Steps In The Underwriting Process By Mortgage Lenders


What Are The Steps In The Underwriting Process?

This Article On The Steps In The Underwriting Process Was Written By Gustan Cho NMLS 873293

Steps In The Underwriting Process By Mortgage Lenders

Understanding the mortgage process can seem overwhelming to those who are not familiar with the process.

  • Often times mortgage loan borrowers enter into the mortgage application process without ever knowing what steps or stages there are in the process of purchasing a home.
  • In this article, we will explore the mortgage underwriting step of the mortgage process.
  • The mortgage underwriting process is where the decision is made of whether or not a borrower gets a mortgage loan approval or a mortgage loan denial.
  • The pre-approval stage is the most important stage of the overall mortgage process and there should be no reason why a borrower who has been properly qualified and pre-approved should not get a mortgage loan approval.

Mortgage Loan Denials & Stress During Mortgage Process

Over 70% of my borrowers contact me because of two reasons:

  • They have gotten a last minute mortgage loan denial
  • They are going through major stress during the mortgage process

There is no reason why the two reason above should happen. The cause of a last minute mortgage loan denial or a borrower going through major stress during the mortgage process is one reason and one reason only. The borrower was not properly qualified. Again, the pre-approval stage in the mortgage process is the most important stage in the mortgage process.

Pre-Approval Stage Of The Mortgage Process

The pre-approval stage is the most important phase in the entire mortgage loan process and if the borrower was properly qualified, the steps in the underwriting process should be smooth with no hassles and no stress.

  • The number one reason for last minute mortgage loan denials is due to the mortgage loan originator not properly qualifying borrowers and not issuing a solid pre-approval.
  • The mortgage loan originator needs to not just look at the credit scores but overall borrower’s profile.
  • Whether they meet the minimum credit score requirements is important but loan officers also needs to carefully review the borrower’s credit report and ask the borrower many qualifying questions.
  • Income is the most important factor in determining whether or not a borrower qualifies for a home loan.

Key Point Steps In Underwriting Process

Here are the main key points in going through steps in  underwriting process:

  • Borrowers can have the highest and best credit in this planet but without qualified income, there will not qualify for government and/or conventional loans.
  • FHA Loans, VA Loans, USDA Loans, and/or Conventional Loans require qualified income and have debt to income ratio requirements.
  • However, borrowers with less than perfect credit and even outstanding collection accounts can qualify for mortgage loans with qualified income.
  • Borrowers charge off accounts and credit scores as low as 580 FICO credit scores can qualify for 3.5% down payment FHA Loans with qualified income.
  • With documented income and meeting minimum credit score requirements, home buyers can qualify for a mortgage loan.
  • Debt to income ratios is another major hurdle many mortgage borrowers face.
  • A mortgage loan officer should carefully review the borrower’s tax returns and W2s when determining qualified income and not just take the borrower’s word for it.
  • The loan officer should carefully make sure to use the adjusted gross income and take the tax deductions the borrower has declared on their tax returns when qualifying income of the borrower.

Importance Of Processing  During Steps In The Underwriting Process

Once a borrowers has been pre-approved, they can start shopping for a home. Once they have a real estate purchase contract, the mortgage process starts.

  • Steps In The Underwriting Process is the stage of the mortgage process in which borrowers often understand the least.
  • Let’s start by explaining what happens during this stage.
  • Once a borrower submits a real estate purchase contract, the file is assigned to a loan processor.
  • The mortgage processor makes sure that all paperwork is complete and gets the file ready for underwriting.
  • Once the file is complete with no missing pages, the file is submitted to the Underwriter.
  • The underwriter is the mortgage professional that reviews the file and issues a credit decision.
  • Underwriters thoroughly review all docs provided during the application process, the AUS results, credit report, tax returns, bank statements, appraisal assets, debts, public records search, and purchase agreement.
  • The role of the Underwriter is to verify all of the information submitted and ensure that it meets all lender and program guidelines.
  • Once all information has been reviewed by the Underwriter, providing it meets lender guidelines and program guidelines, he/she will issue an approval, likely a Conditional Approval.
  • Conditional Approval means that the mortgage loan will receive final approval and clear to close if borrowers can satisfy the conditions on the conditional loan approval.

Clear To Close Stage Of The Mortgage Process

Once a conditional mortgage loan approval is issued, the underwriter is ready to issue a clear to close once all conditions are met. The mortgage processor  is normally assigned to clear the conditions. Processor works closely with loan officer in collecting all the conditions from the borrower. So what conditions are typical for an Underwriter to place on a loan file?

Here are typical underwriting conditions:

  • IRS Tax Transcripts, Social Security Number Verification, Employment Verification, Appraisal, etc.
  • For those borrowers that may have abnormal items on their credit report such as a bankruptcy, there will likely be conditions of providing the bankruptcy filing paperwork and discharge paperwork.
  • Letter of explanations for derogatory credit and credit inquiries.
  • Borrowers with student loans that have been previously deferred, the UW may request account status letters to show the account is in good standing.
  • Cash to close will need to verified and required to show where down payment funds will be coming from.
  • For example, if borrower large deposit that is not regular income, borrower will need to provide the source of that deposit.
  • Borrowers receiving gift funds and using it for down payment will be required to provide additional documentation to support the gift such as signed gift letter and source of donor’s funds (30 days bank statement of donor of gift).
  • Once all of the Underwriter’s conditions has been satisfied, the processor will submit the file to the underwriter for a Clear to Close.

About The Author Of Steps In The Underwriting Process

Gustan Cho NMLS 873293 is the author of this BLOG on Steps In The Underwriting Process and is the Editor In Chief of Gustan Cho Associates Mortgage And Real Estate Informational Center .

  • Gustan Cho of USA Mortgage has been a real estate investor for over 20 years and has owned and managed 7 apartment complexes consisting of 3,000 residential units.
  • Gustan Cho like many of us Americans, fell victim to the economic collapse of 2008 and her credit suffered. Gustan did find getting a mortgage difficult and did extensive research in all areas of mortgage lending and found a national lender that did not have any lender overlays and finally got his home loan approved and closed.
  • His hands on experience with the mortgage process motivated Gustan Cho to get his NMLS mortgage loan originator’s license and pursue a career as a licensed mortgage loan originator.
  • Gustan Cho’s passion of helping people realize the dream of home ownership become a reality has motivated him to be the best of the best in the mortgage industry.
  • Our loan officers at The Gustan Cho Team all share the same goals as Gustan in helping homeowners realize the dream of home ownership become a reality.

Gustan Cho is the branch manager for USA Mortgage Inc., a Fannie Mae, Freddie Mac, Ginnie Mae Direct National Lender known nationally for the following:

  • Licensed in multiple states
  • FHA Loans with no overlays
  • VA Loans with minimum credit score requirement of 580 FICO and no overlays
  • USDA Loans with no overlays
  • Jumbo Mortgages
  • Reverse Mortgages
  • FHA 203k Rehab Mortgages
  • Non-QM Loans
  • Conventional Loans no lender overlays

Mortgage Loan Applicants with under 620 credit scores looking for a lender with no lender overlays and just go off DU/LP Findings per Automated Underwriting System and are looking please contact Gustan Cho NMLS 873293 at USA Mortgage, a division of DAS Acquisition Company. We are available 7 days a week, evenings, weekends, and holidays. Borrowers with any loan scenario questions, call Gus at 262-878-1965 or text Gustan on his cell for faster response at 262-716-8151. You can also email your mortgage inquiries at

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