What Is Underwriting For A Mortgage?

Getting pre-approval for a mortgage is often one of the most exciting times in your young life. If you’re looking for pre-approval, getting the mortgage can help you land your dream home. If you’ve already made a home offer, getting your mortgage approved means the sale can go through. 

It’s time for a new chapter of life, one with more independence and freedoms. 

But wait just one moment. After mortgage pre-approval, you’ll still have to go through underwriting to get your mortgage finalized. 

Here’s what you should expect.

What Is a Mortgage Underwriter?

Mortgage underwriters take a look at the total financial history of mortgage applicants to make sure the loan is a responsible option for the bank. They’re looking to make sure you can afford the loan, are likely to be able to pay it back. 

Underwriters consider a wide range of factors, including things like your work history, to tell if you’re a good candidate. 

There are both human and automated underwriters. However, even when an automated underwriter’s algorithm makes the initial decision someone will still take a look at the details and make final approval. 

How Does Mortgage Underwriting Work?

Most people want to know more about the underwriting process when they find out that pre-approval isn’t the last part of getting a mortgage. 

There are a lot of details that go into underwriting, enough that people can make that their entire career specialty. Rather than trying to explain all the details, here are some of the core facts you should know if you want a mortgage. 

The first part of mortgage underwriting is the financial review. That’s followed by a title search. Here are some of the things your mortgage underwriter is looking for:

Personal Character

Personal character doesn’t have anything to do with whether your underwriter likes you or not. Instead, they are looking at your work history, known job reviews, background checks, and other details to make sure you’re stably employed. 

The last thing the bank wants to do is provide a mortgage to someone likely to get fired in the next six months. The best thing you can do for this check is to have a stable job for several years, and only switch jobs once every few years. 

Credit History

Your current credit score is important for your pre-approval, but your mortgage underwriter will look at all of your credit histories. This tells them a lot about your payment history, how you manage debt, and whether you take unnecessary financial risks. 

A good payment history and good credit score make it easy to pass this check. 

Capacity to Repay

Your capacity to repay involves your income and your debt to income ratio. Banks don’t want to approve mortgages their clients can’t afford, so this check helps them limit your loan amount to something reasonable for you to repay. 

Title Search

After you’ve passed the financial review, your underwriter will also check on the property you want to buy. Basically, this check helps make sure the property doesn’t already have an active title on it from someone else, and that it isn’t under contract with someone else. 

This is an important check because you need to own the property after you’ve paid for it, but you won’t if there is a prior claim on the property. 

Options If Your Mortgage Is Denied

Most of the time mortgages are approved by underwriters. In some cases, you may get conditional approval with the caveat that you meet certain terms or provide more information about your financial history. 

But what about when you’re denied? 

Some banks allow you to petition the denial, but most of the time this is the last word on your mortgage application. 

Make sure you get all the information about why your application was denied. It may be that you’re financially fine, but there was a problem with the property you wanted to buy. 

If you don’t pass the financial check, make sure you find out why. Getting all the details about why you were denied will help you fix financial problems, or apply for a lower more affordable mortgage next time. 

How Long Does Underwriting Take?

Underwriting usually doesn’t take very long, but that’s only if you have a complete mortgage application that provides all the financial details the underwriter needs. Plan on underwriting taking at least a couple of days, but it can be more like weeks if the underwriter needs to request additional documents from you before approving the loan.