Underwriting

Underwriting is the lender's investigation phase—they dig into your finances to decide whether you're a good risk and what interest rate you deserve. It's like a financial background check.

What Underwriters Evaluate:

1. Credit Score & History:

• FICO score (720+ excellent, <580 risky)
• Payment history (late payments are red flags)
• Credit utilization
• Recent credit inquiries
• Public records (bankruptcies, foreclosures)

2. Income & Employment:

• W-2s from past 2 years
• Recent pay stubs
• Employment verification (they may call your employer!)
• Self-employed: 2 years of tax returns
• Income stability and consistency

3. Debt-to-Income Ratio (DTI):

• Monthly debt payments ÷ gross monthly income
• Under 36% ideal, 43% maximum for most mortgages
• Includes proposed new mortgage payment

4. Assets & Reserves:

• Down payment source (gift vs. savings)
• Bank statements (2-3 months)
• Investment accounts
• Reserves for 2-6 months of mortgage payments

5. Property (for Mortgages):

• Appraisal value (home must be worth the loan amount)
• Property condition
• Marketability/sellability

Underwriting Timeline:

• Pre-qualification: Minutes to hours (soft credit check, rough estimate)
• Pre-approval: 1-3 days (hard credit check, document review)
• Final underwriting: 2-5 days (after offer accepted, full verification)

Common Underwriting Conditions: Things underwriters ask for before final approval:

• Explanation of large bank deposits
• Letter explaining employment gap
• Proof of gift funds from family
• Updated pay stubs (if process drags out)
• Verification of debt payoff

Automated vs. Manual Underwriting:

Automated (Desktop Underwriter):

• Algorithm-based decision
• Minutes to hours
• Used for straightforward borrowers (W-2 income, good credit)
• Fannie Mae/Freddie Mac systems

Manual Underwriting:

• Human reviews your file
• Days to weeks
• For complex situations: self-employed, credit issues, unique properties
• More subjective, but allows explanations

What Can Derail Underwriting:

DON'T During Underwriting:

• Open new credit cards
• Finance a car purchase
• Miss any bill payments
• Change jobs
• Make large cash deposits
• Cosign a loan

All of these can tank your approval!

Underwriting Decision:

• Approved: Congratulations, you get the loan
• Approved with Conditions: Need to provide more documents
• Suspended: Major issue, might be denied
• Denied: No loan for you (credit issues, insufficient income, etc.)

After Approval: Even after "clear to close," underwriters do a final check 1-2 days before closing to verify nothing changed (employment, credit, etc.).