Mortgage underwriting process — how does it work?

The Mortgage Underwriting Process Explained

Mortgage underwriting process — how does it work?

Underwriting. A term you might not be familiar with, or if you are, one that brings to mind piles of documents and lots of questions. We’re demystifying the underwriting process to help you understand why it’s important, essential and ultimately a beneficial part of the mortgage process.

“Underwriting is about assessing risk – the risk the Bank takes in loaning money, but also the risk the customer is taking by promising to pay back borrowed money. Our underwriters work hard every day to make sure applicants truly qualify for a mortgage and help guide them to smarter financial decisions,” says Underwriting Manager, Jenna Hartman.

Steps in the Loan & Mortgage Underwriting Process

But, first things first, where does underwriting fit in the mortgage process? Here’s a simple breakdown of the steps:

  1. Discussing Your Needs. You meet with a local mortgage lender to discuss your goals, budget and loan options. With your lender’s help, you select a home loan program.
  2. Pre-Approval Application. You apply for a mortgage pre-approval and provide the necessary paperwork to your mortgage lender. Pre-approval is a great first step to help you determine how much you can afford before you look for a house and show buyers you’re serious about purchasing a property or land.
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  3. Pre-Approval Application Reviewed by Lender. The lender reviews your application and documentation.
  4. Pre-Approval Decision/Approval. After review, your lender determines if you qualify for mortgage pre-approval and how much you can afford. You’ll discuss your budget in more detail and prepare for your house search (or contractor search, if you’re building).
  5. House Hunting. Now comes the fun part! Once you have qualified, stay in touch with your lender during the building or house hunting process. Or, maybe you’ve already found the perfect home…then you’ll move on to step six.
  6. Application Reviewed by Underwriting. With the property selected, you provide additional documentation to your lender. From there, the Underwriting department at Merchants Bank, made up of several employees based in Winona, MN, reviews your application, including all of the documentation you provided.
  7. Loan Decision/Approval. After careful review of all your documentation, the Underwriting department determines if you qualify for the home loan. The decision is communicated to you by your mortgage lender. If you are refinancing a current mortgage, you’re ready to sign papers.
  8. Buying/Building a Home. You finalize the details of the mortgage terms with your lender, who will also communicate with the realtor and/or sellers. Once terms have been agreed upon, you meet with all involved parties to sign the final paperwork.
  9. Moving In. Congratulations! Now that you’re moving in, you’ll be busy making your house into a home and begin your mortgage payments. Our local Loan Servicing department will be with you throughout the repayment process to answer all your questions and help put you at ease.

    About a month after your loan closing, you’ll either receive your loan payment book or notice of your first automatic payment, whichever payment option you selected. If you are escrowing (putting money aside each month as part of your mortgage payment), for your property taxes and homeowner’s insurance the Loan Servicing department will pay those bills the next time they are due.  

We’re with you from start to finish. This mortgage application process can take anywhere from a few weeks to a few months, depending on the housing market.

The important thing to note is that while there are guidelines our Underwriting department must work within when reviewing loan applications, lenders, customers and underwriters can all work together to make the process go smoothly. Communication is key and another reason having local lenders and local underwriters is so beneficial to our customers. Jenna shares two common issues that can slow the loan process and how you can avoid them.

Things to Avoid During the Mortgage Process

“One common issue we see is applying for or acquiring new debt – a credit card – while our team is reviewing a loan application,” says Jenna.

She recommends consulting your lender prior to taking out new debt to avoid this hiccup in the loan process. “Even if you could save 25% at a department store or on furniture for your new home – it might not be worth it. Any new debt you take on during the loan process has to be documented and could affect if you qualify for the loan.”

Moving Money Between Accounts

Jenna adds, “[w]hen you move money from account to account or bank to bank, it can make our job to verify your financial assets more difficult.”

When your money is moved between accounts or financial institutions, it makes the paper trail to track the funds harder for the Underwriting team to verify.

Many people don’t realize that verifying adequate liquid assets is part of the mortgage loan approval process. It’s all a part of the education we provide our customers.

This problem can also be avoided by consulting your lender before you move any money.

If you have questions about the underwriting, or any part of the mortgage process, just ask your local Merchants Bank mortgage lender.

“Everyone on the Merchants Mortgage team is working hard for you – from the lenders to those of us behind the scenes. As underwriters, we know that when we approve a loan, there are people moving into homes and making memories. It’s such a rewarding process to be a part of.”

Additional Resources:


What Is Underwriting?

Mortgage underwriting process — how does it work?

You were preapproved for a mortgage and then found the house of your dreams. Now that your offer’s been accepted, that means you’re clear to get the mortgage and become a homeowner, right? Not so fast. You still have to go through underwriting.

A mortgage preapproval is not a guarantee you will get a loan. After finding a house, you have to complete a full mortgage application, whether that’s with the lender that gave you the preapproval or a different one. During underwriting, the lender takes a much deeper dive into your finances before approving the loan.

What is an underwriter?

After the loan processor has compiled your mortgage application, it goes to the underwriter. A mortgage underwriter’s job is to determine how risky it would be to give you a home loan.

With manual underwriting, a human being decides whether to approve your application. With an automated underwriting system, a computer algorithm will render a decision. However, a person is still needed at the end of the process in case any additional documentation is required and to make the final call.

The mortgage underwriting process

Underwriting is an unavoidable part of buying a home. This is when a lender reviews your application and decides whether you will be able to repay the loan.

While you may have already submitted documents to your lender during preapproval, be prepared to provide bank statements, your monthly debt, W-2 forms, tax returns, pay stubs or other sources of income when completing the home loan application.

The financial review

After you have filled out the application, the underwriter will go over your finances, including your credit score and report, employment history, debt-to-income ratio, assets, income and the amount of your mortgage.

Brigitte Morrow Killings, vice president at Wells Fargo Home Mortgage, says an underwriter looks at “five C’s” when reviewing an application.

  • Character: Does the applicant have a stable work history?

  • Credit history: How has the applicant managed credit?

  • Capacity: What is the applicant’s ability to repay the loan?

  • Collateral: Does the property’s value support the loan?

  • Conditions: How stable are the economy and the job market?

The appraisal

The lender will order a home appraisal to make sure the loan is not greater than the value of the property. The value is determined by factors including the size and age of the house and recent sales of comparable homes in the area.

The lender will order a title search to confirm that the property is free of any outstanding claims, including unpaid taxes or judgments. Your closing costs, which are 2% to 5% of the loan’s cost, will include the appraisal, title search and other fees.

The decision

In the final step, the underwriter will decide whether to approve, deny or suspend a decision on your loan.

If your application is approved, you are clear to close on the loan. If you are approved with conditions, you may have to supply more documents before your loan is accepted.

If your loan is denied, you should find out why. You may need to improve your credit score or pay down debt before reapplying.

The underwriter may suspend your application if some documents are missing from your file. You will need to supply the lender with the requested information in order for the application to proceed.

How long does underwriting take?

Underwriting can be completed in a few days or a few weeks, but everyone’s situation is different. An incomplete application, the type of loan, or issues with the appraisal or title search can affect the timeline.

Mistakes to avoid

To increase the chances of closing on your mortgage, avoid these mistakes during the underwriting process:

Don’t apply for new credit, pay bills late, make large purchases, or close accounts. Lenders can pull your credit and recheck your finances any time before you close on the loan. Any changes to your financial profile could torpedo the application.

Don’t change jobs. A career change can alter the amount the lender has approved for you to borrow.

Don’t ignore lender inquiries. If your lender contacts you for additional information, respond to it as quickly as possible or your application may be delayed.

Barry Rothman, housing counseling program manager at Consolidated Credit, a nonprofit credit counseling agency, says it’s harder to get a mortgage today than in years past because of the 2008 mortgage meltdown and the coronavirus pandemic.

“That’s why the process is constructed the way it is,” he says. “Lenders are much more careful about who they want to lend to. Rates are really low, but it’s a matter of getting approved for those rates, or any rates.”


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