How the Mortgage Underwriting Process Works

Question: "Can you tell what mortgage underwriting is, and how long the process takes? Does it vary from one lender to the next, or is it pretty standard across the board?"

Underwriting is when you have to hold your breath, cross your fingers, and hope you don't get any bad news from the lender. It's the final and most intensive examination of your mortgage application package. If you clear the mortgage underwriting process, it's all downhill from there.

Before we go any further, let's start with a basic definition:

Underwriting -- This is a process through which financial institutions (such as mortgage lenders) measure the eligibility of potential borrowers. If you go to Wells Fargo and apply for a home loan, for example, they will conduct a thorough examination of your credit and financial background. They do this to determine whether or not you're a good candidate for a loan. As a whole, this process is referred to as mortgage underwriting, and it has many steps.

Basically, the lender wants to assess your ability and willingness to repay the loan. Willingness is a bit hard to measure. But they can easily measure your financial ability to repay. They do this by examining your income, your combined debts, and your past history of borrowing. These are the three things they are most concerned with, during the mortgage underwriting process.

The lender will also check out the home you want to buy with the loan, to ensure the property serves as sufficient collateral. More than anything else, they want to know if it's worth the amount you've agreed to pay. So they will send a professional appraiser out to determine the market value of the house you are buying.

The Source of Underwriting Guidelines

So where do these mortgage underwriting guidelines come from? This will depend on the type of loan you're seeking. Most mortgages today are based on guidelines that come from the FHA, Fannie Mae or Freddie Mac. The FHA (Federal Housing Administration, part of HUD) insures loans made by direct lenders such as Wells Fargo and Citi. Fannie and Freddie actually purchase loans made by lenders.

So if a mortgage company wants to sell its loans into the secondary mortgage market, or have them insured by the federal government, they must adhere to the underwriting guidelines issued by those organizations. So you can think of them as "baseline" or minimum requirements.

If you really want to learn the nuts and bolts of the loan-approval process, you should spend some time reviewing the mortgage underwriting guidelines put out by the FHA, Freddie Mac and Fannie Mae. You can find these handbooks online by doing a Google search. The last time I checked, all three of these organizations offered various "fact sheets" and FAQ pages that summarized the bulk of their guidelines. That might be a more accessible place to start your research.

Keep in mind that individual lenders will have their own internal guidelines as well, in addition to those mentioned above. They are free to do business however they want, as long as they don't violate federal or state lending laws. This is why it's possible to get rejected by one lender, and then approved by another the very next week (with the exact same qualifications).

How Long Does the Process Take?

This is a harder question to answer, because it's based more on the individual performance of the underwriter. A knowledgeable veteran who works quickly could process three times as many loans as a brand-new underwriter who is still learning the ropes. The mortgage company's backlog of applications has a lot to do with it, as well.

So it might take anywhere from two days to two weeks, from the time your application reaches the underwriter to the time you're actually approved (or rejected) by the lender.

Learn more about the timeline

You're Not Approved Until the Underwriter Says So

A lot of first-time home buyers get the pre-approval mixed up with the final approval. They are two different things. Getting pre-approved by a mortgage lender is a worthwhile process. It lets you know how much they are willing to lend you. It will also make sellers more inclined to consider you're offer, since you have a lender all lined up (learn more).

But the pre-approval is not a commitment or guarantee to lend. There is still a lot that can go wrong between the pre-approval and the final approval. This is when the mortgage underwriting takes place. Here's a story that illustrates how important the underwriter is during this process. He (or she) is the last person to scrutinize your file. And he will examine it more closely than everyone else -- broker, loan officer, etc.

This article answers the question: What is mortgage underwriting, and how long does the underwriting process take? If you have additional questions about this topic, try doing a search through the box provided at the top of this page.