The Mortgage Underwriting Process: Everything You Need to Know

In order to get a mortgage loan, you’ll have to go through a lender’s mortgage underwriting process – including for a home equity loan or home equity line of credit (HELOC) or cash-out refinance. This is the stage in which your application is reviewed and information verified to ensure it meets the minimum requirements for the type of loan you’re getting. 

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For many borrowers, underwriting can be the most confusing and frustrating step in the home loan process. It’s the step where a mortgage underwriter decides whether to approve or deny your loan, and you won’t be able to speak with them directly if you have questions or disagree with the loan decision. 

Mortgage insights

Fortunately, with over a decade of first-hand experience as a mortgage underwriter, I’ll share some insights on how you can get through the underwriting process and pass with flying colors. Continue reading for our guide on everything you need to know about the mortgage underwriting process. 

What is mortgage underwriting?

The main purpose of underwriting is to ensure that you meet the minimum requirements for the loan you’re applying for. To do this, two main things will happen. 

First, your lender’s mortgage underwriter will review and verify the information in your loan application. Once this is done, they will compare it against the loan program requirements to determine if there are any aspects of your loan that fall outside the parameters of what can be approved. 

Where does underwriting fall in the loan approval process?

In total, it can take as little as several days or as long as a couple months to get a mortgage. Underwriting is one of the last steps in the mortgage approval process. While the timeline and exact steps of a home loan can vary from lender to lender, the steps we’ve outlined below are a fairly typical representation of the steps involved:

1. You submit a mortgage application to a lender
2. You are issued disclosures, rates, and loan terms
3. You accept the loan terms and agree to move forward with the process
4. The lender’s loan officer or loan processor reviews and requests documentation from you
5. Once you’ve provided this information, your loan enters underwriting
6. The lender’s underwriter will perform a final evaluation of your file and may request additional documents from you to render a loan decision
7. If your application is approved, you will be allowed to sign final loan documents
8. Once your final loan documents have been signed, funds for your loan will be disbursed after a final review from your lender

As you can see, mortgage underwriting is one of the very last steps. So if you do encounter some challenges or frustrations, try to keep in mind that you’re nearly to the finish line. 

What happens during the mortgage underwriting process?

During the underwriting process, the information in your loan application is reviewed and verified. The following are four main categories that will be evaluated:

• Credit report and credit score
• Income
• Assets
• Property

Credit report, credit history, and credit score

Your credit history is a reflection of how you have previously managed debt. Lenders use this information to predict how likely you’ll be to make timely mortgage payments if they issue a loan to you. Lenders typically obtain a separate credit report from each of the three major credit bureaus: Experian, Equifax, and Transunion. 

Once obtained, lenders will review several aspects of your credit, including your credit score. Your credit score is a numerical representation of how likely you’ll be to miss payments in the future. A credit score typically ranges from a low of 300 to a high of 850. Having a credit score above 680 is generally regarded as good, giving you a better chance of getting approved. 

Other aspects of your credit history that will be reviewed commonly include the following:

• The total amount of monthly debt payments
• Applications for recent credit
• Past address history, including address variations 
• Number and type of delinquent payments to creditors
• Length of credit history

Income

For most loans, lenders evaluate your income to determine if you’ll be able to not only afford the monthly mortgage payments but also make them in a timely manner. Lenders look at not only how much you currently earn, but will also look at your past history of earnings, as well as the type of income you’re earning to determine whether it is likely to continue. This information is then used in calculating your debt-to-income ratio. 

Below are several common categories of income, and how lenders determine whether you can afford the monthly payments. 

Salary and hourly income

The most straightforward income for a lender to evaluate is if you earn a salary, or get paid per hour with a fixed number of working hours each week. This type of income has the least amount of scrutiny as lenders generally consider this to carry the least amount of risk. The only caveat is that lenders may require a two-year history of employment or evidence that you were previously attending an educational program. 

Variable income (such as tip, bonus, overtime, or commission earnings)

If you receive income that fluctuates on a periodic basis, getting approved for a mortgage loan can be more difficult. Since mortgage underwriters know that this type of income can possibly decrease over time, they’ll typically require a two-year history and take the most conservative average of earnings during that time period in calculating your debt-to-income ratio. 

Self-employed income

If you’re self-employed, you should go into the underwriting process with the expectation that you’ll need to provide more documents than the average borrower. This is because lenders consider self-employment income to be more risky, and will often conduct a higher level of due diligence to ensure that the income is stable and likely to continue. 

The following are some common examples of types of income that can land you in the self-employed category:

• Borrowers who file a Schedule C on their personal tax returns
• Borrowers who file a business tax return (partnerships, S-Corporations, and C-Corporations)
• Borrowers who have 25% or more ownership interest in any company
• Gig workers (such as rideshare drivers or food delivery couriers)
• Freelance or contract workers who receive tax form 1099

If you’re classified as a self-employed borrower, you’ll typically need to have at least a two-year history of the same type of income for a lender to calculate your debt-to-income ratio. Exceptions can sometimes be made for as little as one year if you have a history of earnings in the same line of work. 

To help streamline the underwriting process, you should prepare the following financial documents ahead of time so that they’re ready to go if your lender asks for it:

• Personal tax returns (two years)
• Business tax returns (two years)
• Year-to-date profit and loss statement
• Year-to-date balance sheet
• Business bank statements (three months)
• Year-end W2s (if applicable for the past two years)
• Year-to-date pay stub (if applicable, for business owners who pay themselves a salary)

We’ve previously written on Bank Statement Mortgages for homeowners interested in using business cash flows to qualify for a mortgage

Assets

Depending on your specific loan and its closing costs or down payment requirements, you may need to prove to the lender that you have sufficient funds to cover these expenses. Assets may also be reviewed to determine if you have sufficient reserves to meet down payment requirements. 

When reviewing assets, a lender will typically need to see at least two months of bank statements. The source of the assets will be evaluated, as will the type of account you are using. We’ve listed some of the nuances of each of these items below. 

When it comes to reviewing the source of our assets, lenders may consider:

• How long you have had the funds (a minimum of 60 days is recommended)
• Unusual deposits in your bank accounts that may suggest the funds were borrowed
• Large deposits that are not typical of your income level

The type of account being used for a down payment, closing costs or reserves can also influence your loan decision:

• Checking/savings accounts: This is the best type of account to be used since lenders know that the funds are easily accessible, and will not fluctuate in value. This can also include money market and Certificate of Deposit (CD) accounts. 
• Investment accounts: Investment accounts can include things like mutual funds and individual stocks. Since the value of this type of account can fluctuate, lenders may only credit you for 70% of the current value in determining whether you have sufficient funds to cover closing costs and reserve requirements. 
• Retirement accounts: Examples of retirement accounts can include things like an employer-sponsored 401(k), Thrift Savings Plan account, or Individual Retirement Account (IRA). Just like investment accounts, lenders may only give between 60% and 70% of your current account value to factor in things like early withdrawal penalties, potential tax penalties, and regular fluctuations in the stock market. 

Property

When it comes to evaluating your property, lenders need to know how much it’s worth, and whether it is in good condition. They’ll also check public records to verify if any other companies or individuals have placed a lien against the home. These tasks are typically accomplished with the use of a title report and an appraisal inspection. 

• Title report: Lenders work with title companies to conduct a public records search with the county to verify ownership of your home. Title reports will reveal if any other companies or individuals have placed a lien against your home. Liens can include things like other mortgage loans, unpaid taxes, and mechanic’s liens from contractors who performed work on your home but were not paid. 
• Appraisal inspection: Lenders will order an appraisal for your home to determine its value, condition, and how much equity you have in the home. Appraisals can be done with either a computerized estimate or a physical inspection by a licensed appraiser. In reaching an estimate of value for your home, appraisers will look at comparable properties that have similar features and characteristics. 

How long does mortgage underwriting take?

On average, mortgage underwriting takes between two and five days. However, this depends on the complexity of your mortgage application, the volume of applications the lender has received from other borrowers, as well as the type of loan you are applying for. 

For example, if your loan is fairly simple, the lender is not short-staffed, and you are applying for a conventional mortgage loan, you can expect to receive an initial response from underwriting within 72 hours. 

However, if you have unusual circumstances in your loan application, the lender has an unusually large volume of loan applications, and you are applying for a government loan such as a Federal Housing Administration (FHA) mortgage loan, it could possibly take more than one to two weeks to get an initial decision on your loan. 

What happens after underwriting?

After your loan has been fully reviewed by the lender, your loan will either be approved or denied. Sometimes, the lender may request additional documents, or see if you’re interested in alternative loan terms than what you initially applied for. 

Here are the different decisions you could receive from a lender, and what each of them means.

Approved

This is the most ideal outcome for your loan. It means you’ve been issued a final loan approval at the terms you’ve requested, and the lender does not require any additional items from you. 

Conditionally approved

For eligible borrowers, this is one of the most common outcomes from underwriting. It means that your loan has been approved, but the lender just needs to verify a few additional minor details before it can issue a full approval. In most cases, you should be approved at the terms you initially requested. 

Counter offer

A counteroffer means that the lender was not able to issue you a loan based on what you initially asked for, but can offer slightly different terms. Counter offers typically involve things like a different interest rate, lower loan amount, or the requirement to pay off debt to qualify. 

Suspended

If a loan is suspended, it usually means there are some large discrepancies that need to be resolved before a lender can even determine what to ask for. This commonly occurs with incomplete or inaccurate loan applications, as lenders use that as a basis for verifying your eligibility for a loan. 

Denied

Loan denials can occur if a lender is unable to issue you any type of financing. If this happens to you, be sure to ask the lender what you can do to resolve the issue. Some lenders may be able to suggest another bank or loan program with more flexible qualification requirements. 

What if I have questions about my mortgage loan?

If you have questions about your mortgage loan application or the mortgage underwriting process, you’ll need to speak with either your mortgage loan officer, loan processor, or other designated loan representative. Your questions will then be relayed to the mortgage underwriting team for review.

Can I speak with the mortgage underwriter directly?

Few, if any, mortgage lenders allow borrowers to speak with the mortgage underwriter directly. Instead, you’ll need to speak with either your mortgage loan officer or loan processor, as they will act as the intermediary between you and the mortgage underwriting team. 

This is largely done for compliance purposes, as underwriters are expected to treat all files the same, without bias, issuing decisions solely based on the information contained within the loan application file. 

What if I disagree with the mortgage underwriter’s decision?

If you disagree with a mortgage underwriter’s decision, you can ask for an explanation of how the decision was made, and what guidelines were used. 

Most underwriting guidelines are publicly available. This includes conventional mortgages with Fannie Mae and government loans such as FHA mortgages. If you believe the mortgage underwriter has made a mistake, you can view the guidelines yourself and try to argue your case.

If you are still unsuccessful, you can also ask to speak with a mortgage underwriting manager. Unlike mortgage underwriters, managers are allowed to speak with borrowers directly. 

Tips on getting through mortgage underwriting

Getting through mortgage underwriting can sometimes be a challenging and frustrating experience, but if you follow these tips, you can improve your chances of getting through this step relatively easily: 

• Don’t make any major financial decisions until after your mortgage loan is funded: Applying for a new credit card, car loan, or any other type of financing can cause issues with your mortgage loan. At best, it will delay the process. At worst, it could result in a loan denial. Other financial decisions can include quitting your job or deciding to go into business for yourself with no prior history of being self-employed. 
• Only provide explanations for what you’ve been asked for: If you’re asked for explanations on any discrepancies, keep them simple and only address what you’ve been asked about. Providing any additional details can result in the lender requesting even more documentation. 
• Double-check to ensure you’re providing the lender with exactly what they’ve asked for: To get through the underwriting process as quickly as possible, it’s important to follow the underwriter’s instructions. Some examples of this can include providing all pages of bank statements even if some pages are blank, providing the most recent copies available, and not altering documents such as whiting out information.

Road to mortgage approval: Understanding the mortgage underwriting process

When getting a mortgage for a home, the lender looks at your credit, income, savings, and the value of the house you want to buy. It’s evident that while underwriting may be the bottleneck of the home loan journey, understanding its facets can demystify much of the anxiety and confusion it typically stirs. As you stand on the threshold of securing a mortgage, remember you’re not alone — with House Numbers, you’ll know exactly what home loan you qualify for and for how much without submitting a formal application. We help you avoid the headaches of underwriting within just a few clicks and under 10 minutes.

Disclaimer: The above is provided for informational purposes only and should not be considered tax, savings, financial, or legal advice. All information shown here is for illustrative purpose only and the author is not making a recommendation of any particular product over another. All views and opinions expressed in this post belong to the author.