Home Purchasing, Home Refinancing, First Time Buyers

What Does a Mortgage Loan Underwriter Do?

Do you fear the underwriter when you’re applying for a mortgage? Most people do, but they shouldn’t.


The underwriter holds the key to your loan approval. He/she has the power to approve or deny your loan. While this seems scary – it’s important to know and understand what the underwriter needs because, with the right steps, you can get approved.


While you won’t talk to the underwriter yourself, you’ll hear what he/she needs to clear your loan to close. Understand the process before you apply for a mortgage so you can get through the process quickly.


Start with the Loan Officer


All mortgage originations start with a loan officer. Whether you apply online, over the phone, or in person, the loan officer takes your details and matches you with a loan program. Together you’ll decide which loan is right for you. This is also who you negotiate the loan’s terms with before you close on the loan.


The loan officer looks briefly at your qualifying information. How much money do you make? How much money do you have? How long do you need to borrow the funds? How much do you need to borrow?


The loan officer uses this information to match you with the right loan. Once matched and pre-qualified, you’ll move onto working with the loan processor and underwriter who get your loan rolling.


Working with the Loan Processor


After you choose a loan program, a loan processor will contact you and ask for your qualifying documents. Most lenders need your income documents, bank statements, and sometimes even your tax returns.


Most lenders go back two years with the exception of your paystubs, so make sure you have all documentation for the last two years ready.


At the very least you’ll need:


  • Paystubs covering the last 30 days
  • W-2s for the last 2 years
  • Tax returns for the last 2 years
  • Bank statements for the last 2 months


Listen to what the loan processor needs so you’re ready for the underwriter, who handles the entire approval process.


The Underwriter has the Key to your Approval


Once you provide the loan processor with the necessary documentation, he/she sends your paperwork to the underwriter. The underwriter’s job is to assess your risk.


The underwriter looks at all qualifying documents to decide if you’re worth the risk or not. He/she compares your documents to the loan program requirements. If there are any issues or discrepancies, the underwriter may have the processor ask you for clarification or more documentation.


Underwriters evaluate all documentation you provided to the loan processor. Up until this point, the processor just collects the information and ensures its validity. The underwriter takes over from there.


Underwriters look at your paystubs to make sure your income matches what you stated on your loan application. Sometimes it differs slightly because borrowers don’t know how to calculate their monthly income. Unless you make a straight salary, underwriters may do it a little differently.


If there are large discrepancies, you may hear from the loan processor asking for more documentation to clear up any misunderstandings.


Underwriters look at your W-2s to see your annual income and how you did over the last few years. If your income decreased from one year to the next, they’ll want to know why. They may ask for a Letter of Explanation and/or proof of why your income decreased. The more proof you have available, the better the chances of approval.


Finally, underwriters look at your bank statements. They look for large deposits (this could signal an undocumented loan), gaps in income, or other red flags. Make sure you provide all pages of your bank statements, even the blank pages because underwriters need them.


If the underwriter feels anything is lacking, he/she may ask for formal verification of your income or bank statements with a written Verification of Employment or Verification of Deposit.


Know What the Underwriter Looks For


Underwriters verify that the documents you provide match the information you provided on your application. They also look for validity in all documents.


They’ll calculate your gross monthly income, determine your total assets, and calculate your loan-to-value ratio.


They make sure the funds you’re using are yours and not a loan. Underwriters also make sure your income is legit by verifying it with what you filed on your taxes by requesting your tax transcripts (you’ll need to sign IRS Form 4506).


If any questions or problems come up, the underwriter works with the loan processor to determine if they should approve or decline your loan application.


Securing an Approval


The underwriter has the final say on your loan. If he/she approves it, you move onto the closing. If he/she doesn’t approve it, they’ll tell you why.


If it’s something you can fix, you may be able to delay the closing and revisit the loan once you have the right documentation/qualifications. If it’s not something you can fix, you may have to go back to the drawing board with your loan officer.


Together, You’ll Secure your Loan Approval


Securing a loan approval is a team effort and that includes you. The loan originator starts the process. You explore your options and settle on a loan program with your loan officer/originator.


After you choose a loan, the process moves to the loan processor and underwriter who work closely together. Your correspondence will be with the loan processor, but the underwriter is the one with the power. He/she can approve or decline your loan.


Listen carefully to what you need to clear your loan so you can get a clear to close and get to the closing table. If you ever have questions, your loan processor and loan officer are there for you and are in direct communication with the loan officer.

WRITTEN BY: Massimo Ressa