VA Loan

What Is Underwriting?

Most people think of a mortgage simply as a loan to allow you to purchase a property. While that is true, the process of getting a mortgage is more complex than just asking for the money. The lender must evaluate your credit history and verify that you can afford the monthly payment on the mortgage before approving it. That's where underwriting comes in. Underwriting is how lenders decide whether or not they'll give loans—and how much they'll charge for them based on the risk associated with that loan type or borrower. This article will explain the underwriter’s role in the mortgage loan approval process. 

Underwriting Is The Process Lenders Use To Decide Whether To Approve You For A Mortgage

Underwriting is the process that lenders use to decide whether to approve you for a mortgage.

This differs from the application process, where you fill out paperwork and submit it to a lender. The underwriter reviews your information, including income, assets, other property owned and credit score, and then decides whether or not they will lend you money on your home purchase.

An underwriter will also scrutinize your financial records, debt-to-income ratio, and employment history. They're looking for signs that you can pay back the loan. This includes:

  • Financial information, such as tax returns, pay stubs, and bank statements.
  • Debt-to-income ratio (how much money you owe versus how much income you earn). The higher this number, the less likely it is that you'll be approved for a mortgage loan. 
  • Employment history, including job stability/length of time at current job.

The underwriter must have all the necessary information about your situation to decide whether to approve you for a loan.

The Underwriter's Goal Is To Issue An Approval That Manages Risk For The Lender

Each lender has its underwriting process. While one lender may be more lenient, they will also have different criteria they expect you to meet before approving your loan.

Underwriting is a risk management tool for lenders: it allows them to minimize their risk of default and default fees (fees charged when you don't repay your loan). The underwriter will want to make sure you can pay back your loan, so they'll look at your income and whether or not it's stable. They may also want to make sure you aren't over-leveraged, so they'll look at how much equity you have in your property and whether or not there are other loans on the property besides this one (e.g., a home equity line of credit).

The underwriter decides if you're a low, medium, or high risk based on your credit score and credit history, your income and employment history, and the property's value. If you have a high credit score, it will help you get the best rate.

A High Credit Score Can Greatly Help The Underwriting Process, But It's Not Everything

A high credit score can significantly help the underwriting process, but it's not everything. If your credit is less than stellar, don't worry—lenders might still be willing to work with you if other factors are in your favor. For instance, a lender may accept a high-risk borrower whose credit score is low if they have enough money saved up and can prove their income and expenses are stable.

Underwriting typically consists of two different processes: pre-qualification (or pre-approval) and final approval. Pre-qualification doesn't guarantee that you'll be approved for the loan. Still, it does give prospective lenders an idea of whether or not they think you'll qualify for a certain amount based on your financial profile at the time of application. If everything looks good during pre-qualification, then final approval should follow once you’ve found the right home.

Click here to request more information about the VA Home Loan
Start with an Instant Prequalification.



The underwriting process is the most critical step in getting a mortgage, so it's essential to understand what underwriting is and how it works.
Learn how to apply for a loan or refinance your current one with Military Home Spot Lending. Click here for the details.