What Happens when a Mortgage Goes to Underwriting?

by Courtney Christensen

One of the last steps before your loan is approved and the house keys are placed in your hands is underwriting. Underwriting is the process of risk assessment regarding lending you money. A mortgage company, for example, takes on the debt (your mortgage) while you pay it back in small, monthly payments. How likely is it that you’ll be able to pay back the full mortgage? Underwriting provides that answer.

What Do Underwriters Look For?

Underwriters will take a pretty deep look into your financial life. They will ask for all sorts of documents from your driver’s license to a print-out of your most recent bank statements. You can help move the process along a lot faster by getting these documents in early and all at once. The longer an underwriter has to wait on you to provide documents, the longer the loan process will take.

To make the process as fast as possible, it’s a good idea to get pre-approved. This way, all of those documents are turned in ahead of time, and the underwriting process can get started immediately.

So, what do underwriters look for?

First and foremost, they review your credit report. Your credit score is a huge component of whether or not you are able to be approved for a loan. They look for red flags like multiple late payments or how much debt you have versus how much money you’re bringing in.

They will also look over your income information to learn whether or not you make enough money to pay the monthly payments your mortgage will require. If your income is too long for a loan, that doesn’t necessarily means you won’t ever be approved. You just may have to choose a cheaper home.

By looking into your payment history, your credit score, your income, and the likelihood that you can – and will – make monthly payments, the underwriters decide whether or not the risk of giving you a loan is acceptable for the agency they work for.

What Does the Underwriter’s Decision Mean?

Once your mortgage goes through underwriting, you will get one of four responses: approved, approved with conditions, suspended, or denied.

Approved: Congratulations! This decision means the underwriters are sending your loan forward through the process.

Approved with Conditions: This decision means that the underwriter needs more information from you before they can make a final decision – but it’s still a good thing! Your loan application will be approved if you can provide the adequate information and it doesn’t signal to the underwriter that there is a larger issue. For instance, you may be asked to verify your employment or explain why you recently applied for a credit card. Give this information with as much detail as possible!

Suspended: Should you be unable to provide the information required, or if there is an issue that needs to be corrected, your loan will be suspended. This is usually because there is a missing form, an error on a document, or some other kind of incomplete information. The underwriter will contact you with the steps you should take in order to fix it. Have no fear! Your loan approval is still on the horizon.

Denied: Unfortunately, some borrowers are unable to be approved. This happens when the underwriter finds multiple red flags and you are deemed too high a risk for the lending institution. One of the biggest red flags is a low credit score due to a poor payment history. If you are unable to pay your other bills on time, the mortgage company must assume you won’t make their payments on time either.

It's important to note that underwriter’s do not work on guesses or intuition. Underwriting is a numbers game. Those numbers are set by the industry at large, or by the government organizations that back certain loans (like the FHA), and your underwriter makes their decision based on those numbers. Even if your credit score is only a couple points below where it needs to be, they cannot approve your loan.

You can help prevent an outright denial of your loan by getting a pre-approval! This way, your information has already been reviewed by your loan officer, and any red flags can be pointed out to you ahead of time. Getting your loan denied when you’ve already had an offer accepted on your dream home is no one’s idea of a good time.

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