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Mortgage Underwriting

What is Mortgage Underwriting?

What is Mortgage Underwriting?

Mortgage underwriting is the mortgage lender’s process of getting the data and doing the analysis to decide whether they want to approve your mortgage loan or not. The job title of a person who does that analysis is Underwriter.

An analogy I like to use to understand this is to think about the analysis you made as you prepared to buy your home. You probably spent time thinking about what type of home you wanted, what was important to you, the neighborhoods you’d be interested in, how much you could afford to pay, and much more. After all, you’re making a big investment here, and you want to make sure you’re getting a good deal you’ll be happy with later.

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Just like you, a mortgage company wants to make sure they are getting a deal they’ll be happy with later. After all, they’re handing you several hundred thousand dollars right now, hoping that you’ll pay it back to them over the next 15 to 30 years. That’s a pretty big risk, costing a lot of money if the relationship goes bad, so they want to make sure that you’re the type of person who will pay them back.

The process of their research and analysis is called underwriting.

How does mortgage underwriting work?

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What Does A Mortgage Underwriter Do?

An underwriter spends most of their time gathering information then analyzing it looking for the Four C’s of Credit and how they apply in your case:

  1. Credit
  2. Capacity
  3. Capital/Cash
  4. Collateral

These questions give them data that helps them determine the probability you will repay your loan. And, if the worst-case happens and you stop making payments, whether the property will be valuable enough that they can sell it to recover their loss.

What Makes Up The Mortgage Underwriting Process

To understand that, let’s look at each of the four C’s of credit in detail.

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Mortgage Loan Approval Factor #1: Credit

Credit looks at your history with debt and other loans. It starts by looking at your credit score as reported by the three credit bureaus (Equifax, Transunion and Experian.)

They then drill into the details of your credit report, such as whether you’ve ever defaulted (stopped paying) on a loan, whether you make your payments on time, your total debt compared to your total available debt (the difference between what you actually owe versus the credit limit on that loan), and the types of debt (revolving credit [credit cards] vs. installment loans) outstanding.

Hint: your credit score and credit history matter. Bad credit negatively affects your life in many ways. Good credit can be an asset that can help you in your life. It’s worth taking good care of your credit history, just like you take good care of your car or home. 

Mortgage Loan Approval Factor #2: Capacity

Underwriting also looks at your capacity (ability) to repay your mortgage over time. To do this they look at your income versus the amount you owe each month (called your debt-to-income ratio (DTI)) which is calculated by dividing the total amount you owe in payments on your debt by your gross monthly income. When that ratio gets too high, your likelihood of getting approved for a mortgage loan goes down.

Mortgage Loan Approval Factor #3: Capital/Cash

Your underwriter is looking at two things in this area: 

First, once your purchase closes, how much cash do you still have available in your savings and investments to be able to make your mortgage payments if something happens and you don’t have your normal income for a period of time. The more savings and investments you have, the higher the probability you’ll be able to continue to make payments on your loan, and the more likely you are to have your loan approved.

Second, they’re looking at how much equity will you have in your home. This can be the amount you put in as a down payment or it could be how much equity you have in your home if you’re refinancing. The rationale is that the more you’ve got invested in the home, the less likely you are to walk away and lose it all by defaulting on your loan. The higher the equity, the more attractive you are as a loan prospect.

Mortgage Loan Approval Factor #4: Collateral

Collateral looks at the value of the home or other property you are purchasing with that loan. The underwriter’s rationale is that if the worst-case happens where you stop making payments on your loan and they have to foreclose on it (where they take possession of the property) they want to know whether that property is valuable enough to sell and get back the money still remaining on your loan. 

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Collateral focuses on the appraisal of your property. Appraisals look at things like how much comparable properties in your area are selling for, the location, size, and condition of your home, the cost to rebuild it, even the option of renting it out to others.

Clearly, the mortgage company doesn’t want to ever have to take ownership of your home, but they want to make sure that, if they ever have to, there’s enough value there to repay to them the remaining amount left on your loan.

How Underwriting Works

An underwriter’s job is to gather a number of documents that help them understand how you are doing in each of these 4 C’s of credit. They’ll ask you to provide a set of documents that contain the information they need to perform that analysis like:

  • Recent pay stubs 
  • W2s (maybe copies of your tax returns)
  • Your credit report (they’ll ask for permission to access your reports, which they’ll then obtain directly)
  • Bank statements 
  • Retirement and investment account statements
  • The appraisal report on the property (they will take care of requesting that, you don’t have to worry about it.)
  • Employment history
  • Etc.

Plus, they may ask for explanations of elements that require additional information, like explanations of

  • Negative factors in your credit report
  • Any major deposits in your bank account
  • Sources of other non-employment income
  • Self-employment income
  • Etc

Once they’re comfortable they understand your documentation, they input this data into a computerized analysis (called automated underwriting) to see if they can approve your loan. In some cases, if your situation is outside of normal standards they may then have to do what’s called manual underwriting, which involves more work (and time) to see if they can still approve your loan.

Frequently Asked Questions About Mortgage Underwriting

What does it mean that your loan is in underwriting?

When someone tells you your loan is in underwriting, it simply means that the process of gathering and analyzing all the information that’s important to know about your loan is underway. That information and analysis will later be used to approve or deny your loan.

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How long does it take for the underwriter to make a decision?

On average, between a month and a half to 2 months (in 2021, it took an average of 50 days, with a high of 58 days and a low of 46 days.) How long it takes an underwriter to approve a mortgage loan depends on the complexity of your financial situation, your responsiveness in providing the information they request, the type of loan you are seeking (conventional, FHA, VA), and how many applications they are processing at that time (a factor of how hot the market is, interest rates, etc.)

Why would an underwriter deny a loan?

Underwriters typically deny loans because:

  • One or more of the 4 C’s of credit is out of line, indicating that your loan would be considered a more risky loan than they are willing to accept, like:
    • You have too much debt compared to what you earn
    • Your credit history shows a pattern of credit repayment issues or your credit score is too low
    • You don’t have sufficient savings or investments in case of loss of income
    • Your application is incomplete or can’t be verified
    • The appraised value of the property you’re purchasing is too low or the property is in poor condition
    • Your employment history is unstable
    • You can’t prove your income
    • You can’t verify the source of funds for your down payment or closing costs
  • You didn’t fit the criteria for the specific type of loan you are seeking
  • You didn’t provide the information they requested, or were dishonest
  • Your loan could not be processed through automated underwriting, and they don’t do manual underwriting. Unfortunately, this sometimes happens, especially if you are working with one of the well-known lenders or are working with a lender who responded to your completing a form online (the results of which then gets sold to various mortgage lenders, some of whom are unwilling to do the extra work to manually underwrite a loan.) If you have been denied an application for a loan, contact us – we have mortgage specialists throughout the U.S. who are willing to work with you, answer your questions, and try to get you a loan.

Is no news good news in underwriting?

Not necessarily, especially if the housing market is hot and mortgage lenders are busy. If you’re not hearing from them it may mean that all is well, but it could also mean that they have not gotten to your loan yet, which could create last-minute surprises and requests for information. We recommend choosing your mortgage provider carefully, looking for one who will answer your questions clearly, communicate frequently, and process your loan on schedule. Looking for someone who fits that description? Contact us – we can help.

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Will the underwriter pull my credit again?

The short answer is probably yes. It’s important that you not make changes that will affect your credit (like making major credit-based purchases, opening up new credit cards or credit accounts, etc.) during the underwriting process. Doing so creates additional questions, adds time to the approval process, and may result in a denial of your loan. 


Underwriting is the process of gathering and analyzing information about your potential loan to determine whether the mortgage company wishes to approve your loan. You don’t need to worry much about the actual process of underwriting, your job during this process is to provide the data and answers to the questions they ask as quickly, completely, and accurately as possible. Doing that will help speed up the process and increases the chances of your loan getting approved.

About the Author

Scott Schang

A 20+ year veteran of the Mortgage and Real Estate industry, I am passionate about educating and empowering consumers. I have been writing about consumer protection issues and making sense of complicated real estate and mortgage topics on this website since 2007

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