Key Steps in the Mortgage Underwriting Process

You did it. After shopping for weeks or even months, you found the one. The house that checks all your boxes and then some. Now that the fun part is over, it’s time to handle the not-so-enjoyable part, the process to get approved for a mortgage loan.

Without a mortgage, you can’t purchase your dream home. That means choosing a lender, getting all your documents submitted, and waiting to find out if you’re approved for the best terms that fit your budget. Here’s what you can expect from the beginning to the end of the mortgage underwriting process.

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    What is mortgage underwriting? 

    After you apply for a mortgage loan, the application is submitted to the underwriting team to process. The loan officer or mortgage broker will collect all necessary documents from you, which are submitted to the underwriter. The underwriter then determines your creditworthiness, risk ratio, and ability to repay the mortgage on time and in full.

    The mortgage underwriter will consider your credit history and financial situation, including:

    • Assets
    • Cash reserves
    • Credit score
    • Debt-to-income ratio
    • Income

    Most underwriters use automated underwriting, which uses computer programs to confirm things like your employment, income and credit score. For certain circumstances, like a high net worth but no credit history, manual underwriting may be required.

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    Key steps in mortgage underwriting process 

    The underwriting process when applying for a mortgage can be long, but that’s because there are lots of steps involved. Here’s what to expect when getting a mortgage:

    1. Prequalification — A prequalification happens before you look for a house. The lender reviews your debts, income and credit score to help you determine how much house you can afford.
    2. Income verification — Pay stubs, bank statements and tax returns are used to confirm your income amount to make sure you make enough to repay the mortgage on time each month.
    3. Appraisal — Used to determine if the house’s condition and comparable neighborhood sales are in line with your offer and loan amount requested. The appraisal assigns a value to the home that the underwriter uses to determine how much the lender is willing to let you borrow to purchase the property.
    4. Title search and title insurance — A title company will research the property’s history, including claims, liens, ordinances, easement rights, unpaid taxes and any legal action taken against the property or prior owner. The company will then issue an insurance policy, backing up the accuracy of what they found to protect you as the new owner and/or the lender.
    5. Underwriting decision — After your application and all documentation are reviewed, the underwriter will determine if you’re eligible for the loan. 
      1. Approved — If you’re approved, then you get the green light to proceed to closing, which is the last step before the property is officially yours.
      2. Denied — You could be denied if the underwriter determines it’s too risky to lend money to you. This could be because your debt-to-income ratio is too high or your credit score is too low. If this happens, review your credit report for mistakes and work to lower your debt and improve your credit score.
      3. Suspended — This usually means there is some documentation missing or can’t be verified, like your income or employment. The application is put on hold and may be able to be reopened and processed by providing the information needed.
      4. Approved with conditions — A conditional approval means you qualify, but something is missing. This could be proof of insurance, additional pay stubs or tax forms needed to give the final approval.

    Once approved, a closing date is scheduled. On closing day, you’ll sign the mortgage loan documents. Now, take those keys and enjoy your new home!

    What do I need to start the mortgage underwriting process? 

    If you’re looking to purchase a home or refinance your existing home, you can speed up the mortgage underwriting process by having your documents ready to go. You may have to request certain items, which can delay the process if you wait until after you apply.

    To be proactive, here are some of the documents you should have ready to provide:

    • Employment information: Pay stubs from the last 60 to 90 days, the last two years of W-2’s or 1099’s and tax returns, business records if you’re self-employed
    • Account information: Print outs or bank statements for any CDs, checking, savings, and money market accounts, and any retirement or asset accounts
    • Additional information: Alimony or child support payments (receiving or paying), bonus or commission statements, annuity or dividend income statements, pension or Social Security income statements

    If someone is gifting you funds for the down payment on the home, it’s best to transfer those funds into your bank account at least 30 days before you apply for the loan. The lender will also require a gift letter signed by the person gifting the funds to confirm it’s being given and not lent.

    Each lender has different requirements, so be sure to check before applying for a faster experience.

    Read: Compare Today’s Refinance Rates

    How long does the mortgage underwriting process take? 

    According to the Home Buying Institute, the average mortgage underwriting process takes between five and eight business days. However, it can take several weeks to get an approval, depending on the application and documentation needed.

    It’s not uncommon for the underwriter to issue a conditional approval with a document request, meaning they expect the loan to close. Sometimes, this is as simple as providing a proof of insurance or a letter of explanation about a bank transaction. An approval without conditions makes for a faster mortgage underwriting process than a conditional approval, which is why it’s important to have your documents ready to go before you apply.

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    Mandy Sleight

    Contributing Finance Writer

    Mandy Sleight is a freelance writer and has been an insurance agent since 2005. She creates informative, engaging, and easy-to-understand content on the topics of insurance, personal finance, sustainability, and health and wellness. Her work has been featured in Kiplinger, MoneyGeek and other major publications. Learn more about Mandy and her writing on her website or by connecting on LinkedIn.