What is the process for mortgage underwriting?

Mortgage underwriting is the process by which a lender reviews a mortgage application and the borrower's finances to decide whether to approve the loan. Underwriting begins once you officially apply for your loan and submit your financial documents. Understanding how underwriting works will help you prepare to apply successfully for a mortgage.

What is mortgage underwriting?

Underwriting is the process by which your lender verifies your financial situation before deciding whether to approve your loan application. The lender's underwriter will review your documents and details of your income, assets, debts, credit, and the property you're applying to buy.

Your lender may ask you questions or request additional documents.

How long does mortgage underwriting take?

Underwriting usually takes between 30 and 45 days. However, the timeline varies widely based on several factors, some of which might not be in your control.

The time between underwriting and closing can be a lengthy process, and this time can seem even longer when you’re eager to move on with your home purchase.

The sooner all necessary documents are in the underwriter's hands, the smoother the process will be.

What factors affect the mortgage underwriting process?

Here are some of the significant factors that can affect the underwriting process:

• The lender's workload. The number of applications the lender is processing can affect how quickly underwriting is completed.
• The lender's policies and procedures. Individual lender policies and procedures can affect the timeline.
• Complex financial situations. If you have a complicated financial situation, it can slow down the underwriting process.
• Lack of documentation. Having all your paperwork ready and providing information up front can help speed up the process.

What does a mortgage underwriter do?

A mortgage underwriter assesses your finances and credit history to determine your creditworthiness and ability to repay the mortgage. The underwriter is usually the person who ultimately decides whether to approve a mortgage application.

Mortgage underwriters protect both the lender and the borrower. They will not approve you for a mortgage you can’t afford. If you don’t meet the lender’s requirements, the mortgage underwriter will deny the loan.

What makes up the mortgage underwriting process?

During the process, an underwriter looks at four main areas to get a more complete picture of a borrower’s financial profile.

• Income: The mortgage underwriter must verify that you earn enough income to cover your monthly mortgage payments. The underwriter will verify your employment, salary, and other income sources.
• Assets: The underwriter will also review your assets, including your checking account balance, investments, and any other assets you may own. This ensures you can pay the down payment, closing costs, and monthly payments while still leaving enough room in your budget for other essential expenses.
• Credit history: The underwriter will check your credit score and history. They will review your payment history, outstanding debts, and any derogatory marks. You may need to explain any negative marks to the underwriter’s satisfaction.
• Debt: The underwriter also evaluates your debts to determine your debt-to-income ratio (DTI), which is the total amount you spend monthly on debt payments divided by your gross monthly income. This makes sure that you can afford the mortgage payment.

Verifying income

Your underwriter must verify that you earn enough income to afford the monthly payment for the mortgage you're applying for. To confirm your financial readiness, you typically must provide:

• W-2 forms from the past 2 years
• Your two most recent bank statements
• Your two most recent pay stubs

If you are self-employed or own a business, you’ll need to provide profit-and-loss statements, K-1s, balance sheets, and your personal and business income tax returns.

Your underwriter will verify that your income matches your reported income.

Property appraisal

A home appraisal is almost always required when you buy a home. It protects you and your lender by ensuring you don’t borrow more than the home is worth.

A professional appraiser will:

• Inspect the home. This involves taking pictures and measurements to assess the house’s condition and features to determine home value.
• Evaluate the home against real estate comps. The appraiser will consider how the home stacks up to recent sales of comparable homes in the area. Generally, comps must have sold within the past 6 months.

What the underwriter does with the appraisal

After the appraiser determines the property’s value, the underwriter will compare the appraised amount to the mortgage loan amount.

Your underwriter may suspend the application if the home is valued for less than the mortgage amount. Your options in this situation are to contest the appraisal, negotiate with the seller to reduce the purchase price, cover the difference yourself, or cancel the deal.

Checking credit history

An underwriter also evaluates your credit score, which represents how reliably you repay debt. A strong credit score signals that you make on-time payments, which might help you qualify for a lower interest rate.

Minimum credit score requirements

The minimum credit score you’ll need will depend on the lender and the type of loan you apply for. Different lenders may have specific credit score thresholds or ranges for different home loan programs. Here are the minimum credit score requirements or credit score range for three popular home loan programs:

• Conventional loan: Fannie Mae and Freddie Mac recently dropped a specific minimum credit score requirement for conforming loans. While there's no longer a specific minimum, lenders will still review your credit and may set their own minimum credit score requirements.
• FHA loan: Lenders such as Rocket Mortgage offer FHA loans with a minimum credit score of 580 with a down payment of at least 3.5%.¹ Other lenders may offer FHA loans to borrowers with a credit score between 500 and 579 with a down payment of at least 10%.
• VA loan²: Veterans Affairs insures mortgages for active-duty military personnel, veterans, and their surviving spouses. There’s no credit score requirement from the VA, but each lender may establish a minimum score for borrowers.
• USDA loan: The U.S. Department of Agriculture insures mortgages for low- to mid-income borrowers buying homes in specific rural areas. A credit score of 640 is usually required. Rocket Mortgage currently doesn't offer USDA loans.

Debt-to-income ratio

The mortgage underwriter evaluates the borrower’s debt-to-income ratio (DTI), which shows how much of the borrower's gross monthly income is required to pay their monthly debts. Lower is better for DTI. Most lenders prefer a DTI no higher than 36%, though they often allow higher DTI with compensating circumstances.

Asset Information

Your assets can increase your chances of mortgage approval by allowing you to sell them for cash and supplement your income if you experience financial hardship. An underwriter will likely review these types of assets:

• Checking account
• Savings account
• Real estate
• Stocks
• Personal property

Since closing costs are usually 3% – 6% of the purchase price, lenders also look at assets to ensure you can cover your mortgage payments after paying your closing costs.

Essential documents for the underwriting checklist

Your lender likely will need the following documents to begin underwriting:

• Loan application
• Credit report
• Tax returns (typically for the last 2 years)
• Pay stubs (typically for the previous 30 days)
• W-2 forms (typically for the previous 2 years)
• Bank statements (typically for the previous 2 months)
• Proof of assets (retirement accounts, investment accounts)
• Employment verification (letter or contact information)
• Purchase agreement for the home
• Appraisal report of the property
• Debt statements (car loans, student loans, credit card statements)
• Documentation of any additional income (bonuses, alimony)

How to have the best underwriting experience

Although your lender will handle most of the underwriting process for you, here are a few tips to make the process smoother.

1. Don’t apply for new credit during underwriting

Any significant financial changes during the underwriting process can cause problems, including opening new lines of credit. Also, avoid making any purchases that may decrease your assets. Once you close on your mortgage, you can move ahead with any planned purchases.

2. Respond to inquiries as quickly as possible

Your lender may contact you during underwriting to request additional financial documents, such as more bank statements or other proof of income or assets. It’s important to respond to these requests as quickly as you can.

3. Be honest about your finances

Your underwriter will know if you're not honest about your income, credit history, or assets, so withholding information is not in your best interest. Include notes and letters of explanation for entries that may stick out on your credit report or other financial statements. For example, if your credit report shows a missed payment, your underwriter may be more lenient with you if they know it’s due to an unexpected medical expense or a bill close to the credit card’s due date.

The bottom line: Get acquainted with the underwriting process

As a financial expert who makes the ultimate call on whether you’re a good candidate for a mortgage, an underwriter is a key figure in the home buying journey. For this reason, it’s a good idea to be familiar with underwriting.

If you're ready to buy a home, explore your borrowing options today with Rocket Mortgage.

¹To qualify for this offer, you must meet all standard FHA eligibility requirements. In addition, your total mortgage payment, including taxes and insurance, cannot exceed 38% of your income, your debt-to-income (DTI) ratio cannot exceed 45%, and you must have 12 months of verifiable housing history immediately prior to your application, no late payments 30 days or greater in the last 12-months, and no derogatory marks on your credit report. Not available on jumbo loans. Asset statements may be needed, no more than 1 day of non-sufficient fund fees are allowed in the most recent 2 months prior to application. Additional restrictions/conditions may apply.

²Rocket Mortgage is a VA-approved lender, not endorsed or sponsored by the Dept. of Veterans Affairs or any government agency.

Rocket Mortgage is a trademark of Rocket Mortgage, LLC or its affiliates.