What is Mortgage Underwriting?

By: TXRB Staff | 1 Mar 2021

A yellow house with a long driveway

Are you ready to buy a house? Congratulations! Are you currently buying a house and considering refinancing? With interest rates so low, now is a great time to do it! Buying a home is a dream for so many people, and fulfilling that dream inevitably brings excitement. However, there are several components to buying a home — many of which can be overwhelming if you don’t know what to expect. 

Mortgage underwriting is one of these things. Fortunately, we are here to help you gain a better understanding of this step so that you can navigate the underwriting process with ease and in the way that best suits your situation. This blog explains what underwriting is, what lenders will ask of you, and reveals how you can be best prepared to make this process go as smoothly as possible.


What is underwriting? 


Lenders will not approve your mortgage until they properly assess their risk in lending to you (Bankrate). This process is called underwriting. Underwriting can take anywhere from a few days to a few weeks depending on the method, lender, and your ability to provide necessary documentation (Bankrate). 


What do you need to provide for the underwriting process?


Underwriters look at several aspects of your financial situation to assess your risk. 

First, lenders care about income. They need to know that you will have sufficient funds to pay your mortgage each month, and they will look at your past two years of employment to assess your income stability. You’ll need to gather tax forms, returns, bank statements, and paystubs in order to show that you have a steady stream of income, or be willing to answer questions about how you will pay your mortgage if you do not (The Balance). 

Underwriters will also look at your credit (Bankrate). Credit scores and reports will enable them to see how well you paid back debt in the past, giving them a better look at how they can expect you to pay in the future. 

While the process may vary depending on if you are getting pre-approved for a mortgage or seeking approval for a certain house, lenders will need to know the cost of the house you are hoping to buy as well as the size of your down payment. If you have a larger down payment, lenders will probably find it less risky to lend to you (Ramsey)

In order to move the process along quickly, it’s wise to gather and present documentation of any kind of income, bank accounts, and assets to your lender so they can make informed decisions. If they do reach out to ask questions, respond quickly to avoid a delayed decision.  


What if your financial situation is not straightforward?


If you are concerned that something in your finances might disqualify you from getting approval, you have options. There are two commonly used types of underwriting: Manual and Automated (Bankrate). Automated underwriting can be faster, as your information is entered into a computer program and they can immediately give an answer on whether you are approved or not. If you have a steady income, good credit score, and healthy accounts, this option might be best for you. However, manual underwriting is done by a human who can ask questions, understand discrepancies, and make a holistic decision on whether you are a good candidate for a loan (Bankrate). The process might take longer depending on the bank you use, but manual underwriting could be the best option if you are concerned about one area of your finances. 


What happens next? 


Once lenders have assessed your risk, your application will either be approved, suspended, or denied. If it is approved, congratulations! You may have to adhere to certain conditions, but you are one step closer to buying a home! If your application is suspended, it is likely that the lender needs clarification on something before they can approve you. Seek clarification and they will help you get the application finished (The Balance). Now, there is also the chance that your loan will be denied. If this happens, ask for the reason why and take time to rethink the loan you are asking for. This may mean you need to spend time building credit or establishing a steady income, or it could simply require requesting a smaller loan. 


Underwriting and Refinancing 


Mortgage interest rates, your job, and your credit can all change so much over the 15 or 30 years that you are paying off your mortgage. In some cases, people will choose to refinance their home with a new mortgage that takes these changes into account (Nerdwallet). The pandemic has significantly lowered interest rates, and several people are choosing to look at refinancing options to take advantage of these rates. Refinancing also requires that you apply and go through the underwriting process for approval, but there’s no need to stress (The Balance). You’ve made it through once and can do it successfully again!

Enduring the mortgage underwriting process can be a tedious, yet necessary step in buying a home. Our team is here to help, and we are happy to work with you to get a mortgage that suits your needs. Feel free to reach out or apply here!


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