Mortgage underwriting is a necessary step in the mortgage origination process and begins when the seller accepts the offer you submitted to purchase a home. Either you or your real estate agent contacts your lender, who then collects the necessary paperwork and sends your loan package to the underwriter.
Whether you’re a first-time homebuyer or just want to be familiar with the process, so you’re better equipped when it’s time to apply for a mortgage, here’s what you need to know.
What is mortgage underwriting?
The mortgage underwriting process is where the lender’s underwriter examines your loan application and finances to determine how likely you, as the borrower, are able to make regular mortgage payments to your lender.
“Underwriting occurs once you’ve completed your mortgage application and all required documents are turned in for the underwriter to review, shares Gregory Keleshian, CEO of Crestmont Capital, a company who offers a diverse portfolio of lending products. “They look at your income, credit history, and your debt obligations to better understand whether you’re at possible risk of defaulting on your loan or if you’re a sound investment. If you fail to meet specific criteria, such as low credit score, the debt-to-income ratio (DTI) is too high, the Loan-To-Value Ratio (LTV) is too high, or your employment status has recently changed, the underwriter can decline your application.”
How the loan underwriting process protects lenders
Mortgage lenders – credit unions, banks, and private mortgage companies – must meet requirements developed by the Consumer Financial Protection Bureau (CFPB) to ensure fair and transparent treatment of borrowers. To treat you fairly, lenders also need to protect their interests with a robust approval process before they can fund your loan. The process protects borrowers and lenders from bad loan practices.
“Underwriters are a critical piece of the mortgage lending puzzle,”…