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What Is a Loan Underwriter?

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Nobody has more control over your mortgage application than a loan underwriter. They hold the proverbial keys to your homebuying aspirations, but the way they make decisions can be misunderstood.

The underwriter’s primary job is to make sure you demonstrate an ability to repay your loan and that you meet all of the guidelines and requirements of the mortgage program you are applying for. Your job, with the help of your loan officer, is to provide the underwriter with enough evidence that you are a good candidate for the mortgage.

In this article, we will cover:

What is loan underwriting?

Mortgage loan underwriting is a complex process involving the analysis of your income, assets and credit to determine if you meet the requirements for the mortgage product you are applying for. The underwriter also focuses a great deal of attention on the home that is being financed to make sure the value is sufficient, the home is safe and habitable and the title of the property can be transferred without any issues like prior tax liens, judgments or zoning problems.

The foundation of loan underwriting is built on a concept called the 3 C’s of underwriting. The factors are credit reputation, capacity and collateral. We’ll explain these in a bit more detail so you can get a glimpse inside the mind of an underwriter.

Credit reputation

When an underwriter reviews your credit report, they’re looking at more than just your credit score. Derogatory credit information is of primary importance — so foreclosures, bankruptcies, liens and judgments will get a lot of extra attention.

How many credit accounts you have, how old they are and how often they are used also influence the underwriter credit review. Finally, the underwriter looks at how many new credit accounts you’ve opened up in the last 12 months to make sure you’re not taking on too much debt.


A key number calculated during loan underwriting looks at how much total debt you have compared to your gross income. This is called the debt-to-income ratio. Lenders follow a “qualified mortgage” rule that suggests the debt-to-income ratio shouldn’t exceed 43%.

Your employment status — whether you earn a salary or are self-employed — will also influence the underwriter’s review of your capacity to repay your loan. The idea is that if you have a history of stable income, that is likely to continue into the future.

There’s strength in numbers with loan approvals as well, so two people borrowing instead of just one may make an approval more likely. This is why having a cosigner on a loan is a common suggestion for a borrower who is having difficulty qualifying alone.

If you’re applying for a cash-out refinance, the underwriter will also consider the financial risks of increasing your monthly payment while decreasing the remaining equity in your home. If you’re looking for a new purchase mortgage, the underwriter will look at potential “payment shock,” or how much your house new house payment would be versus your current one.


Your down payment is a major factor in the loan approval process. The more equity you contribute to buy a house, the less likely you are to default and the more likely your lender won’t get stuck with a property they can’t sell.

Different property types require underwriting scrutiny. Condominium and 2- to 4-unit properties come with additional risks that an underwriter has to evaluate to protect both your investment and the investors who are loaning you the money.

Finally, occupancy is important as well. Underwriters have different considerations when reviewing your loan application to purchase a property you will living in part time or full time, versus a property that you will be using as a rental. This includes down payment requirements, as well as reserve requirements for how many months worth of mortgage payments you have to have in the bank after closing.

How automated underwriting works

The underwriter’s decision to approve or deny a loan is motivated in large part by automated underwriting systems like Fannie Mae’s Desktop Underwriter (DU). These algorithms analyze different risk factors, such as credit score, down payment and debt-to-income ratio when rendering a decision.

Before automated underwriting made its debut in the late 1990s, underwriters had to manually review more than 700 data items from a loan application to come to a final decision on approving or denying a loan. Computer-generated underwriting saves time and creates a bias-free decision — which also prevents any fair lending issues when it comes to race, gender and other prohibited reasons for denying a loan.

By analyzing and weighing different layers of risk based on rules and statistics, the decision is made without any undue influence from a particular underwriter’s personal experiences.

For example, one underwriter may have worked in a bank where loans were made to people with lower credit scores, ultimately resulting in foreclosures. That underwriter might instinctively take a harsher approach to borrowers who apply with similar credit problems. The automated underwriting system provides objective guidance to that underwriter.

An underwriter is also more likely to focus attention on a specific factor in your favor if the automated system has already done the bulk of data analysis. For example, if you have a very low credit score and recent late payments, the automated system may still render an approval decision if you’ve got six months worth of mortgage payments in the bank.

The underwriter is less likely to deny based solely on a low credit score if the computer already gives the green light based on the extra cash you have in savings.

However, the computer does not have the final say in any loan approval. There is a manual underwriting process offered for each loan type, which will allow a human underwriter to make a final judgment regarding the approval or denial of any mortgage loan application.

Ways to make a good impression on an underwriter

How your loan application and supporting documentation are presented can have an impact on an underwriter’s first “vibe” about your ability to repay. If you have had some gaps in your employment or had a few rough patches with your credit, a thoughtful explanation about what happened, how it’s changed and a couple of bank statements showing how much you’re putting into your emergency account could very well push a “maybe” into a “yes.”

Have your financial house in order before you apply

If you know how to apply for a home mortgage, you’ll save yourself a lot of pain and headache — and you won’t become a pain for the underwriter who reviews your loan file.

If you need credit repair or are still saving up your down payment, wait a few months to apply to give yourself the best chance of making a good first impression. Underwriters will feel more comfortable knowing you’re a few months into a better credit or asset situation.

Read and complete all the sections of the loan application

This might seem obvious, but as the loan application process becomes more automated, you may find yourself filling out an application in your real estate agent’s car with the kids screaming in the back seat rather than at a desktop computer in the silence of your bedroom. Forgetting to list that cash value life insurance policy, or the timeshare for your condo in Bora Bora could create a tense relationship with an underwriter if those become items that make or break your approval.

Explain and document credit, income and savings issues

Situations like divorce, layoffs or bankruptcy can be emotional to discuss with your friends and family, let alone a stranger reviewing your personal financial data. The challenge with not providing details and documentation of any of these issues in your past: An underwriter may think you’re hiding something.

It may be painful to relive the day a mortgage late payment alert showed up on your credit for a house that your ex-spouse was supposed to make payments on. However, not explaining it may create an unfair and inaccurate image of how you manage money yourself and give the underwriter a reason to deny your loan rather than approve it.

Be sure to also paint the picture of how things have improved, and why your ability to repay is better than ever. Maybe your wife is taking night classes to get her master’s degree, and her income will rise exponentially. Or maybe you are months away from that performance bonus.

If the underwriter sees that things are only getting better, and your situation is going to give you even more room in your disposable income to pay your mortgage, that could be the positive tipping point in a borderline decision.

Types of underwriting decisions

There are only three types of decisions an underwriter will make on a mortgage loan application package: approval, suspense or denial. None of these decisions is permanent until you actually close. An approval can become a denial just as easily as a denial becomes an approval.

Conditional loan approval

If the underwriter determines that your mortgage meets the loan program guidelines you’re applying for, you will receive what’s known as a conditional loan approval. Some lenders may call it a conditional commitment, but it means your loan is likely to close if you continue to meet the conditions.

The information on your loan will be reverified right up until your closing, so don’t make any changes to your finances. Most people know not to charge up credit or switch jobs, but right before closing is not the time to pay off credit card balances either.

Even though your payments will be lower on the cards, the sudden lower balances could raise questions about where you got the money to pay them down, requiring documentation that could delay your closing at the last minute. If you just focus on meeting the loan approval conditions, everything should go smoothly to closing.


Just like the word means, there’s not enough information to provide an approval. This could be because of a lack of details, or a disagreement about how a loan officer or processor calculated your income.

Complicated tax returns, undisclosed expenses or properties owned, or a credit history that requires a consultation with management can all be reasons a loan could be suspended. The sooner you provide the information that’s requested, the faster your loan will get a final decision.


Nearly one in 10 borrowers will be denied for a mortgage, according to a recent LendingTree analysis of data from more than 10 million mortgage applications. A denial can be overturned, however, or it may mean that you need to come up with a new strategy for financing your home purchase.

The important thing to remember is the denial represents one underwriter’s opinion of the risk of your loan package to the investors that they work for. If there is no counteroffer for an approval, such as a higher down payment, or assets on hand to cover several months of house payments, it will be worthwhile to get a second opinion.

Why you won’t likely speak to an underwriter directly

Depending on the type of lender you choose, the underwriter who reviews your loan application may either be an employee on site or work at a regional underwriting center that receives loans from several different states. In order to make a decision without any direct influence, any issues that arise will be communicated to you through a loan processor or your loan officer, in most cases.

The sheer volume of documentation and data that an underwriter has to consider in the mortgage loan underwriting process makes it impossible to have regular dialogue with multiple borrowers. Many issues can be worked out with a diligent loan officer working with management and the processing department.

Presenting the facts is the best plan with an underwriter

Buying a home can be an emotionally charged milestone in your life, and in cases where your loan approval is in question, it can be very easy to develop animosity toward the underwriter. The truth is, underwriters work diligently to see if there are ways to strengthen your file.

The more proactive and focused you are on presenting facts and documentation that will show your ability to repay your loan, the more likely you’ll show the underwriter the merits of approving your application.

This article contains links to MagnifyMoney, a subsidiary of LendingTree.


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