How Does the Underwriting Process Work?
5 min read
Get preapproved. Find a dream home. Complete loan application. Loan file created. Proceed to underwrite. Decision made.

When the mortgage approval process is broken down like that, it seems relatively simple. But, unless you're starring in a 30-minute episode of "House Hunters," it's a bit more involved. In fact, from preapproval to final approval, a lot is going on behind the scenes.

Out of all the steps listed above, the mortgage underwriting process is the make-or-break phase. In a nutshell, the underwriting process is an analysis used by lenders to vet customers.

Underwriting looks at the potential home buyer and the piece of real estate they're interested in purchasing to find out the degree of risk posed to the lending company.

Let's walk through the steps of the underwriting process.

Steps of the underwriting process:
  1. Risk analysis
  2. Loan requirement verification
  3. Loan document assessment
  4. Decision time

Step 1: Risk analysis

This usually raises one of the most common questions asked about the mortgage underwriting process: What is an underwriter?

Underwriters are risk-takers. Of course, you probably won't find them shark diving off the Farallon Islands or base jumping from Salesforce Tower. But, when it comes to the mortgage underwriting process, mortgage underwriters are the Evel Knievel of the lending industry.

Underwriters are financial experts employed by lending companies. An underwriter is ultimately the one who decides if you qualify for a mortgage based on their review and assessment of financial information. It's the job of the underwriter to determine if offering a loan to an applicant is risky business. Then, they decide how much risk they're willing to take based on an individual's financial profile.

To evaluate how much (or how little) risk an applicant presents, underwriters look at the three Cs: credit, capacity and collateral.


When an underwriter looks at a credit report, they're looking at the current credit score and the overall credit history. Although not the sole determining factor, credit carries a lot of weight in the loan application decision. Some of the potential red flags underwriters look for:
  • Late payments on credit cards
  • Mortgage payment delinquencies
  • Foreclosures or property liens
  • Bankruptcies
  • Current collections or recent charge-offs
  • Number of new credit requests in the past year

Depending on the type of loan (and whether a loan is processed automatically or manual underwriting is used), additional information may be considered.


Part of a mortgage underwriter's risk assessment involves scrutinizing a loan applicant's financial situation. The underwriter evaluates your ability to make the anticipated monthly mortgage payments. The documents requested by your loan officer are used for this.

They'll begin the risk analysis by checking income and employment, assets and liabilities.

Income is confirmed using pay stubs and tax returns. Then, your income is compared to your monthly debt and other financial responsibilities. This is referred to as your debt-to-income ratio (DTI).


Risk evaluation also involves making sure the property is worth the loan amount requested. This is referred to as LTV (loan-to-value). Like the HELOC application approval process, the appraisal ordered by your loan officer provides an estimated property value. This is based on current real estate benchmarks in the local area.

This ensures the property you plan to purchase is acceptable collateral toward the mortgage loan, in the case of default.

Step 2: Loan requirement verification

It's at this time that the underwriter may request additional documentation.

Most types of loans have similar standard requirements. But there are certain types of loans (FHA, Fannie Mae, Freddie Mac and cash-out refinance, for instance) that require additional documentation.

It is the job of the underwriter to make sure the person applying for the loan (and the property they're interested in purchasing) meet all loan requirements.

How long does the underwriting process take?

The amount of time it takes for the underwriting process varies. It can take as little as a couple of days or may extend to several weeks. One issue that can lengthen the time frame is loan file incompleteness. To avoid delays, be thorough when providing documentation upfront. And be quick to respond to additional requests for information.

Step 3: Loan document assessment

There's a long list of documents a home buyer must provide during the mortgage process. The underwriter determines if all required documentation has been supplied in the loan file. They'll also verify accuracy. They examine the documents that were required during the application process:
  • Bank statements
  • Pay stubs
  • Tax returns
  • Credit history
  • Current credit report
  • Assets and debts

What do underwriters look for on bank statements and additional documentation provided?

Bank statements show the underwriter what you have readily available as far as assets, or cash reserves. They want to establish that you can pay closing costs and other fees associated with the home loan. They also want to confirm your income is enough to cover your current debts, plus your new mortgage payment.

Step 4: Decision time

Once all documentation has been examined and verified, the underwriter will contact your loan officer with the decision. There are three possibilities: approval, denial, or conditional approval.

Approval is self-explanatory. Congratulations!

Denials occur for several reasons. Perhaps your DTI is outside the suggested guidelines or you don't have enough cash reserves to pay the required down payment.

Conditional approval status means the application is suspended. Typically, the loan is approved as long as certain conditions are met. The underwriter may need additional documentation, letters of explanation, or clarification on some other issue. For the most part, conditional approval is good news. It simply means the loan process will take a little longer.

So, before the final scene is filmed (picture smiling realtor handing keys to giddy home-buyers-turned-owners), take some time to learn how the underwriting process works. It may very well prevent your home-buying episode from ending up on the proverbial cutting room floor.

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