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What Is the Mortgage Underwriting Process?

So, you’ve been looking at homes for weeks and you finally found one you just loved. Kitchen with granite counters? Check. Open floor plan? Check. Big backyard for the dog? Check! It was all fun and games until you started the mortgage process.

Welcome to adulthood.

Now you have to choose the right lender, gather your documents, and start the mortgage underwriting process. Sounds boring, but understanding all this underwriting stuff is an important step in the process of getting your home sweet home. Ready? Time to rip off the Band-Aid.

What Is Mortgage Underwriting?

Mortgage underwriting is the process a lender uses to determine whether or not you qualify for a mortgage.

It works like this: You submit an application and a specialist, called an underwriter, reviews it and checks out your finances. Then they say, “Yup, I think these folks can pay back a mortgage.” Or, “No, these people are terrible with money.”

What’s the underwriter looking for? Basically, they want to see if loaning you money is risky or not. They determine this by looking at the three C’s: credit, capacity and collateral. (More on those in a bit.)

Automated Underwriting vs. Manual Underwriting

As part of the mortgage approval process, underwriters use specific guidelines and even computer programs to check the levels of risk in your mortgage loan. There are two ways to do this: automated underwriting and manual underwriting.

Automated Underwriting

Automated underwriting is a computer-generated process. It can be used for several kinds of loans, not just mortgages. With just a small amount of info (like your Social Security number, address and annual income), the program can gather things like your credit history—if you have a credit score.

And since the automated underwriting system is preset with certain rules and guidelines, it can process things quickly.

You’ll still have to provide certain documentation to an underwriter to finish up the loan and close on your home.

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Manual Underwriting

Manual underwriting is done by a person, not a computer program. The underwriter working on your loan reviews your loan application and uses supporting documentation to figure out whether or not you can afford a mortgage.

If you have special circumstances, like a decent net worth but no credit history (aka you have money but no debt), your lender might choose manual underwriting instead of an automated process.

Manual underwriting means you have to bring more paperwork, and it typically takes longer than the automated process—which makes sense because you aren’t dealing with a preset computer program but with a living, breathing human.

What Does an Underwriter Do?

Your loan underwriter is ultimately the person who decides whether you can qualify for a mortgage.

Your underwriter knows if you’re a good candidate just from looking into how you’ve handled money in the past. They’re thinking about letting their company loan you a rather large sum of money, after all, and they want to be sure you can and will pay those monthly mortgage payments.

What Does an Underwriter Evaluate?

Okay, now let’s break down how an underwriter determines if you qualify for a mortgage. It’s time to get back to those three previously mentioned C’s: credit, capacity and collateral.

1. Credit—your credit history or payment records

Let’s be real. A credit score says nothing about your real financial situation. It doesn’t reflect your annual income, your net worth, or how much cash you have in the bank.

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What it does show is how much debt you’ve had, how long you’ve had it, and whether you make consistent payments. It’s an “I love debt” score, and we at Ramsey think it’s a pretty dumb way to decide whether or not you can afford a mortgage.

But in automated underwriting, your credit score has a big impact on whether you can buy a house.

As outlined in our 7 Baby Steps, we’ll always tell you to pay off all of your debt and save an emergency fund of 3–6 months of expenses before you buy a house. When you pay off your debt and close those accounts, your credit score will eventually disappear. That’s a great thing!

But . . . it also means you’ll have to use manual underwriting to get a mortgage loan. Don’t worry. It’s not like having a loose tooth tied to a door that’s then violently slammed shut. It just means a little more work and effort.

What if I Don’t Have a Credit Score?

In the manual underwriting process, the underwriter won’t use your credit score to decide if you qualify for a loan. Instead, they look through payment records and documents that prove you can pay back your mortgage. This includes things like:

  • Rent payments
  • Utility payments
  • Gym memberships
  • Insurance payments

If you’ve been paying those on time and in full, you’re looking like a pretty responsible and trustworthy loan candidate. 

In other words, manual underwriters look at your whole financial picture instead of just your relationship to debt.

If you don’t have a credit score because you’re living debt-free (go, you!), talk to our friends at Churchill Mortgage. They offer manual underwriting and can help you get the right mortgage loan for your situation.

2. Capacity—your income and assets

When evaluating your ability to take on a mortgage loan, the underwriter is looking for proof you’re in a good spot financially. They’ll need this information from you as the borrower, no matter if you’re using an automated or manual underwriting process.

Here’s what they’ll focus on:

  • Income and employment: Most of the time, underwriters look for around two years of steady income. They’ll probably ask to see your previous tax returns or other records of income. You might have to provide additional paperwork if you’re self-employed.
  • Assets: Assets is a fancy word, but the underwriter’s just making sure you have cash in the bank. You’ll need to close on your mortgage loan and cover all the closing costs and fees involved, after all. Plus, they want to make sure you’d keep up with the mortgage payments if you ever lost your job.
  • Liabilities: Do you have debt or any other financial responsibilities like alimony or child support? The underwriter wants to make sure you can afford the mortgage loan both now and in the future.

3. Collateral—your down payment and home value

To see the “collateral risk” of your mortgage, the underwriter needs to know the value of the home you’re buying. They don’t want to loan you a bunch of money for a house that’s a piece of junk. That’s why the lender will always order an appraisal as part of the closing process.

Your underwriter also needs a property survey that includes the property lines of the land and the placement of the home on that property. Then they’ll get a copy of the title insurance, which shows there are no liens, unpaid taxes or judgments on the property.

Last but not least, the underwriter considers your down payment. The bigger your down payment, the less risky the loan is to the lender. Put down at least 10% of the home’s value, but 20% is even better! A down payment of 20% keeps you from having to pay private mortgage insurance (PMI). And no PMI means a lower overall payment for the life of your loan. Boo-yah.

How Long Does It Take for the Underwriter to Make a Decision?

The mortgage underwriting process can take anywhere from a few days to weeks. Your loan type, financial situation, missing paperwork, and issues with property surveys or title insurance are all things that can affect how long it takes an underwriter to approve, suspend or deny your mortgage.

A great tip for speeding up your underwriting process is to become a Certified Home Buyer with Churchill Mortgage. That means an underwriter reviews your file before you go under contract on a house. It’s even better than being preapproved or prequalified for a mortgage.

And that extra certification helps you not only stand out from other buyers, but also save time on the whole underwriting process once you find the home of your dreams.

Keep in mind that the underwriting process is just one of the steps in closing on a house. Other factors in the home-buying and mortgage loan process can dramatically affect how long closing on your house takes.

Why Would an Underwriter Deny a Loan?

There are a bunch of factors that could cause an underwriter to deny you a loan:

  • New or hidden debt. Not only is debt dumb, it’s even dumber to take on new debt when applying for a mortgage. How much debt you have changes how much (or if) your lender is willing to loan to you. The same thing happens if you have any hidden debt that comes up during the underwriting process. Remember, you want to pay off all your debt before getting a mortgage.
  • Job loss. If you get denied a mortgage because you lost your job, don’t worry. Taking on the expenses of a house without a stable income would wreck you financially. Pause your homeownership dreams for now and focus on scoring a new job.
  • Issues with the house. Okay, here’s one you can’t really control. If a home appraisal reveals something wrong with the house or that it’s worth less than the sales price, your underwriter might deny your loan. Here’s why: If you can’t make payments and your lender repossesses the house, they wouldn’t be able to auction it off for enough money to earn back the money they loaned you.

While it’s not what you want to hear, getting denied a loan for reasons related to your personal finances is actually a good thing. Sure, the underwriter is just protecting the lender’s butt. But you’ll be protected too!

Getting denied means you won’t be house poor or have endless money fights with your spouse as you struggle to make ends meet. And you’ll be able to focus on getting your financial life in order before getting that house!

What Are the Steps of the Mortgage Underwriting Process?

The process of getting approved for a mortgage by an underwriter can seem like a lot. So let’s break down the steps it takes to get the green light.

Step 1: Apply for the mortgage.

Before you can get a mortgage, you need to fill out an application. You can do this in person with your lender or electronically. You may also need to give additional information at this point. Don’t worry—your lender will let you know exactly what they need!

Step 2: Receive the loan estimate from your lender.

After your loan application is received, your lender will give you a loan estimate to review. This document shows you about what you’ll pay for your monthly mortgage payment, total cost and principal in the first five years—and the percent you pay in interest over the life of the loan. Remember, this is just an estimate. You’ll receive final numbers as part of your Closing Disclosure (see step 6).

Step 3: Get your loan processed.

Time to get your paperwork in order! During this stage, your lender or loan processor will request documentation for the personal and financial details from your mortgage application. Once the information is gathered, the underwriter starts checking all this data to look for any gaps or potential risks.

Step 4: Wait for your mortgage to be approved, suspended or denied.

The underwriter can either approve, suspend or deny your mortgage loan application. In most situations, the underwriter approves the mortgage loan application—but with conditions or contingencies. That means you’ve still got work to do or info to provide, like more documentation or an appraisal.

Step 5: Clear any loan contingencies.

This is when you’ll work with your lender to make sure you’ve cleared any of those contingencies they found in step 4. Also, your lender locks in your interest rate. Once the conditions have all been met, you’ll receive a “clear to close” from your lender. That means your mortgage loan is ready to be finalized on closing day.

Step 6: Close on your house.

As part of the closing process, you’ll receive a Closing Disclosure at least three days before your closing date. That gives you time to review your loan details, like your monthly mortgage payment and the amount you need to bring to closing.

Once you close and receive the keys to your new house, your mortgage loan process is officially complete! (Run with joy to the nearest home improvement store and get the material to build that white picket fence!)

To keep the underwriting process running as smoothly as possible, the most important thing you can do is respond to your lender’s requests for information ASAP—especially if you hit some bumps along the way.

Work With a RamseyTrusted Mortgage Specialist

You definitely want a reliable underwriter to help you tackle the underwriting process. Our friends at Churchill Mortgage have earned our seal of approval as a RamseyTrusted mortgage company for equipping home buyers with a mortgage they can actually pay off fast. They’ll help you know if you’re financially ready to buy a house—and how much you can truly afford.

Work with a RamseyTrusted mortgage company!

If you’re only in the beginning of the home-buying process, it’s important to have experts on your side, in your court, or whatever teamwork reference you like best.  Make sure you have a qualified real estate agent there to help you make wise choices. Anything less is basically the worst.

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About the author


Ramsey Solutions has been committed to helping people regain control of their money, build wealth, grow their leadership skills, and enhance their lives through personal development since 1992. Millions of people have used our financial advice through 22 books (including 12 national bestsellers) published by Ramsey Press, as well as two syndicated radio shows and 10 podcasts, which have over 17 million weekly listeners. Learn More.

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