What is Underwriting?

Summary: Mortgage lenders work with underwriters to do a deep dive into the borrower’s financial situation. Underwriters verify a borrower’s income, assets, debts, and property details to evaluate the likelihood of the borrower repaying the loan and to finalize the loan application.

Underwriting is a verification step. At this stage, a borrower’s income, assets, debts, and property details are finalized for the home loan mortgage. The purpose of underwriting is to verify financial information, evaluate the borrower’s likelihood of repaying the housing loan, and finalize the loan application.

Underwriters do a deep dive into your finances. The following information will be collected by your mortgage lender to help them better understand your financial situation. They will assess your debt-to-income ratio (DTI) and four other core areas:

1. Income
   • To ensure borrowers have reliable and consistent income to make monthly mortgage payments.
   • Documents needed for salaried borrowers:
     • W-2s from the previous year for conventional loans
       • Two years for government-based loans such as FHA and VA
     • Two recent bank statements
     • Two recent pay stubs
   • Documents for self-employed borrowers:
     • K-1 form
     • Balance sheet
     • Personal and business tax returns
2. Appraisal
   • The underwriter will look at the comments provided by the appraiser in the appraisal report.
3. Credit Score
   • Late payments, bankruptcies, or collections the borrower may have will be evaluated.
4. Asset Information
   • Real estate, stocks, personal properties, and checking and/or savings accounts will be reviewed.

The underwriting step is the decisive step in the loan application. To help make the home purchasing or refinance journey successful, here are some suggestions to put yourself in the best situation possible:

1. Have Your Documents Organized
   • Get a head start by gathering all the necessary documents.
2. Get Your Credit in Shape
   • Your credit score is one of four core areas an underwriter will investigate.
   • Take active steps by paying down debts or making on-time payments.
   • Have an idea of your credit score.
   • Make sure all inquiries on your credit report are accurate.
3. Steer Away From New Purchases
   • A new credit card or a large purchase can negatively affect your credit score.
4. Do Not Close Existing Credit Accounts
   • This can negatively impact your credit score.
5. Timely Respond to Your Mortgage Lender and Refinance Lender
   • Your mortgage lender and refinance lender may reach out to you for additional documents requested by the underwriter.

For more information, chat with us at callhallfirst.com or give us a call at 866-Call-Hall.