You may have heard of mortgage underwriting, but what does it mean?

Taking on a mortgage is a big commitment, and one lenders don’t take lightly. All lenders must make sure you qualify for the loan you applied for, which requires mortgage underwriting or evaluating your qualifying factors.

Most people fear the underwriting process, but it’s not as bad as it seems. Here’s everything you must know about it.

What is Mortgage Underwriting?

Mortgage underwriting is an evaluation of your credit report, income, employment, financials, to determine if you meet the qualifying factors for a home loan.


Underwriters look at your income, assets, credit score, and any public records. They ask questions, ask for proof of any information you provide, such as income, assets, bankruptcy information, credit items, and use the information to decide if you meet specific loan guidelines.

Here are the basic steps home buyers go through when getting a mortgage loan:

  • A loan application is completed.
  • A pre-approval letter is issued.
  • Buyer makes an offer on a property they like.
  • The lender starts the loan process and the file gets submitted into mortgage underwriting for loan approval
  • An appraisal is ordered by the lender.
  • A title search is performed to ensure there aren’t any liens on the home.
  • The underwriter approves the loan, usually with conditions needed to complete the file.
  • Buyer works on providing conditions, conditions get cleared and the buyer moves on to the closing.
  • Buyer signs final documentation with a notary and the loan closes.

These steps are the same for a refinance.

What do Underwriters Look For?

Everyone always worries about what underwriters look for. So they assume if they have anything negative in their qualifying factors, an underwriter will decline their application.

This isn’t always the case. Overall, underwriters look at the following.

There is something called the Four C’s that underwriters follow to determine your ability to qualify.

  • Capacity: Underwriters evaluate a mortgage applicant’s income, employment history, monthly debts and other factors to determine if the borrower has the ability to take on the monthly mortgage payments.
  • Capital: Capital refers to the borrower’s liquid assets. Cash in checkings as well as savings, stocks, bonds, investments, etc.
  • Collateral: The home being purchased or refinanced serves as collateral for the loan. So the mortgage underwriter will need to know the appraised value of the property.
  • Credit: Your credit history and score are another important factor during the mortgage underwriting process. Your credit scores and reports show how you have borrowed and repaid money in the past.

Credit Report

Underwriters review your credit report, looking at the score and your credit history. They look at your credit score to make sure it meets the loan guidelines, but they also review your credit history.

For example, do you have a lot of late payments or collections? Do you have any judgments?

They analyze specific details to make sure you aren’t a high risk to lend to.


Underwriters need proof of your income. Usually, pay stubs covering the most recent 30 days and W-2s for the last 2 years are good enough.

If they have any questions about your income pattern or if you recently changed jobs, they may ask for more documentation.

They may also ask to see your tax returns if you are self-employed or work on commission. They do this because underwriters need to determine your income pattern to ensure you can afford the loan or see if you have any repeating patterns of having a loss of income.

Debt to Income Ratio

After reviewing your credit and income information, underwriters will determine what your debt to income ratio is.

Keeping your debt at a manageable level is a key foundation of good financial health.

Your debt-to-income (DTI) is a ratio that compares your monthly debt expenses to your monthly gross income. 

Debt ratio – It basically tells lenders how much money you spend versus how much money you have coming in. 

Each loan type has different debt ratio requirements, government loans typically have more lenient requirements than conventional.

If you beleive your debt ratio is high. Here are a few things you can do to lower it.

  • Increase the amount you pay monthly toward your loans or credit cards. Extra payments will help pay off your debt faster. Target debt with the highest monthly payment.
  • Avoid taking on more credit. Try paying for things in cash instead of credit.
  • Refinance your car or loan to reduce the monthly payment.
  • Get a side hustle so you can put more money towards paying the debt down or saving up for a down payment.

Assets / Capital

What are assets? Assets is the same as capital – it’s how much cash you have available in checking and savings, as well as stocks, bonds, 401k, cds, etc..

Underwriters look at your assets for two reasons.

First, they determine if you can afford the required down payment and closing costs.

Next, they determine the liquid assets you’ll have on hand to cover your mortgage payments in the future in case of an emergency.

Assets, also known as reserves, aren’t always required, but they are an excellent way to make your file look stronger.

For example, if you are getitng a VA loan, a down payment isn’t needed so assets are not a requirement.

Appraisal and Title

Underwriters review the appraisal and title of the home you’re buying to ensure it’s worth enough money to be good collateral and to ensure the house has no liens on it.

Underwriters can approve you for the home loan before you have an appraisal back.

But they can’t clear you to close until they review the collateral to ensure it’s a reasonable risk for the lender.

Related: What to expect when closing on a home

Final Thoughts

Underwriting may seem overwhelming or as if it’s impossible to get through, but it’s just an evaluation of what you can afford.

Knowing the loan program requirements ahead of time and preparing your qualifying factors accordingly will ensure you get through it.

Also, if you were pre-approved prior to finding a home, your loan is much more likely to come back with the loan approval.

Work closely with your loan officer to ensure you know what’s needed to qualify or what you need to work on before you have the potential of getting pre-approved.

Answer the underwriter quickly when they need documents, and be honest throughout the entire process, and it should go smoothly for you.

  • Are you looking to buy or refinance a home?
  • What is your price range?
  • Do you currently own a home?
  • What type of property are you buying?
  • When are you planning to make your home purchase?
  • Have you (or your spouse) ever served in the US military?
  • Have you declared bankruptcy in the past 7 years?
  • Is this your first time purchasing a home?
  • What is your current credit score?
  • What is your email address?
  • What is your name?
  • What is your phone number?

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