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Mortgage Underwriting: A Guide

Scott Steinberg6-minute read
UPDATED: May 19, 2023

What is underwriting and how does it relate to home loans and mortgages? Simply put, it’s a critical part of the home mortgage process and is essential to completing a real estate transaction. Mortgage underwriting refers to the final part of securing your funds to complete a home purchase.

In other words: until your home loan has been underwritten (or finally approved) by a financial lender, the deal can’t go through. What is the underwriting process and what does underwriting mean for a prospective home buyer? Read on to learn more about how it works – and why you’ve got to have it.

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What Is Underwriting?

Loan underwriting involves a full diagnostic check-up of your financial health that gives lenders the confidence that you’ll be able to repay any sums they lend. As such, your lender will verify your income, assets, debt and property details. Until it’s completed, and the lender has final approval to issue a mortgage, you won’t have access to the funds to purchase your home.

While underwriting happens behind the scenes, note that it is a critical part of any mortgage-based real estate transaction, including the home buying process. Although your mortgage lender will be the one who drives this process, you can expect to be at least somewhat involved. For example, your lender may ask specific questions and request additional documents to verify income, assets and employment. This helps the mortgage lender confirm that you can afford the home you want to buy.

What Is Involved In The Mortgage Loan Underwriting Process?

As you might imagine, the underwriting process can be quite involved. That’s because it allows a lender to take a deep dive into your financial history and current standing. Among other items of note, that will mean taking a closer look at how much income you’re bringing in, how much debt you’re holding, what type of assets you own and how well you’ve managed your finances and credit in the past.

Part of underwriting also involves your lender taking the time to confirm the home you want to buy is worth the actual sales price. It’s necessary for a lender to verify they’ll be able to get their money back should they need to liquidate and sell the home if you default on your mortgage. As a borrower, you should know that the key areas that underwriters will examine include credit, appraisal, income and assets.

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Your credit score is a crucial factor that underwriters will examine as they consider approving you for a home loan. Whether you’re applying for a conventional loan, Federal Housing Administration (FHA) loan, or Department of Veterans Affairs (VA) loan, your credit score provides a snapshot of your financial history and health. Picture it as a quick-hit indicator that helps financial lenders get a sense as to how much debt you’re carrying and how good you are at handling it. Likewise, it also gives mortgage lenders a sense of how much debt that you have relative to income (known as your debt-to-income, or DTI ratio). Your credit score impacts the loan terms, interest rate and what type of loans are available to you.

For reference, if you’re looking to obtain a conventional loan, you’ll want to have a credit score of 620 or better. For an FHA loan, the minimum number to shoot for is 580. While VA loans don’t technically come with minimum down payment amounts or credit requirements attached, individual lenders may require specific scores.


Home appraisals are an important piece of the underwriting process as well. That’s because they help lenders confirm that the home you’re buying is worth the price you’re paying for it. This provides reassurance in case they need to sell it to salvage an unpaid loan. Likewise, the home appraisal process helps gives you, the borrower, a certain level of protection by ensuring that you’re not unknowingly overpaying.

As part of a home appraisal, a third-party, professional appraiser will walk through the property, review your local real estate market conditions and research recent sales in your area. The appraiser will then analyze all this information and provide a value in terms of what they think the house is worth.

If your property’s value is determined to be at or above the sales price, underwriting proceeds. If its value is determined to be lower than the proposed sales price, your loan approval is paused until the discrepancy can be addressed. This gap in price can be overcome by negotiating with a seller to bring down the price providing the cash needed to close the difference between the sales price and appraisal amount. This is sometimes referred to as “covering the gap."

Of course, it’s also important to remember: An appraisal is just one individual’s opinion. If you don’t mind paying to have your property appraised a second time, a second appraiser may also come up with a different valuation that bridges the distance. However, before ordering one, you’ll want to research and gather any information that you feel justifies getting a second opinion. That may include data on home sales or changes in the market that the first appraiser may have missed.


Lenders also need to confirm that you’re bringing in enough income to comfortably afford your monthly mortgage payment. It’s part of the reason that employment is verified just before closing – to show you haven’t lost income or experienced a change in employment status during the home buying process. To verify your income, you’ll need to provide W-2s from the prior 2 years as well as your two most recent pay stubs and bank statements. If you’re a self-employed individual, they’ll ask for different or additional documents, including recent tax returns from the years immediately preceding the transaction.


Various assets, such as savings, stocks, personal property and investments, can also help you to secure loan approval and may impact how much you can be approved for. If you default on your payments, your lender can liquidate these assets and sell them for cash to help offset the remaining loan balance. Likewise, assets can also be used to confirm that you’ve got enough money on-hand to cover your down payment and closing costs and afford your monthly payments. As part of the underwriting process, your loan underwriter may take a closer look at any checking or savings accounts, real estate holdings, personal property and stocks and bonds that you currently hold.

What Does A Mortgage Underwriter Do?

As part of the mortgage process, an underwriter takes a closer look at your finances and evaluates your eligibility and qualifications as a borrower. The following steps are involved in underwriting, and just a few of many tasks that a mortgage underwriter performs.

Research Your Credit Score And History

An underwriter will examine your credit history and credit score to get a better sense of your relative financial health.

Start The Appraisal

Your mortgage underwriter will hire, schedule and arrange for payment of a home appraiser. Note that some lenders will pay the cost for you or roll the cost into your loan, while others will have you pay for this bill upfront.

Verify Your Income And Employment

Using the documentation you provide, your mortgage underwriter will make sure that you meet employment and income criteria for the issuance of the home loan.

Check Your Debt-To-Income Ratio

Your underwriter will also confirm your DTI is below the maximum ratio to ensure you can comfortably take on more debt.

Evaluate Your Down Payment, Savings and Assets

The mortgage underwriter will double-check to ensure that you have sufficient savings and assets in place to cover your down payment and closing costs.

What Does the Underwriter’s Decision Mean?

There are three possible outcomes that you may encounter once your mortgage underwriter has completed their research and work. Your loan will be approved, denied or suspended. Explanations of each can be found below.

  • Approved: You’re cleared to proceed and close on the property.
  • Denied: The transaction cannot move forward. Speak with your lender to find out how to resolve the situation
  • Suspended: Further information may be needed for the lender to render a decision. Ask to reopen and process the application again once this information is in-hand.

How Long Does Underwriting Take?

Be advised that the underwriting process is unique to your individual financial situation as a borrower. As such, the time it takes to complete can vary. To ensure a smoother underwriting process, and improve odds of successful completion, it’s important to obtain and submit copies of all necessary documentation on time. Similarly, the sooner that you can put this information in your underwriter’s hands, the less hiccups you may encounter.

Tips For A Smooth Underwriting Process

A few tips that can help you more smoothly sail through the underwriting process are as follows:

  • Get initial approval. This can make the mortgage underwriting process and final loan approval easier because your underwriter already has a great deal of the information they need at their disposal.
  • Present an accurate snapshot of your finances. Here’s where it pays to be honest from the get-go. Eventually, your lender will find out details on any areas of concern, so don’t waste any valuable time.
  • Avoid applying for new credit. It’s important to avoid the temptation to take on new debt during the underwriting process. That’s because it can unfavorably skew your DTI ratio, lower your credit score and jeopardize loan approval.
  • Respond to requests for more information promptly. Make a point to always get your loan underwriter any information they need as quickly as possible. Underwriting can take time, and you don’t want to risk things coming down to the wire when a closing date looms.
  • Ask questions. If you don’t understand something with regards to real estate transaction, now’s the time to speak up. Purchasing a home is a complicated process, and the more you know about it, the better.

The Bottom Line: Underwriting Is An Important Part Of The Home Buying Process

Underwriting describes the process through which your financial lender performs an extensive evaluation of your income, assets, debt and property to determine whether to extend final loan approval. Mortgages cannot be issued until underwriting has taken place and final approval has been given. Your mortgage lender will spearhead loan underwriting, and ask you questions, or ask for documentation to review before approving, denying or suspending the loan.

The process informs your lender that you’ve got enough income coming in and/or assets on-hand to meet your financial obligations under the terms of your mortgage.

When you financially prepare to buy a house, you’re also preparing for the underwriting process and ensuring a smoother experience.

Get approved to buy a home.

Rocket Mortgage® lets you get to house hunting sooner.

NMLS #3030

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Scott Steinberg

Hailed as The Master of Innovation by Fortune magazine, and World’s Leading Business Strategist, award-winning professional speaker Scott Steinberg is among today’s best-known trends experts and futurists. He’s the bestselling author of 14 books including Make Change Work for You and FAST >> FORWARD.