What Happens During Mortgage Underwriting?

As you get started on your journey to homeownership, you are likely to come across a number of different mortgage terms, jargon, and buzzwords. While you do not have to be an expert, it can be incredibly helpful to understand the terms that refer to specific procedures throughout the homebuying process.

One such procedure that is critical to obtaining a home loan is known as underwriting. Even if you receive pre-approval for a mortgage, an underwriter will take a deeper look into your financial information before deciding whether or not to approve your application. That is why we are giving you insight into what occurs during the mortgage underwriting process—so you know what it is, how long it takes, and more.

What is mortgage underwriting?

First, let us define what underwriting is. When it comes to mortgages, underwriting is the process in which a lender will analyze and verify the financial information you provided in your application. This includes your credit score, income, assets, debt-to-income ratio (DTI), and property details.

Once they have verified and reviewed the relevant documentation, if everything looks good and checks out, your home loan will be officially approved for closing.

What does it mean when a loan is in underwriting?

When your mortgage application is in underwriting, it is pending approval. Though the process itself takes place behind the scenes, the underwriter may reach out to ask you to provide additional information. Whether they need answers to certain questions or additional documentation, you will want to have important information close at hand once the underwriting process starts. That way you can better reduce any delays on your mortgage’s approval.

How long does the underwriting process take?

More often than not, you can expect the underwriting process to last anywhere between 30 to 45 days, although sometimes it can take longer. However, most lenders will have your mortgage underwritten within 30 days in order to meet the agreed upon closing deadline that is set in your purchase agreement.

The exact timeline that underwriting will take to complete depends on the lender you have chosen, along with the scheduling of the home’s appraisal and if you choose to have a home inspection conducted as well.  Other issues that can delay the underwriting process include missing documents, appraisal issues, or title insurance issues.

Mortgage underwriting process at a glance

Now that you understand what underwriting is and how long it may take, here is a closer look at each step of the process:

1. Initial application submission and assessment: After you submit your mortgage application, the initial pre-approval process will take between 1 to 3 days. During this time, an underwriter reviews your information and ensures that you meet the minimum borrower requirements for your loan. This includes an assessment of your credit report, income and employment history, a review of assets, the home purchase price, and more. If it is determined that you are eligible, you will receive a mortgage pre-approval.

2. Collection of documentation and mortgage contract: Once you have been pre-approved for your mortgage, you will have a contract with your lender and the home loan is conditionally approved. This means that it is likely your lender will approve your mortgage, as long as there are no major changes to your current financial situation. During this 7 to 14 day period, an underwriter will continue to review your information and may reach out to collect additional documentation. 

3. Home appraisal: Though a home inspection is optional (but highly recommended), you will be required to get a home appraisal. The good news is that your lender will be responsible for ordering and scheduling a licensed appraiser to conduct it. This part of the underwriting process is likely to take about a week.

4. Underwriting’s final review: It is important to remember that throughout your homebuying process, your finances will continue to be under a microscope and reviewed by an underwriter. A final review of your information will take place once they have all of your documents, and the home appraisal (plus title search) is complete. This final review of your information is crucial, as the underwriter will confirm whether or not you have met the conditions set upon pre-approval. In cases where an underwriter discovers inconsistences, this is time during which you will be able to submit additional information or provide a written explanation. However, if they are not satisfied, then the underwriter may decide to suspend or deny your mortgage approval.

5. Final approval (or denial): The very last step of the underwriting process is the final approval. This is the point of time that the underwriter verifies that your application is acceptable, and your lender sends you a letter of commitment that details the terms and conditions of your new mortgage loan. You are likely to receive a closing disclosure from your lender within 3 business days of closing. However, in the event that an underwriter denies the loan, you would receive what is known as a letter of adverse action. This will detail exactly why your mortgage application has been denied. 

Why would an underwriter deny a loan application?

There can be a number of causes for a mortgage application to be denied. In essence, your lender wants to avoid risky lending situations. That is why different types of mortgages and lenders will have varying borrower requirements. When it comes to underwriting, here are a few different reasons why a homebuyer may be denied from a obtaining a mortgage:

• Credit issues, discrepancies, or changes during the application process

• Low income or high debt ratio

• Poor home appraisal

• Missing or misleading documentation

• Financial discrepancies

Tips for underwriting success

Underwriting can be stressful, especially since you are not directly involved in most of the process. However, there are steps you can take to minimize holdups and have an overall smoother mortgaging experience, including:

1. Gathering all of the required documents and keeping copies on hand.

2. Providing accurate information up front.

3. Avoiding opening new lines of credit, closing current credit cards, or making large purchases that increase your debt-to-income (DTI) ratio.

4. Staying in close touch with your lender throughout the process.

It is perfectly normal to feel stressed when it comes to buying a home, but do not let that quell your excitement. Being honest about your finances at the start will put you well on your way to a successful closing day.