the mortgage underwriter. The mortgage underwriter is the person who will issue the clear-to-close on a file. In the following sections of this article, we will cover the role of mortgage underwriter during the mortgage process.

The Steps in the Mortgage Process

The mortgage approval process has multiple steps. There are many mortgage professionals involved in the mortgage approval process. The first point of contact for borrowers deals with our loan officers. Mortgage Loan Officers are the mortgage professionals who initially qualify borrowers.

Loan officers will interview borrowers, take their mortgage loan applications, run credit, collect mortgage documents, review docs, and run Automated Underwriting System Findings.

Once the loan officer feels that the borrower qualifies for a home loan, the loan officer will issue a pre-approval letter. With a solid pre-approval letter, the borrower can shop for a home and enter into a real estate purchase contract. Once the borrower enters into a real estate purchase contract, the mortgage approval process starts. The homebuyers are assigned to a mortgage processor.

What Mortgage Underwriters Look At Before Giving Loan Approval

Mortgage underwriters assess whether the borrower, property, and mortgage satisfy the criteria for loan approval. For borrowers, underwriters examine credit, income, employment status, debts, assets, and overall financial background. For the mortgage, they review the appraisal, title, insurance, occupancy, and loan terms. Underwriting requires careful review of all details. The underwriter’s main responsibility is to confirm that the file is complete and meets the specific mortgage program’s requirements.

What Does a Mortgage Underwriter Do?

A mortgage underwriter checks if a loan application meets the lender’s and the mortgage program’s rules. They review the applicant’s credit, job, and income stability, and available savings. They also examine the property’s appraisal, title, insurance, occupancy, and loan terms. The underwriter can approve the loan, approve it with conditions, place it on hold to request more information, or deny it. Automated underwriting tools assist the review, but a mortgage professional must still carefully examine all documents.

What Is a Mortgage Underwriter?

A Mortgage Underwriter is a Professional Who Assesses a Borrower’s Likelihood of Repaying a Mortgage and Identifies Any Risks Associated With the Property:

• The borrower has sufficient stable, documented income.
• The borrower can manage the proposed housing payment.
• The borrower has adequate funds for the closing.
• The property is eligible for the selected loan program.
• The loan meets the requirements of both the agency and the lender.
• The documents submitted support the information provided in the application.

Fannie Mae’s underwriting policies consider credit history, recurring income, equity investments, liquid reserves, and combined risk factors. Freddie Mac states that credit, ability to repay, and acceptable collateral are the primary elements of mortgage underwriting.

What Is a Mortgage Underwriter Responsible For?

The underwriter reviews the loan file and documents the reasoning for the underwriting decision.

Based on the Details of the Particular Loan, the Underwriter May:

• Evaluate the credit history of the borrower.
• Compute the borrower’s qualifying income.
• Confirm the borrower’s employment.
• Assess the debt-to-income ratio.
• Verify the down payment and closing funds.
• Verify the financial reserves.
• Review the appraisal.
• Confirm title and insurance (HUD) requirements.
• Verify the occupancy and eligibility of the property.
• Ensure agency and lender requirements are satisfied and underwriting conditions are issued and cleared or suspend, and  deny the loan.
• The underwriter makes a decision based on the documents provided and the official rules.
• They must follow all program and lender policies closely.

What Does a Mortgage Underwriter Not Control?

A Mortgage Underwriter Typically Does Not:

• Set the interest rate for the borrower.
• Negotiate the purchase contract,
• Evaluate property value.
• Assess the structure of the home.
• Select a title company.
• Establish closing guidelines.
• Select a closing date.
• Set the rate of document submissions by third parties.

The information evaluated by underwriters can include the borrower, the borrower’s loan officer, the borrower’s loan processor, the appraiser, the title company, the insurance company, the borrower’s employer, and more.

When Does Mortgage Underwriting Begin?

Mortgage underwriting typically starts with a loan application and pre-approval. Some lenders require a full loan application for underwriting, while others require a purchase contract and supporting documents as part of the pre-underwriting process. Some mortgage options allow for pre-underwriting or full pre-approvals even before a borrower has a purchase agreement. A preapproval is not a promise of financing. Financing may still depend on: – Verification of borrower information. – A satisfactory property. – A satisfactory appraisal. – No liens on the property. – Adequate homeowners insurance. – Final employment verification. – New information on finances and credit. – Compliance and quality control reviews. A mortgage underwriter plays a crucial role in the mortgage loan approval process. Their primary responsibility is to evaluate the risk associated with a loan application by analyzing various factors related to the borrower’s creditworthiness and the financed property. Here are some key roles and responsibilities of a mortgage underwriter. A full preapproval lets the loan officer assess a borrower’s qualifications. However, the loan officer cannot approve a property not yet been selected.

The Loan Officer is Usually the Borrower’s Primary Contact and Will:

• Identify the borrower’s objectives.
• Assist in completing the loan application form.
• Assess and interpret the borrower’s credit.
• Estimate the borrower’s qualifying income.
• Evaluate the borrower’s monthly obligations.
• Identify an appropriate loan program.
• Request the borrower’s initial documentation.
• Conduct an automated underwriting.
• Formally preapprove the borrower.
• Explain the borrower’s estimated loan parameters and closing costs.

Before Submitting a Loan File for Formal Underwriting, the Loan Officer Reviews it for Issues, Assembles Necessary Documents, and Prepares the File:

• The mortgage processor reviews the loan application to identify missing information.
• The mortgage processor collects income and asset documents.
• The mortgage processor requests employment verifications.
• The mortgage processor orders an appraisal.
• The mortgage processor coordinates title and insurance documents.
• The mortgage processor reviews documents and determines whether pages are missing.
• The mortgage processor requests that the borrower provide an explanation for the missing information.
• The mortgage processor reviews the documents and then compares them to the information contained in the loan application.
• The mortgage processor forwards the completed loan application package to underwriting.
• A processor does not make credit decisions; however, submitting a well-organized, complete loan file can reduce underwriting conditions.

Initial Underwriting vs. Underwriting Resubmission

During an initial review of a completed loan application package, an underwriter assesses the borrower, property, and the loan terms. Based on the review, the underwriter provides an opinion and identifies required conditions. The processor collects requested conditions before resubmitting the file. The underwriter reviews the additional documents and decides if conditions are met. Files may be underwritten multiple times; this often means the lender is awaiting additional documentation for a final decision, not that the loan is at risk.

What Does a Mortgage Underwriter Review

They don’t just verify credit scores and pay stubs. Each document must validate the borrower’s qualification.

Credit and Payment History

Reviewing the borrower’s credit report helps the underwriter understand the borrower’s history and how they manage their obligations.

This May Include, But Not Be Limited to, the Following:

• Scores
• Rental payments
• Mortgage payments
• Credit card balances
• Loans: installment, student, auto, etc.
• Collections
• Charge-offs
• Judgments
• Liens: tax, bankruptcy, foreclosure
• Recent credit inquiries
• Disputes
• Accounts as authorized users
• Not all credit scores lead to automatic denial.
• The outcome depends on the mortgage program, automated underwriting results, lender guidelines, and reasons for a low score.
• The underwriter may be looking at recent credit problems and whether they appear to be the result of an isolated event or part of a pattern.

Employment and Income

Income must be stable and likely to continue.

The Underwriter May Also Review:

• Base salary
• Hourly income
• Overtime
• Bonuses
• Commissions
• Part-time
• Seasonal
• Self-employment
• Rental income
• Retirement income
• Social Security income.
• Disability income.
• Alimony or child support.
• Military income.
• Other eligible income sources.

Not all bank account funds qualify as income. Income must meet the documentation and continuity requirements of the mortgage program. The lender must verify income and its likelihood to continue. Freddie Mac also requires documentation and verification of all income sources used for qualification.

Self-Employment Income

Self-employed income can be more complicated than typical income.

The Underwriter May Have to Examine:

• Personal tax returns.
• Business tax returns.
• Year-to-date profit-and-loss statements.
• Business balance sheets.
• Business bank statements.
• K-1 forms.
• Corporate or partnership returns.
• Business ownership percentages.
• Business debts.
• Declining or increasing income.
• Non-cash expenses.

Income used for loan qualification differs from total revenue. Qualifying income usually starts with taxable income, adjusted per loan program guidelines. The underwriter must consider if business withdrawals could harm the business’s financial stability.

Debt-to-Income Ratio

The debt-to-income ratio compares qualifying gross monthly income to qualifying monthly debts.

The Underwriter Will Include:

• The mortgage payment.
• Property taxes.
• Homeowners insurance.
• Mortgage insurance
• Dues for homeowners’ associations
• Minimum payments for credit cards
• Auto loans
• Student loans
• Personal loans
• Payments for alimony
• Payments for child support
• Payments for other real estate
• Other obligations that recur

Fannie Mae requires lenders to analyze the borrower’s other liabilities when assessing the borrower’s ability to make mortgage payments. If a new obligation is found, the lender must re-evaluate the debt-to-income ratio and repeat automated underwriting. For some loans, a high debt-to-income ratio may not pose problems, and the outcome may vary depending on the loan program, credit profile, reserves, payment history, property type, and the results of automated underwriting. Before closing, the underwriter verifies that the borrower has sufficient funds to complete the transaction.

Funds May Be Required to Pay:

• Down payment
• Closing costs
• Expenses to be paid at closing
• Points
• Earnest money
• Reserve requirement

Acceptable funds may consist of: checking, savings, retirement funds, investments, gift funds, grants, and property sale proceeds. The underwriter may make inquiries regarding large deposits to verify sources and generate new obligations. Fannie Mae allows lenders to use different types of documentation to confirm that borrowers have sufficient funds for the down payment, closing costs, and cash reserves. Freddie Mac also requires such documentation for the funds that the borrower, including reserves. Cash kept at home is hard to verify due to lack of records. Borrowers should avoid depositing large cash amounts without documentation during the mortgage process.

Property Appraisal and Collateral

Mortgage approval is both a borrower- and property-level process.

The Underwriter Evaluates the Appraisal to Determine:

• If the collateral is within the appraiser’s guidelines.
•  If the appraised value is within the loan.
• The type of property is appropriate.
• The property meets the program’s requirements.
• Any required repairs have been made.
• Are there any issues with the appraisal that remain unresolved?
• The appraised use and occupancy of the property are aligned with the borrower’s application.
• The underwriter does not set the appraised value.
• A licensed appraiser determines it, and the underwriter reviews the appraisal to ensure it is complete and meets loan guidelines.
• Freddie Mac places a substantial amount of focus on the adequacy of the property and its collateral, in combination with the borrower’s credit and the borrower’s ability to repay the debt.

Title, Homeowners Insurance, and Occupancy

The Underwriter Reviews a Title Commitment or Preliminary Title Report for:

• Who owns the property?
• If there are any liens.
• Judgments.
• Unpaid taxes.
• Easements.
• Legal descriptions.
• Disputes about ownership.
• If any liens need to be released.
• How the property is owned.
• The lender usually needs to ensure their lien is in the correct position on the property.
• The underwriter can also confirm that the homeowner’s insurance meets the lienholder’s requirements.
• Depending on the location, there may also be a requirement for flood insurance.
• Occupancy must also match the application. Requirements can vary based on whether a property is the primary place of residence, a secondary residence, or an investment property.

Loan Terms and Program Eligibility

The underwriter checks that the loan request meets the loan program’s requirements.

This May Also Include Verification of:

• Purpose of the loan
• Type of occupancy
• Amount of loan
• LTV ratio
• Type of property
• Number of units
• Mortgage insurance
• Seller-paid premiums
• Contributions by interested parties
• Source of the borrower’s down payment
• Limits on the borrower
• Length of the loan
• Type of documentation

A borrower may meet loan qualification criteria; however, property characteristics, occupancy type, transaction type, or program rules can make the application ineligible. The automated underwriting system (AUS) reviews lender-provided information and generates findings.

Some Commonly Used Systems Include:

• Fannie Mae’s Desktop Underwriter (DU).
• Freddie Mac’s Loan Product Advisor (LPA).
• FHA’s TOTAL Mortgage Scorecard.
• USDA’s Guaranteed Underwriting System (GUS).
• Other approved systems for VA loans.

What is Reviewed by an Automated Underwriting System?

Automated Underwriting Systems Can Review:

• Credit history and scores
• Income
• Assets
• Monthly debt obligations
• Loan-to-Value (LTV) ratio
• Details about the property
• The purpose of the loan
• Other risk factors

According to Fannie Mae, Desktop Underwriter reviews the borrower’s willingness and capacity to repay the loan by considering credit, income, reserves, equity, and other risk factors.

Why Automated Approval is Not Final Approval

AUS-generated recommendations are based on data input into the system. The AUS-generated recommendations are based on data input into the system. They do not check for missing or incorrect data.

The Loan: 

• Required disclosures
• Supporting documentation

For example, an automated approval may be rendered invalid if an underwriter discovers an undisclosed debt, lower qualifying income, insufficient closing funds, or an ineligible property.

When Is Manual Underwriting Necessary?

Manual Underwriting is Necessary When:

• The automated system provides a referral.
• The loan is ineligible for automated underwriting.
• The borrower has constrained traditional credit.
• Program rules dictate a manual review.
• Significant details cannot be processed by the automated system.
• The loan is required to be downgraded due to specific credit or documentation problems.

Manual underwriting does not mean automatic loan denial. It requires a qualified underwriter to review the file and apply the program rules to determine whether approval is possible.

These Can Include:

• Verified reserves.
• Little or no increase in housing payment.
• Permanent employment.
• Limited credit use.
• Good savings record.
• Low debt-to-income ratio.
• Residual income above the necessary amount.
• Extra income that is documented but not considered for qualification.

While manual underwriting rules may allow for some flexibility, mandatory program requirements must still be fulfilled. How Underwriters Apply Different Mortgage Guidelines The process of underwriting varies by mortgage program. FHA, VA, USDA, Fannie Mae, and Freddie Mac guidelines differ in many respects.

FHA Mortgage Underwriting Guidelines

FHA loans are required to comply with the guidelines outlined in HUD’s Single Family Housing Policy, 4000.1, and related Mortgagee Letters.

An FHA Underwriter May Review:

• Credit history.
• Actual income.
• Job stability.
• Monthly obligation.
• Closing cost assist.
• Required liquid reserves.
• FHA valuation.
• Property type criteria.
• Use of residence.
• Contributions from interested parties.
• Manual or automated underwriting standards.
• HUD refers to Handbook 4000.1 for all policies regarding FHA Single Family Housing.

VA Mortgage Underwriting Standards

For VA underwriting, the factors include the borrower’s credit, stable income, debt, residual income, assets, occupation, entitlement, and the subject property.

• There is no VA universal minimum credit score requirement for the guaranty program.
• Individual lenders may have credit score requirements or credit overlays.
• Residual income is a principal element of VA underwriting.
• It is the income remaining after the payment of monthly obligations, including estimated essential expenses.

Compensation Factors on VA Loans

VA also recognizes compensating factors such as residual income, substantial liquid assets, stable employment of long duration, a low debt-to-income ratio, and a minimal payment shock. For certain lenders who use automatic VA underwriting authority, the credit underwriting decision must be made by a VA-approved credit underwriter.

Conventional Mortgage Underwriting Standards

The majority of conventional conforming loans are underwritten to either Fannie Mae or Freddie Mac standards.

The Lender is Permitted to Utilize:

• Fannie Mae Desktop Underwriter.
• Freddie Mac Loan Product Advisor.
• Discretionary manual underwriting.

Underwriting on Conventional Loans

Conventional underwriting may cover credit, income, assets, liabilities, reserves, loan-to-value ratio, use, property type, and mortgage insurance. Approval is based on overall risk assessment. Meeting a single criterion, like the maximum debt-to-income ratio, does not guarantee approval.

USDA Mortgage Underwriting Guidelines

USDA-backed loans are typically considered under the Single Family Housing Guaranteed Loan Program.

An Underwriter Has the Discretion to Consider:

• Eligibility of household income.
• Repayment income.
• Credit history.
• Debt ratios.
• Assets.
• Location of the property.
• Eligibility of the property.
• The intended occupancy.
• The findings of GUS (Genicity Underwriting System) in automated mode.
• Manual underwriting specifications, if required.
• USDA’s HB-1-3555 offers guidance to lenders on the specifications required to originate, underwrite, and service guaranteed loans.

Difference Between Agency Guidelines and Lender Overlays

Agency guidelines are the documented criteria established by the FHA, VA, USDA, and Fannie Mae and Freddie Mac. Lender overlays are extra criteria established by individual lenders.

Possible Overlays May Be:

• An elevated minimum credit score.
• A reduced maximum debt-to-income ratio.
• Increased requirement for reserves.
• Limitations after bankruptcy or foreclosure.
• Restrictions on manual underwriting.
• Increased employment history requirements.
• Limitations on property types.

A borrower may satisfy agency guidelines but not a particular lender’s additional requirements. While this does not guarantee approval with another lender, a different institution with alternative criteria may consider the application.

Likely Outcomes from Mortgage Underwriting

While the specific terminology for mortgage underwriting outcomes varies among lenders, these outcomes typically fall within a small, general set of classifications.

Approved or Approved With Conditions

An outcome of approved indicates that the submission is believed to satisfy the pertinent criteria based on the review conducted. It is common for mortgage approvals to be granted conditionally. These conditions must be met for the lender to complete loan funding.

Conditional Mortgage Approval

When a loan receives conditional approval, the underwriter reviews it and attaches conditions that must be resolved.

Conditions May Include:

• Conditions on the borrower.
• Conditions on the income and/or the job.
• Conditions on the assets.
• Conditions on the credit.
• Conditions on the appraisal.
• Conditions on the title.
• Conditions on the insurance.
• Conditions on compliance.
• Conditions on the closing docs.
• Conditional approval is a step forward, but it doesn’t mean the loan will definitely close.

Suspended or Incomplete Loan File

A suspended loan file indicates that the underwriter cannot complete their review for a variety of reasons, among them missing information.

The Underwriter May Request:

• The missing pages of the bank statement.
• The corrected pay stub.
• Employment verification, updated.
• An explanation for a credit event.
• Additional supporting documents for self-employment.
• A new appraisal.
• Documentation showing the debt is paid.
• A suspended loan differs from a denied loan.
• Once required information is provided and reviewed, the loan process can proceed.

Mortgage Denial

When a loan is denied, it fails to meet the qualifying factors for the borrower, the property, or the transaction.

Some of the Reasons Are:

• Income did not meet the qualifying amount.
• Monthly debt obligations are above the limit.
• Credit is poor.
• No funds to close the loan.
• Assets are not documented.
• The subject property is ineligible.
• The appraisal is insufficient.
• Employment is unverified.
• Occupancy is not in accordance with the requirements.
• Conditions of underwriting cannot be met.
• Creditors are obligated to inform applicants of the principal factors that led to the denial of their application, or which motivated the adverse action.
• Explanation which are vague and ambiguous will not be accepted.

Clear to Close

Clear to close means that the lender has removed the major underwriting obstacles and is ready to prepare the loan for closing.

Receiving Clear-to-Close is Not a Guarantee of Loan Funding. The Lender Must Still Complete:

• Final employment check.
• Final credit check.
• Fraud and compliance review.
• Preparation of closing documents.
• Final confirmation of closing funds.
• Review of last-minute changes.
• Conduct a review of required quality control.
• Borrowers should follow the lender’s requests until the loan is closed and funded.

Required by Mortgage Underwriters

Underwriting conditions are requirements for documents, explanation, correction, or items bought in by a third party to complete the file.

Updated Income and Employment Documents

Underwriters Can Request:

• Pay stubs.
• Current W-2 forms.
• Tax forms.
• Employment Verification.
• Written Verification of Employment.
• Year-to-date profit-and-loss.
• Business checking accounts.
• Proof of a raise or higher.
• Employment offer.
• An employment gap explanation.
• Documents that verify income can be time-sensitive.
• Underwriters or lenders can request newer documents if the process takes longer than anticipated.

Requests for Bank Statements and Large Deposits

Underwriters can request a closing fund bank statement and a bank reserves statement.

Large Deposits and Deposits that are Unusually Large can require:

• A check.
• A deposit receipt.
• A sale of goods.
• Documentation that the gift was provided.
• Proof of the donor’s asset transfer.
• Proof of a funds transfer.
• Document the sale of an asset.
• Source explanation.
• The underwriter’s main concern is verifying funds come from acceptable sources and deposits do not create undisclosed liabilities, not the amount of savings.

Letters of Explanation

Letters of Explanation are Required for:

• Late payments.
• Gaps in employment.
• Difference in addresses.
• Credit inquiries.
• Change of employment.
• Large deposits.
• Variations in name.
• Collection accounts.
• Bankruptcy and foreclosure.
• Temporary loss of income.
• Letters of explanation should be concise and, when possible, supported by documentation.
• A letter alone is insufficient if additional proof, such as evidence of the donor’s ability to make a gift, is required. If the funds were transferred to the borrower or the closing agent.
• Evidence that the gift is not expected to be repaid.
• Requirements will vary based on the gift transfer methods and the loan programs.

Proof of Debt Payment or Exclusion

The Underwriter Will Need Proof to Show:

• The debt was paid.
• Loan has a reduced remaining payment obligation.
• Another party has satisfied the obligation.
• The debt is a business obligation and can be excluded.
• The debt was a duplicate on the credit report.
• A correct calculation of the student loan obligation.
• A collection or judgment will be considered resolved if payment has been received.
• If a debt must be paid during underwriting, work with your loan officer.
• Sometimes debts are paid from closing funds, which could leave you short on assets.

Conditions relating to Appraisal, Title, and Insurance

Conditions Relating to the Property May Require:

• Repairs to be completed
• A final inspection
• Correction of the appraisal
• Additional comparable sales
• Confirmation of the use of the property
• Legal access to the property
• Title and insurance to the property
• Release of a lien
• Coverage by insurance and flood insurance
• Documents from the condominium or homeowners association
• Third parties handle these items, so borrowers usually cannot control how quickly they are completed.

Final Employment and Credit Verifications

Before closing, lenders may confirm the employment a second time. Some lenders may monitor the credit and check if new inquiries or debts have appeared. If a borrower takes out a car loan, gets a new credit card, or adds more debt before closing, they may no longer qualify for the original loan approval.

Why Do Underwriters Add New Conditions?

A second review of the underwriting process often surprises the borrower when new conditions are added.

In Most Cases, New Conditions Do Not Imply an Underwriting Error, But May Be:

• a new document introducing another question
• a document that has expired
• a change in the loan amount
• a change in employment
• a new credit account
• Each bank statement is an update
• an appraisal that is revised
• a title-related question
• a compliance check
• a quality control check
• a change in the closing date

New Information From Third Parties

For example, if a new bank statement shows a large deposit that wasn’t on the last one, the underwriter must check where it came from before clearing the asset condition. Underwriters can only ask for information that pertains to the loan decision, documentation, or the closing process.

Hypothetical Mortgage Underwriting Example

Imagine the borrower has sufficient funds for the down payment and closing costs, good credit, and a stable job. The automated underwriting system provides a positive recommendation. The loan is then submitted to underwriting. The underwriter sees a $7,000 deposit on the bank statement and a credit inquiry.

The Underwriter Provides Conditions for Approval and Asks For:

• Evidence of the $7,000 deposit source.
• An explanation for the credit inquiry.
• Assurance that no new debt was incurred.
• An update to the homeowners’ insurance policy.
• An appraisal repair is to be done.
• The borrower provided the deposit as a bill of sale from a vehicle that was sold.
• The creditor verified that the credit inquiry was not for a new account.
• The repair was done and also verified.
• After final verifications and conditions, the underwriter gave a clear to close.
• This shows how conditional approval is not a denial.
• Documents were required to demonstrate that the loan remained in compliance.

How Long Does Mortgage Underwriting Take?

The time it takes to underwrite a mortgage varies by location. The pace of the initial review depends on how complex the file is. Simpler files are reviewed faster.

Factors Can Impact the Timeline, Including But Not Limited To:

•  The lender’s backlog.
• Incomplete documentation.
• Self-employment.
• Multiple streams of income.
• Credit issues.
• Significant deposits.
• Delays in Appraisal.
• Required repair documentation.
• Title issues.
• Delays in the review of a condominium.
• Delays in Employment Verification.
• Delays in the response of other parties.
• The nature and extent of resubmissions to underwriting.
• You can avoid some delays by responding promptly to document requests.
• Responding promptly does not always ensure immediate loan closing, as third-party actions and other factors may still affect the timeline.

What Should Borrowers Avoid During Underwriting?

Financial changes after conditional approval can result in the denial of the mortgage.  Borrowers with complex income profiles, credit quality issues, high debt-to-income ratios, and lender overlay problems may benefit from having their files reviewed prior to entering into a purchase contract.

Do Not Open New Credit Accounts

New inquiries can make new accounts at your cost. A change in debt can increase the debt-to-income ratio, thereby contesting approval.

These Are All Loans to Avoid:

• Auto loans.
• Credit cards.
• Personal loans.
• Furniture loans.
• Buy-now-pay-later loans.
• Co-signed loans.
• Consult with the loan officer before making any changes following loan approval.

Do Not Increase Credit Card Balances

Your credit can be negatively impacted. This new debt may push your debt-to-income ratio over the acceptable threshold. Large purchases can negatively impact your credit, as they can increase your minimum payments. Before you consider a new job, please notify us before making any changes to your employment or to the change.

There Are Concerns When, for Example, You:

• Change from a salaried position to a commissioned position.
• Become self-employed.
• Change from W-2 employment to contract work.
• Are put on a probationary period.
• Accept a position for a lower salary.
• Have your start date pushed back.
• Create a gap in your employment.
• Notify us of the change before it happens.

Before Moving Funds

Transferring Funds Requires Maintaining Documented Proof of the Following:

• The withdrawal from the account.
• The deposit to the receiving account.
• The account ownership.
• The date and amount of the transfer.
• Only transfer funds between accounts when necessary.

Stop Making Large Cash Deposits

It is often difficult to verify the source of cash deposits, which may render the loan ineligible if proper documentation cannot be provided.

Document Deadlines

• Everything is subject to change, including your pay stubs and your loan status.
• Your funds may be at risk if you do not fulfill your obligations in a timely manner.
• Ensure that every page of each document, including blank pages, is submitted for review.
• There are distinct roles for a loan officer, a processor, and an underwriter.

The Mortgage Loan Officer

The Loan Officer Interacts With the Borrower By:

• Assisting in the completion of the application.
• Explains the financing options.
• Collects the first set of documents.
• Discusses loan terms.
• Analyzes possible factors that would affect the borrower’s ability to qualify for the loan.
• Facilitates communication throughout the process.
• The loan officer usually doesn’t make the final underwriting decision.

The Mortgage Processor

The processor arranges and prepares the file. Interacting and/or communicating with: borrower, loan officer, underwriter, title company, insurance agent, appraiser, and employer. The processor gathers the required documents, but usually can’t waive underwriting requirements.

The Mortgage Underwriter

Reviews the completed loan package and determines if the requirements have been met. The underwriter can approve, condition, suspend, or deny the file. The underwriter must review conditional approval documents and decide whether the conditions have been met.

Who Notifies the Borrower About Underwriting Conditions?

In many lending companies, the processor or loan officer is the point of contact for the borrower and gives instructions and/or manages communication with the underwriter. The borrower may not converse directly with the underwriter. This separation allows the underwriter to complete an independent review, and for the loan officer or processor to explain which documents are needed. Procedures can differ, so borrowers should follow the lender’s communication guidelines.

What Happens After Conditional Approval?

Conditional approval initiates the process of meeting the outstanding tasks.

The Processor Reviews the Conditions

The Processor Examines the Approval and Segments the Conditions Into the Following Categories:

• Borrower conditions.
• Income conditions.
• Asset conditions.
• Credit conditions.
• Property conditions.
• Title conditions.
• Insurance conditions.
• Closing conditions.

The processor then requests the pertinent items from the borrower or the third party.

The File Is Resubmitted to Underwriting

After collecting the documents, the processor submits the conditions to underwriting.

An Underwriter may:

• Clear the condition.
• Request a correction.
• Ask for more documentation.
• Add a related condition.
• Determine that the requirement has not been met.
• Just sending a document doesn’t mean the condition is cleared.
• The document must answer the underwriter’s question and meet the program’s requirements.

Final Verifications Are Completed

Prior to the Closing, the Lender May:

• Conduct a final employment verification.
• Perform credit monitoring (or pull a new credit report).
• Conduct asset verification.
• Complete fraud checks.
• Conduct compliance review.
• Undergo quality control review.
• Confirm property insurance.
• Confirm closing funds.

Borrowers should avoid making changes to their finances or job until the loan is closed and funded.

The Closing Disclosure Is Issued

• The Closing Disclosure has the loan terms, the monthly payment, and closing costs.
• The Closing Disclosure must be given to the borrower three business days before the transaction.
• The disclosure is valid for only 7 days, and certain major changes may require a corrected disclosure and a new 3-day waiting period.

Borrowers should review the Closing Disclosure and Loan Estimate, and ask questions if they notice any changes.

Clear to Close and Loan Funding

Once the underwriter clears the conditions, the closing documents can be finalized. The borrower documents the loan and provides any necessary funds at closing. In some areas, the borrower may not receive the keys until after the lender has funded the loan and the sale has been recorded.

What to Do When Mortgage Underwriting Is Delayed

Should borrowers ask for status updates rather than assuming no action?

Should Borrowers Check in for Updates Instead of Assuming Nothing is Happening with Their File?

• Is the lender expediting?
• Have I been resubmitted?
• Have you received new documentation?
• Are your appraisal and title checks cleared?
• Have your income and assets been verified?
• Am I within the grace period for my lock?
• Can I expect closing on my scheduled day?

The purpose of all these questions should be to find the reason for the delay. Avoid sending multiple copies of the same documents to the underwriter unless specifically requested, as this can delay the review process. Take time to understand the reasons for any denial.

Role of Mortgage Underwriter: Evaluate Credit and Income Documentation

Underwriters review and verify the borrower’s credit reports, employment history, income sources, and other financial documentation to ensure they meet the lender’s guidelines and regulatory requirements.

Role of Mortgage Underwriter to Assess Borrower’s Ability to Repay

Underwriters calculate the borrower’s debt-to-income ratio (DTI) and ensure that their income is sufficient and stable enough to make the monthly mortgage payments and other existing debt obligations.

Analyze Property Value and Collateral

Underwriters review the property appraisal report to ensure that the property’s value is accurately represented and that the loan amount does not exceed the lender’s loan-to-value (LTV) requirements.

Role of Mortgage Underwriter to Review Title and Ownership

Underwriters examine the title report to verify clear ownership of the property and identify any potential liens or encumbrances that could impact the lender’s security interest.

Role of Mortgage Underwriter To Ensure Compliance with Guidelines

Underwriters ensure that the loan application and supporting documentation comply with the lender’s internal guidelines, as well as any applicable state and federal regulations, such as those set by Fannie Mae, Freddie Mac, FHA, or VA.

Role of Mortgage Underwriters To Identify and Mitigate Risk

Underwriters assess the overall risk associated with the loan, considering factors like credit scores, employment history, property type, and loan program. They may request additional documentation or conditions to mitigate identified risks.

Role of Mortgage Underwriter to Make Final Loan Decision

After thorough analysis, underwriters decide to approve, suspend, or deny the loan application based on their assessment of the borrower’s creditworthiness and the loan’s adherence to guidelines. Mortgage underwriters play a critical role in protecting the lender’s interests while ensuring that borrowers are not taking on more debt than they can reasonably afford. Their diligence and attention to detail help maintain the integrity and stability of the mortgage lending process.

Request the Reason(s) for the Denial

Review the adverse action letter and consult the loan officer for additional details regarding the decision, including issues related to the property, appraisal, occupancy, loan limits, program eligibility, or lender overlays.

• appraisal
• occupancy
• loan limits
• program eligibility
• lender overlays

Creditors are required to provide the specific reasons for adverse action rather than vague statements

Can the Issues be Solved?

Some Issues Are Easily Fixed:

• Wrong debt calculations
• missing documents
• verification issues
• credit report
• employment verification
• appraisal

Other issues may take more time, for example, rebuilding credit, reducing debt, establishing income or savings to meet reserve requirements.

Look into Other Options

Even without success in one program, a borrower may still find success in others.

An Example May Be:

• FHA financing
• VA financing
• USDA financing
• Conventional financing
• manual underwriting
• non-QM mortgages
• Larger down payments
• lower purchase prices

Borrowers should ensure any alternative loan is affordable and suitable for their situation. Alternative options may have additional requirements beyond the agency’s minimum standards. Another lender can have other requirements and overlays. Changing lenders will not correct the agency’s eligibility issues and does not guarantee approval.

Prior to the Loan Being Transferred, Make Sure You Know:

• The reason for the denial.
• If the problem is with the agency’s requirements or with a lender overlay.
• If the documents were reviewed by another lender.
• If the appraisal is transferable.
• If the lock on the interest rate is lost.
• If the closing deadline is still attainable.
• If additional fees will be charged.

Final Remarks on the Mortgage Underwriter Position

A mortgage underwriter reviews the borrower, property, and the loan to ensure all requirements for approval are met. An underwriter reviews the credit, qualifying income, employment, monthly obligations, funds to close, reserves, appraisal, title, insurance, occupancy, and the loan terms. The underwriter also reviews and verifies that the loan is appropriate and compliant. The underwriter may also ask for additional information when something is unclear or missing. Borrowers can assist in the underwriting process by responding promptly to requests and providing information in a complete, organized format.

While conditional approval is a step in the right direction, a loan is not final until the closing documents are signed and the lender has funded it.

It is strongly recommended that you consult a licensed mortgage professional to review your credit, income, assets, debts, and mortgage options before making significant financial decisions. This information should not be construed as a lending commitment, nor should it imply that mortgage approval will be granted. Many factors can change during the underwriting process, including guidelines, lender overlays, available programs, and interest rates. The final decision depends on a complete application, supporting documentation, the property, the loan program, and the lending institution.

Frequently Asked Questions About Mortgage Underwriting