What Is an Underwriter?

A mortgage underwriter decides whether your mortgage loan application gets approved, suspended, or denied. Lenders such as banks and other financial institutions employ underwriters to evaluate a borrower’s risk of defaulting on a loan. This process involves ensuring they meet the lender’s requirements and checking documents that show proof of income, like pay stubs, bank statements, and tax returns.

The underwriting process takes place after you’ve applied for the loan and submitted the required documentation, but before the closing day. If you’re considered a higher-risk borrower, you may have difficulty qualifying for a mortgage.

What Does an Underwriter Look For?

To assess your financial ability to pay back the loan, the underwriter will look at specific information such as:

  • Your payment and credit history
  • Credit score
  • Debt-to-income ratio
  • Collateral or assets you own
  • Liabilities such as alimony or child support
Depending on the nature of your loan, you will have to meet the requirements of the specific financial institution you are dealing with, or of a secondary organization such as the Federal Housing Administration or Freddie Mac.

The underwriter looks at the strength of the overall financial picture. That’s why even if you might fall short of the lender’s requirements in one area, you could still get approved if other factors can make up for it, such as:

  • The loan-to-value ratio—or the amount you are borrowing divided by the appraised value of the property you are buying
  • The size of your down payment
  • Your savings and cash reserves
  • The amount of your monthly payment over the life of the loan
  • The type of property you are buying and whether it has additional units
  • Whether you plan to live in the property part-time, full-time, or rent it out.

Automated vs. Manual Underwriting

While manual underwriting is conducted by humans, automated underwriting is done with the use of a preset computer program. Automated underwriting can speed up the process using just your personal information, but it can't substitute for a live underwriter, who will still need to review your documentation and close on your home. 

Some lenders may choose manual underwriting for borrowers with special circumstances, such as those who live debt-free but have no credit history. In those cases, the underwriter might examine the loan applicant’s history of bill payments, such as rent, utilities, or monthly gym memberships, and whether those bills were paid in full and on time.

Mortgage vs. Insurance Underwriters

Underwriters are not exclusive to the mortgage loan industry; they might also work for insurance companies or investment banks. Whether they deal with people or with assets, what these professionals all have in common is that they analyze risks for a living.

While a borrower with a high debt load or poor credit score might be seen by a mortgage underwriter as a risk, an insurance underwriter also evaluates hazards related to insuring a physical property. They will also analyze the homeowner’s profile to determine their eligibility for an insurance policy.

Steps in the Mortgage Underwriting Process

After applying for a mortgage and having an offer accepted on a house, your loan will go to underwriting. There, your underwriter will review all your information and proceed to issue one of four outcomes:

  • Approval: After receiving final approval of your loan, you may then proceed to close on your property.
  • Approval with conditions: This type of approval is pending the review of additional documentation. This could include your business license, marriage certificate, or proof of insurance coverage.
  • Denial: Your mortgage application could be denied by the underwriter for a number of reasons, ranging from previous delinquencies on your record to a debt level that is already too high or a credit score that is too low. Understanding the reason behind the decline is essential to determining your next steps before you apply again with another lender.
  • Suspension: This might mean some documentation is missing from your file so the underwriter can’t evaluate it. Your application could be suspended if, for example, the underwriter couldn’t verify your employment or income. The lender should tell you whether you can reactivate your application by providing additional information.
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