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What Does a Mortgage Underwriter Do?

Kimberly Rotter
By: Kimberly Rotter

Our Mortgages Expert

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You're ready to apply for a mortgage. You saved a down payment, paid off high-interest debt, and checked to make sure your credit report glows. Up to this point, the success of your application has been in your hands. But the power shifts once you find a house. To get the mortgage -- and the key to the house -- you need an underwriter’s stamp of approval. But what does that mean? Keep reading to find out.

What is mortgage underwriting?

Lenders use the mortgage underwriting process to verify the information a potential borrower has provided in a mortgage loan application is accurate. They also make sure the application aligns with their requirements.

The mortgage company's underwriter will look at your income, debts, and assets. This person will verify your income is legitimate and the money in your accounts is your own.

The mortgage lender is about to fork over a very large amount of money on your behalf. To make sure it's safe to do so, the underwriter needs to know you are who you claim to be and that you can reasonably be expected to make your monthly mortgage payments.

Is an underwriter an actual person?

Most mortgage loan applications go through automated underwriting, manual underwriting, or a combination of both. Manual underwriting is just another way to say a human being is involved.

Frequently, mortgage lenders use Automated Underwriting Systems (AUS). This state-of-the-art software can quickly compare the information on your mortgage application to what appears in your credit history and their extensive records. For example, let's say you listed your income last year as $75,000. If the AUS can only verify $45,000, the system will flag this for human verification. Automation helps speed up the process, but manual underwriting digs into the specifics to make sure every detail is correct.

Even though your application is almost certain to be seen by a real, live human at some point, don't expect to have any direct contact. You won't speak to the mortgage loan underwriter. This is for several reasons.

  • The underwriter must follow set guidelines and regulations without exception. For example, the Consumer Finance Protection Bureau (CFPB) has a strict process to check your ability to repay.
  • The underwriter needs to have everything in writing. As such, anything you say verbally will not help your case.
  • The loan officer is the go-between and your advocate. It's part of the job. Your loan officer knows the lender's rules and is the best person to make any arguments on your behalf.

What does a mortgage underwriter do?

It's intimidating to imagine someone combing through your personal information, peeking into your financial drawers, and asking questions that are usually inappropriate in mixed company. But try to think of mortgage underwriters as the good guys. They don't just protect the lender; they also try to make sure you don't take on more debt than you can handle.

There's a caveat here: The bank might say you qualify for a bigger home loan than you necessarily want or need. It's okay to borrow less than you qualify for. You're the one putting the food on the table, and only you know your financial goals. If you want to retire early or save for a vacation, you'll need money in your monthly budget to meet those goals, too.

Once you hear that your mortgage application has gone to underwriting, here's what you can expect the underwriters (both automated and human) to do:

Examine your credit history: In addition to pulling your credit reports from all three major bureaus and checking your credit score, underwriters look for signs of financial distress. They are particularly interested in late payments, bankruptcies, and other red flags.

Verify employment and income: The underwriter confirms that you work where you say you work and earn as much as you claim to earn.

Calculate debt-to-income ratio (DTI): DTI compares how much debt you have to how much you earn. It's calculated by dividing your monthly minimum debt payments by your gross income. For example, if you earn $6,250 per month, and your monthly debt payments amount to $2,500, the calculation would look like this: $2,500 (debt) ÷ $6,250 (income) = 0.40 (40%). DTI is important because it tells the mortgage lender what monthly mortgage payment you can afford.

DTI can include:

  • Minimum payments on all of your credit cards.
  • The monthly payment you make on each installment loan, such as an auto loan or personal loan.
  • Your rent or mortgage payments.

Different lenders will accept different DTIs, but generally, the lower your DTI, the better. For the best mortgage terms, your DTI should be under 36%. But you can qualify for a home loan with a DTI up to 55%.

Order a home appraisal: Your lender will order an appraisal of the property to make sure it's worth the amount you requested. If you fail to pay your loan, the lender may need to sell your home to help pay off your debt. As such, a lender must ensure it doesn't lend you more than the home is worth.

If the appraisal concludes the house is worth less than the amount you want to borrow, don't panic. You have options.

  • The seller can drop the price of the home.
  • You can offer more for a down payment and take out a smaller mortgage.
  • You can back out of the deal and look at other properties.

Verify your assets: An underwriter looks to see if you have sufficient funds to make the required down payment and pay closing costs. They may also examine any other assets you own, like retirement accounts, stocks, and personal property. Most lenders require you to have a certain amount of cash reserves in case you lose your job or face another financial emergency.

How long does mortgage loan underwriting take?

The mortgage process varies depending on the complexity of the application and whether the underwriter comes across any issues that require attention. For example, you might have a very simple application. Once you upload your ID, W-2 forms, pay stubs, tax returns, and link your bank and asset accounts, your loan process might be complete within a couple of days.

If a borrower is self-employed, however, the underwriter might need more documentation to verify income sources. For example, it's common for the mortgage lender to require a signed letter from your accountant. Each required piece can add days to the process, so for some applicants, the loan process takes a few weeks. If you're self-employed, check out our guide to getting a mortgage while self-employed for more information.

How you can help the underwriter

Underwriting is part of buying property. Here are some ways you can make the underwriting experience easier.

  • Be honest: If you fib about your income or fail to disclose an important fact (like a past foreclosure), the underwriter will find out. The process will slow to a crawl until you provide an explanation.
  • Respond quickly: Be quick when your underwriter asks for additional documents or information. If too much time passes, you may have to provide a new set of credit reports and account statements. Same-day replies will keep your mortgage process moving forward.
  • Do not switch jobs: Underwriters look for employment stability, so stick with your current employer, at least until the loan has closed.
  • Don't put anything on credit: That means no charging new furniture, buying a car, or otherwise increasing your debt and changing your DTI.
  • Avoid opening new accounts: Each time you apply for credit, your credit score is likely to drop slightly. That could affect your loan eligibility or your mortgage rate.
  • Avoid closing credit accounts: Closing a credit account could negatively affect your credit score. That could affect your eligibility or your rate.
  • Leave your money in the bank: If you stated you have $5,000 in savings, be sure that $5,000 (or more) remains in that account until your loan closes. Any reduction in assets could affect your eligibility.

It is the underwriter who makes the final mortgage approval decision on behalf of the mortgage lender. Even if you were pre-approved for a mortgage, you don't have a deal until the underwriter says you do. Do your part to help the underwriting process move forward without a hitch and you'll be enjoying your new home before you know it.

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