Home buyers have a lot of questions when it comes to the mortgage underwriting process, and one of the questions has to do with the timing.
Home buyers often ask: “When does mortgage underwriting take place?”
The short answer: It takes place somewhere in the middle of the mortgage process. Underwriting happens after the loan application has been completed, but before the final approval and funding.
Mortgage Underwriting Defined
Mortgage underwriting is a process that lenders use to determine a borrower’s ability and willingness to repay a loan. The underwriter will also ensure the borrower and the loan meet all applicable guidelines and requirements.
Underwriters complete these tasks by looking at the borrower’s credit history, income, debts, and other financial components. They’ll also review the home appraisal and loan documents.
The mortgage underwriting process can take anywhere from a few days to a few weeks, depending on the complexity of the transaction and any issues that arise.
As mentioned above, underwriting usually happens in the “middle” of the broader lending process. It’s a due diligence review that takes place after the borrower signs a purchase agreement and prior to closing.
When Does It Take Place?
This will be easier to understand if we consider mortgage underwriting in a broader context…
The lending process can vary from one borrower to the next, for a variety of reasons. There are many steps in the process, and a lot of variables along the way. But in a typical transaction, mortgage underwriting will take place somewhere in the middle of the loan process.
For home buyers, the sequence usually goes like this:
- The borrower completes a standard loan application to start the process.
- The borrower gets pre-approved for a specific loan amount.
- The home buyer finds a house and makes an offer to purchase it.
- The buyer then goes back to the mortgage company with a signed purchase agreement.
- The mortgage lender will arrange for a home appraisal to be completed.
- A title search will be completed to check for liens or other title issues.
- The loan then moves into the underwriting stage, for an in-depth review.
- The underwriter might identify “conditions” that need to be resolved before closing.
- The underwriter approves of the loan and says the borrower is “clear to close.”
- The buyer attends closing, signs documents, and pays the down payment and other costs.
- The loan gets funded, usually within a few business days of the closing date.
As you can see, the bulk of the mortgage underwriting process begins after the home appraisal. That’s because the underwriter needs the appraisal report (among other documents) to fully underwrite the loan.
The home buyer cannot proceed to the final closing until the loan file has been thoroughly reviewed.
It’s the underwriter’s job to ensure that both the borrower and the property being purchased meet all lender and secondary requirements. They’ll also determine the level of risk associated with the loan, and whether or not it’s acceptable.
What Should the Home Buyer Do at This Stage?
In some cases, a home buyer will sail through the underwriting process with no issues whatsoever. This is the best-case scenario.
But the underwriter could also flag certain issues that have to be resolved prior to closing. These issues are known as “conditions” because they are part of a “conditional approval.”
A conditional mortgage approval means that you have fulfilled most of the lender’s basic requirements, but the underwriter needs a few more things to fully authorize the loan.
Much of the underwriting process happens “behind the scenes,” from the borrower’s perspective. It happens without direct involvement or participation from the home buyer / borrower.
But there are occasions when the underwriter will request items from the borrower. This might be additional documents needed to underwrite the loan, or a letter of explanation relating to a certain financial transaction.
As a borrower, the best thing you can do is handle these requests as quickly as possible. This will help prevent any unwanted delays that might interfere with closing. Aside from that, much of the underwriting process is out of your hands. You just have to wait for the review process to be completed.
Steps Performed by the Underwriter
A mortgage underwriter is like a detective, a risk analyzer, and a quality control manager all rolled into one. It’s their job to ensure that all of the necessary paperwork is in place, and that the borrower’s income and credit profile meet any relevant guidelines.
The underwriter will perform the following tasks, at a minimum:
- Review your credit report: They look at your credit score and history to assess your creditworthiness and the level of risk.
- Verify your income: The underwriter checks your pay stubs, tax returns, and other documents to make sure your income can support the mortgage.
- Check your employment: They’ll confirm your employment status by contacting your employer or reviewing employment records.
- Assess your debt-to-income ratio: They’ll compare your monthly debts to your monthly income to see if you can afford the monthly mortgage payments.
- Review your assets: The underwriter might examine your bank statements and other financial assets to ensure you have enough for the down payment and closing costs.
- Review the appraisal: They’ll confirm that the home’s appraised market value matches (or exceeds) the loan amount you’re applying for.
- Check paperwork completion: The underwriter will make sure your loan application and supporting documents are accurate and complete, in accordance with guidelines.
- Look for red flags: They’ll also look for any potential issues that could affect your ability to repay the loan.
As you can see, mortgage underwriters have a lot of things to review and verify, prior to signing off on the loan. So the process can take some time.
Disclaimer: The mortgage lending process can vary from one borrower to the next, for a number of reasons. Because of this, portions of this guide might not apply to your situation.
Brandon Cornett
Brandon Cornett is a veteran real estate market analyst, reporter, and creator of the Home Buying Institute. He has been covering the U.S. real estate market for more than 15 years. About the author