What is Underwriting for a Mortgage?

Rarely does one go from serious homebuyer to satisfied homeowner overnight. There is a reason homebuying is referred to as a process. And as you get started on your journey to homeownership, you are likely to come across a number of different mortgage-related terms. While you do not have to be an expert, it can be incredibly helpful to be familiar with words that are specific to the homebuying process. One process that is critical to obtaining a home loan is known as underwriting.

Underwriting is arguably one of the most important steps on your homebuying journey. 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?

When it comes to securing financing for a home purchase, underwriting is crucial. It is the process in which your lender will verify your financial information: credit score, income, assets, debt-to-income ratio (DTI), and property details.

When your mortgage application is in underwriting, it is pending approval. Though the process itself takes place behind the scenes, your lender 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 help minimize any delays to your mortgage approval.

What do underwriters do?

The person in charge of verifying and analyzing your financial details is known as a mortgage underwriter.  Lenders may also use an automated underwriting system when reviewing loan applications. As the appraisal process begins, an underwriter will assess your creditworthiness and confirm that you are able to take on the responsibility of repaying the mortgage. 

Here are some of the actions an underwriter will take as they review your loan application:

• Investigating your credit history

• Ordering an appraisal of the home

• Verifying your income and employment status

• Looking at your DTI

• Confirming your down payment and savings

The complete underwriting process

Every borrower’s mortgage process will be unique to their situation, so the exact amount of time underwriting takes will vary. More often than not, you can expect underwriting 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.

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 typically takes between 1 and 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, and the home purchase price. 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

Although a home inspection is highly recommended, it is optional. However, a home appraisal is required. 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, an underwriter will continue to closely monitor and review your finances.  A final review of your information will take place once they have all of your documents, and the home appraisal and title search are 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 the 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 decision

The very last step of the underwriting process is the final approval. This is the point in time when 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 three business days of closing. However, if your application is denied, your lender will send you an adverse action letter stating the reasons for the decision. 

What happens after underwriting?

The exact timeline for underwriting 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.

Once underwriting for a mortgage is complete, the next steps depend on whether the loan is approved, suspended, or denied. Assuming the loan is approved by the underwriter, here is what you can expect to happen next:

1. Once all conditions are met and the underwriter gives final approval, you receive a clear to close (CTC). This means the lender is satisfied with your financial documents, appraisal, and title check, and you are ready to move to closing.

2. Three days prior to closing day, you should receive your closing disclosure. This document outlines the final loan terms, monthly payments, closing costs, and cash needed to close.

3. On closing day, you will meet with the seller and closing agent to sign the final loan documents. To pay your down payment and closing costs, you will need to either wire transfer the funds or bring a certified check. 

4. Once the transaction is recorded with the county (usually the same day or next), you officially become the homeowner and receive the keys to your new home!

As long as you are honest about your finances from the beginning and make sure there are no major changes after you apply, you will be well on your way to closing on your home purchase. 

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:

• Gathering all of the required documents and keeping copies on hand

• Providing accurate information up front

• Avoiding opening new lines of credit, closing current credit cards, or making large purchases that increase your DTI ratio

• 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 from the start will put you well on your way to a successful closing day.