Your Mortgage Is in Underwriting. Does This Mean You'll Definitely Get Your Loan?

Getting a mortgage to buy a house can be a long and complicated process. You first need to shop around for mortgage quotes, then you need to submit an application for pre-approval. Your lender will review your financial info, offer you a rate, and you can move forward with the full application. 

When you've submitted your full application, including details on the house you are buying, your loan goes to underwriting. During this process, a professional underwriter carefully reviews all of the details to assess the risk that you will default on the loan (stop paying on it). Underwriting occurs after you've already made an offer, had your home appraised, and provided all your financial paperwork, so you may feel as if you're in the clear by the time things get to this stage.

But are you? Will you absolutely get a mortgage loan once you've made it through pre-approval and are into the underwriting phase?

Your loan isn't a sure thing yet when it goes to the underwriter

Unfortunately, your loan making it to the underwriting phase does not mean you will definitely have the money to buy the home in hand. The underwriter's job is to conduct a thorough and detailed investigation of all of your financial details as well as to review information about the transaction. If the underwriter spots red flags and determines the risk is too great, you'll be denied your loan. 

It's not terribly common for loans to end up being denied in underwriting because loan officers -- those who help you get to that phase -- usually try to review your details and make sure they aren't sending a loan to underwriting that is destined to fail. But it can happen. In fact, about 8% of mortgage applications end up being denied in underwriting.  

The rest of the time, the underwriter will often give conditional approval first, which means that your loan will be approved if you meet certain requirements such as providing additional documentation. Once you've satisfied all requirements, you'll be able to get full approval and finally be cleared to close.

Why would an underwriter deny a loan?

Underwriters have the tough job of verifying all of the information you provided on an application, looking at the big picture of your personal finances and the house you're purchasing, and making an assessment about whether you're likely to default or not. If they don't do their jobs and expose a mortgage lender to too much risk, the lender could find themselves with bad debts and become insolvent. And the underwriter obviously would lose their job if they kept approving loans that ended up in default. 

Underwriters review your data with a fine-toothed comb because they know their job is to protect the lender's interest. They may end up denying a loan if:

• They spot red flags on your credit report, such as recent missed payments or too many new debts taken on.
• There's a problem with the house, such as a health and safety defect that can't be corrected before closing.
• They aren't convinced you'll be using the property for your intended purpose (for example, if you're trying to claim a house as a primary home when it seems pretty clear it will end up being an investment or second home).
• There are financial transactions you can't explain that are cause for concern. 
• They discover your employment situation is unstable. 
• They determine you don't have enough money in reserve. 

These are just some of the many risks that could raise red flags and cause a denial in underwriting. If your loan gets to this phase, be sure not to charge too much on your credit cards, open up new accounts, miss payments, change jobs, or give your lender any reason to worry about your financial stability.

Keep the status quo, provide the documents they need, be ready with good answers to inquiries, and hope that the underwriter sees you as a good risk. Otherwise, you could find yourself facing a mortgage denial and be left without the loan you hoped to get.