What is Mortgage Underwriting? Home Loan Guide Updated 2023


A Deeper Dive into Underwriting

What is Mortgage Underwriting? If you’re looking to obtain a mortgage, you’ll likely come across the term “underwriting.” Underwriting is a crucial part of the mortgage process, as it determines if a borrower is qualified for a loan. In this comprehensive guide, we’ll explore the underwriting process, various types of underwriters, and what to expect during the underwriting stage.

Breaking Down the Underwriting Process

Underwriting is the process of evaluating the risk of insuring a home or extending credit, primarily based on a borrower’s creditworthiness, income, and the property being purchased. The main purpose of underwriting is to protect lenders and insurance companies from potential losses.

The underwriting process typically includes the following steps:

  1. Loan Application: The borrower submits a loan application with their personal and financial information.
  2. Documentation: The borrower provides necessary documents, such as pay stubs, tax returns, and bank statements. The verification of deposit and verification of employment are essential in this stage.
  3. Credit Check: The lender reviews the borrower’s credit report and credit score to assess their creditworthiness.
  4. Appraisal: An independent home appraisal is conducted to determine the property’s value and ensure it serves as sufficient collateral.
  5. Underwriter Review: The underwriter assesses the borrower’s financial profile, property details, and loan program guidelines to make a decision.
  6. Approval, Denial, or Suspension: Based on the underwriter’s assessment, the loan is either approved, denied, or suspended for further documentation.
Loan Underwriting

Underwriting Statistics and Key Facts with Numbers

The following data points and sources offer valuable insights into the underwriting process, featuring specific numbers to illustrate the trends.

Credit Score Trends

According to data from the Federal Reserve Bank of New York, the average credit score for new mortgage originations has increased from 711 in 2010 to 762 in 2021. This increase reflects tighter underwriting standards and the importance of good credit in the mortgage application process.

Debt-to-Income Ratio (DTI) Trends

The Consumer Financial Protection Bureau (CFPB) reports that the share of mortgages with DTI ratios above 43% decreased from 48% in 2005 to 25% in 2018. This decline shows that underwriting standards have become stricter regarding borrowers’ debt levels.

Loan-to-Value Ratio (LTV) Trends

The Urban Institute reports that the average LTV for new mortgage originations decreased from 87% in 2006 to 81% in 2019. This change indicates that borrowers are now required to make larger down payments, reflecting stricter underwriting criteria.

Mortgage Denial Rates

The Consumer Financial Protection Bureau (CFPB) states that the overall mortgage denial rate was 9.8% in 2019. Denial rates vary by race and ethnicity, with denial rates of 8.1% for non-Hispanic whites, 17.8% for African Americans, and 11.6% for Hispanics.

Manual Underwriting Trends

Manual underwriting is used when a borrower’s situation does not fit the standard automated underwriting system. According to the Urban Institute, the share of manually underwritten loans decreased from 35% in 2006 to 13% in 2019, indicating that automated underwriting systems have become more prevalent in recent years.

Types of Underwriters

There are several types of underwriters with varying responsibilities and expertise:

  1. Mortgage Underwriter: A mortgage underwriter assesses the risk of lending money to a borrower for purchasing a home. They evaluate the borrower’s creditworthiness, income, and the property being purchased.
  2. Insurance Underwriter: An insurance underwriter evaluates the risk of insuring a home, vehicle, or individual. They determine coverage eligibility and premiums based on the applicant’s risk profile.
  3. Loan Underwriter: A loan underwriter assesses the risk of extending credit for personal, auto, or business loans. They review the applicant’s credit history, income, and other factors to determine loan approval and terms.
What Is Underwriting

What Does an Underwriter Do?

The primary responsibility of an underwriter is to assess risk and protect the lender or insurance company from potential losses. They accomplish this by evaluating the borrower’s debt-to-income ratio, credit history, employment status, and other factors.

Underwriters also ensure that loan applications meet the specific requirements of various loan programs, such as FHA loans, USDA loans, and VA loans. They review the property’s condition and value through a home appraisal, ensuring it serves as sufficient collateral for the loan.

How Long Does Underwriting Take?

The duration of the underwriting process can vary depending on the loan type, borrower’s financial profile, and lender’s efficiency. On average, underwriting takes anywhere from a few days to several weeks. Delays may occur if the underwriter requires additional documentation or if issues arise during the appraisal or title search process.

Underwriting Salaries and Job Opportunities

Underwriting can be a rewarding career choice, with job opportunities in various financial sectors. The underwriter salary varies depending on the industry, location, and experience. For example, a mortgage underwriter’s salary may differ from that of an insurance underwriter.

Remote underwriting jobs, such as remote mortgage underwriter jobs and remote government underwriter jobs, are becoming increasingly popular as companies embrace flexible work arrangements.

How to Become an Underwriter

To become an underwriter, you generally need a bachelor’s degree in finance, business, or a related field. Some employers may accept candidates with relevant work experience in place of formal education.

Additionally, certifications from organizations like the Mortgage Bankers Association (MBA) or the National Association of Mortgage Underwriters (NAMU) can enhance your credentials and increase job prospects.

Mortgage Underwriting

Underwriting and Government-Backed Loans

Government-backed loans, such as FHA, USDA, and VA loans, have specific underwriting requirements and guidelines. For instance, FHA manual underwriting guidelines must be followed when underwriting FHA loans with non-traditional credit histories or higher debt-to-income ratios.

To ensure compliance with government-backed loan guidelines, underwriters may consult resources from authoritative sources, such as the U.S. Department of Housing and Urban Development (HUD) and the U.S. Department of Veterans Affairs (VA).

Understanding Mortgage Terms and the Underwriting Process

Navigating the mortgage process can be overwhelming, especially when encountering unfamiliar terms and concepts. To better understand underwriting and other mortgage-related terms, visit our comprehensive mortgage terms page.

Ready to Apply for a Mortgage?

If you’re ready to apply for a mortgage, Mortgage Rater is here to help. Begin your application by visiting the Mortgage Rater Apply page. Our team of experienced professionals will guide you through the underwriting process and help you secure the mortgage that best fits your needs.

Donavon Warren

Donavon Warren

Donavon Warren is a seasoned finance professional with over 20 years of experience. Before embarking into the mortgage industry Donavon attended UCLA. He is the owner of Mortgage Rater, a leading mortgage finance company that offers a range of informational services to clients across the United States. As a finance and mortgage author, Donavon brings his wealth of knowledge and experience to the platform, writing about various topics related to personal finance, investments, home loans, FHA loans, VA loans, 30 Year Fixed rates, no-interest loans, mortgages and more. With his insights and expertise, he aims to educate and empower readers to make informed financial decisions that can help them achieve their financial and mortgage goals. NMLS#2470202
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