What You Need to Know About Mortgage Underwriting

USDA underwriter reviewing an application on her computerAre you looking to navigate the complex world of mortgage underwriting? Look no further! In this comprehensive guide, we unravel the mysteries of the underwriting mortgage process. Whether you're a first-time homebuyer or a seasoned investor, understanding the ins and outs of underwriting can make all the difference in securing the right loan for your needs. Get ready to embark on a journey through the intricacies of underwriting, demystifying the process every step of the way.

How Getting a Mortgage Works

If you're in the market for a new home, you're probably wondering how the mortgage process works. One of the key steps in getting a mortgage is underwriting. So what is underwriting in the mortgage process?

Underwriting is the process that lenders use to determine whether to approve a loan. Lenders will look at several factors when considering a loan, including the borrower's credit score, employment history, and income. They'll also take into account the property's value and the loan amount.

The underwriting process can be complex, but it's important to understand how it works if you're planning on buying a home. If you have any questions about your specific situation, be sure to ask your lender for guidance.

What Is the Automated Underwriting Process for a Mortgage?

The mortgage underwriting process is the process that lenders use to determine whether to approve a mortgage loan. Lenders use various factors to determine whether a borrower is a good risk, including credit score, employment history, and debt-to-income ratio. Manual underwriting can be time-consuming, so lenders are using technology to speed up the mortgage underwriting process.

If a lender determines that a borrower is a good risk, it will typically conduct a more in-depth review of the application. This process typically involves verifying income and employment information and reviewing the borrower's credit history.

The lender may also request additional documentation from the borrower, such as tax returns. If a lender determines that a borrower is not a good risk, the lender will not approve the mortgage loan or may only offer a higher interest rate than what the borrower has requested.

How Does a Lender Decide Whether a Mortgage Should Be Approved?

After securing all appropriate paperwork, the loan officer submits the applicant's information into an automated software system.

Lenders use automated underwriting software to decide whether to approve a mortgage loan. The information in the application is often compared with other data in the lender's database using algorithms. The underwriting mechanism of the lender determines whether or not to provide the applicant with a mortgage. The outcome happens very instantly.

Automated vs. manual underwriting

When it comes to underwriting a mortgage, there are two main methods: automated and manual. Automated underwriting is the process of using software to assess a borrower’s creditworthiness, while manual underwriting is the process of having a human underwriter review the loan application and supporting documentation.

So, which method is better? The answer may surprise you—it depends on the situation. Here’s a closer look at automated and manual underwriting and when each method may be the best option.

Automated Underwriting

The biggest advantage of automated underwriting is speed. Because the software does most of the work, loans can be approved or denied much faster than with manual underwriting.

Another benefit of automated underwriting is that it’s generally more accurate than manual underwriting. That’s because the software takes into account a wider range of factors—not just the information in the loan application but also data from the borrower’s credit report, employment history, and more. This helps to create a more complete picture of the borrower’s financial situation, which can lead to more accurate decisions about whether to approve the loan.

After the software completes its evaluation, the report moves to the underwriter. The underwriter is a highly trained employee who determines if the applicant meets the loan program guidelines.

Manual Underwriting

In years past, the underwriter scrutinized every loan application. Reviewing every application took time. Underwriters were cautious. After all, if too many loans end in foreclosure, the underwriter could be looking at a pink slip. Automated underwriting software reduces approval risk and takes the heat off underwriters.

What the mortgage underwriter evaluates

When you go through the mortgage underwriting process, your lender is evaluating a few key factors to determine whether you qualify for a loan. Here's a look at some of the things that your mortgage underwriter will be considering:

Your credit score:

Your credit score is one of the most important factors in the mortgage underwriting process. Lenders want to see that you have a history of making on-time payments, and a good credit score will give them confidence that you'll do so in the future.

Your employment history:

Your mortgage underwriter will want to see that you have a steady employment history. He or she will want to know how long you've been working at your present position, and the underwriter may want further documentation to verify your income, such as pay stubs or tax returns.

Your debt-to-income ratio:

This is a key metric that lenders use to determine whether you can afford a loan. To get your debt-to-income ratio, the underwriter will add all of your monthly bills (including your anticipated mortgage payment) and divide the total by your gross monthly income. A higher debt-to-income ratio makes it more difficult to qualify for a loan.

Your assets:

Do you have the necessary funds to close? After closing, will you have sufficient financial reserves to weather any changes to your revenue or expenses?

3 Underwriting Outcomes

There are a few potential outcomes that can occur during the underwriting process for a mortgage. The first outcome is loan approval, allowing the borrower to proceed to closing.

The second outcome is loan approval with conditions, which means that there are some items that need to be addressed before the loan can be finalized.

The third consequence is the denial of the loan. This can happen for a variety of reasons, including not meeting the minimum requirements, having too much debt, or having a poor credit history.

The outcome will depend on a variety of factors, including the kind of loan requested, the borrower's credit history and income, and the purchase price of the property.

Underwriters will review the automated underwriting report along with all the information provided and make a decision on whether to approve the loan.

For loans that are approved with conditions, borrowers will need to provide additional documentation or information in order to finalize the loan. This might include proof of income, bank statements, or other financial documentation.

After meeting any conditions, the loan can be approved and closing can proceed.

For mortgages that are denied, borrowers will need to look at other options for financing their purchase.

How long does the underwriting process take?

The underwriting process can take anywhere from a few days to a few weeks. The timeline depends on the lender, the type of loan, and the borrower's situation.

For example, if you're applying for a conventional loan, the process may be quicker since the guidelines are more straightforward. On the other hand, if you're self-employed or have a complex financial history, the underwriting process may take longer since your lender will need to gather more documentation.

In general, the underwriting process moves faster when everything is in order and there are no red flags. If your loan officer has to ask for additional documentation or clarification, this can extend the timeline.

So how long does underwriting take? It really depends on the individual case. However, you can expect to receive a conditional approval within a few days to a week. Once all conditions are satisfied, your loan will be approved, and you'll be able to close on your new home.


Mastering the underwriting mortgage process is crucial for anyone seeking a loan to purchase or refinance a home. With this guide as your compass, you'll gain valuable insights into the inner workings of underwriting, empowering you to make informed decisions and increase your chances of loan approval. Remember, a well-prepared borrower is a confident borrower. So, equip yourself with knowledge and embark on your mortgage journey with certainty. The road to homeownership awaits you!

Chapter 6: Loan Purposes - USDA Rural Development
USDA Section 1: Overview of the Underwriting Process