Mortgage underwriting is the process a lender uses to verify that you and the property meet the requirements for the mortgage.
The underwriter reviews your credit, income, debts, assets and property information, then determines whether the loan can be approved, needs additional documentation or does not meet the applicable requirements.
Mortgage Underwriting Basics
| Underwriting Area |
What the Lender Reviews |
| Credit |
Credit reports, payment history, debts and other credit obligations |
| Capacity |
Income, employment and debt-to-income ratio |
| Capital |
Funds for closing, asset sources and required reserves |
| Collateral |
The property, valuation and applicable property requirements |
| Common interim result |
Conditional approval or a request for additional information |
| Final stage |
Conditions cleared, final approval and clear to close |
Where Underwriting Sits in the Mortgage Process
Underwriting usually happens after you have applied for the mortgage and the lender has begun collecting and verifying the information needed to complete the file.
On a purchase, much of the detailed underwriting process takes place after you have a property under contract.
- Mortgage application or preapproval
- Offer accepted and purchase contract signed
- Loan processing and document collection
- Property valuation and other required third-party work
- Underwriting review
- Conditions issued if more information is needed
- Conditions reviewed and cleared
- Final approval and clear to close
- Closing
The exact order can overlap. An appraisal, title work, income verification and underwriting review can all be moving forward at the same time.
Automated vs. Manual Underwriting
Many conventional mortgages are first evaluated using an automated underwriting system.
Fannie Mae's system is Desktop Underwriter, or DU. Freddie Mac uses Loan Product Advisor, or LPA.
Fannie Mae's DU evaluates loan information against its underwriting requirements and produces findings that tell the lender what documentation and conditions apply.
Freddie Mac describes LPA as its automated underwriting system for assessing eligibility and underwriting risk.
An automated result does not mean a computer makes every final decision without verification.
The lender still has to make sure the information submitted to the system is accurate and satisfy the documentation requirements in the underwriting findings.
Some loans are manually underwritten instead. When manual underwriting is permitted, the lender applies the applicable program's manual underwriting requirements rather than relying on an automated approval recommendation.
Preapproval vs. Underwriting
A mortgage preapproval and mortgage underwriting are related, but they are not the same stage.
A preapproval is generally an earlier assessment of whether your finances appear to support a mortgage up to a certain amount.
The lender may review your income, assets, credit and debts before issuing one, but the scope of that review varies by lender.
Getting preapproved for a mortgage therefore does not guarantee the eventual loan will close.
The property may not even have been identified yet.
Underwriting goes further by verifying the file against the requirements for the actual mortgage and property.
Some lenders also offer preapprovals that receive a more extensive underwriting review before a purchase contract exists. The meaning of a “fully underwritten preapproval” is lender-specific, so check what has actually been reviewed and what remains subject to verification.
The distinction is also why preapproval and prequalification should not be treated as interchangeable terms.
The Four Areas Underwriters Evaluate
A practical way to understand underwriting is to separate the review into four areas: credit, capacity, capital and collateral.
| Area |
Main Question |
Examples |
| Credit |
How have you handled debt? |
Credit history, payment history, inquiries, outstanding obligations |
| Capacity |
Can your documented income support the payment and other debts? |
Employment, income, DTI |
| Capital |
Do you have eligible funds for the transaction and any required reserves? |
Bank accounts, investments, gifts, reserves |
| Collateral |
Does the property support the mortgage? |
Value, condition, property type and eligibility |
Agency terminology is not completely uniform. Freddie Mac, for example, describes underwriting through three Cs: credit, capacity and collateral, with assets included within capacity.
The four-part framework used here separates assets into “capital” because it makes the borrower-facing review easier to follow.
Credit
The underwriter reviews your credit history and outstanding obligations.
For a Fannie Mae loan underwritten through DU, the lender generally obtains a three-in-file merged credit report using data from the national credit repositories.
Fannie Mae requires the lender to review the credit information used in the final DU submission and address applicable inquiries and unreported debts.
The review can include credit scores when required by the loan program, payment history, revolving and installment debt, mortgage history, recent inquiries and significant derogatory events.
Bankruptcy, foreclosure and similar events can also trigger program-specific waiting periods.
There is no single mortgage credit-score requirement across every loan type, which is why credit requirements vary by mortgage program.
What Happens if Your Credit Changes During Underwriting?
A new credit account or additional debt can change the information used to qualify you.
For example, financing a car after applying for a mortgage could add a monthly debt payment that changes your DTI.
A new credit inquiry can also prompt the lender to determine whether you opened additional debt.
The mortgage is being approved using a specific financial profile. Material changes to that profile can require the lender to update and reevaluate the file.
Capacity: Income and DTI
Capacity is your ability to repay the mortgage using qualifying income.
The underwriter verifies income and determines how much can be used under the applicable loan rules.
The process is more detailed than checking your annual salary.
For conventional financing, Fannie Mae requires qualifying income to be stable, documented and reasonably expected to continue.
Current Fannie Mae guidance does not impose a universal three-year continuance test on every income source.
If income has no defined expiration date and the required history has been documented, the lender generally does not need additional proof of three years of continuance unless information suggests the income may not continue.
Income with a defined expiration date or certain limited-duration sources can require documentation that it will continue for at least three years from the note date.
Employment History Is Also Income-Specific
A blanket rule that every borrower needs two years at the same job is inaccurate.
Fannie Mae currently requires lenders to evaluate whether employment history reflects a reliable pattern, generally looking at the most recent two years.
A shorter history can sometimes be acceptable.
Fixed base income has no set minimum history for inclusion under current Fannie Mae rules, while variable income and other income types can have specific history requirements.
The underwriter also calculates your debt-to-income ratio by comparing applicable monthly debt obligations with qualifying monthly income.
The acceptable result depends on the mortgage program and underwriting method, so DTI limits can differ by loan type.
Capital: Assets and Reserves
Underwriting also verifies where the money for the transaction is coming from.
This can include funds needed for the down payment, closing costs and any reserves required after closing.
Eligible sources can include checking and savings accounts, investments and other permitted assets.
Gift funds can also be allowed on certain transactions when they meet the program's requirements.
The lender must be able to verify that funds being used for the mortgage are eligible.
Large Deposits Can Require Documentation
Bank statements can generate questions when they contain deposits that are unusual in relation to your documented income or account activity.
For Fannie Mae purchase loans, the current guide defines a large deposit as a single deposit exceeding 50% of the total monthly qualifying income for the loan.
Fannie Mae's asset rules require applicable large deposits to be evaluated when the funds are needed for the transaction.
A transfer between verified accounts usually creates a much simpler paper trail than unexplained cash appearing in an account.
Required mortgage reserves are separate from the money used for the down payment and closing costs.
The amount, if any, depends on the transaction and loan program.
Collateral: The Property
The borrower is only one side of mortgage underwriting.
The property securing the loan also has to meet the applicable requirements.
When an appraisal is required, the appraiser develops an opinion of the property's market value and reports relevant property characteristics and condition information.
Comparable sales, commonly called real estate comps, are one of the inputs used in residential valuation.
If the appraised value comes in below the purchase price, the resulting appraisal gap can affect the loan-to-value ratio and therefore the loan structure.
Property condition can matter, too. Certain loan programs have requirements related to safety, soundness, structural integrity and property eligibility.
An Appraisal Is Not Always Required
Some conventional loans can qualify for an appraisal alternative.
For example, Fannie Mae's value acceptance program allows certain DU casefiles to proceed without an appraisal when the transaction meets its eligibility requirements.
Freddie Mac has a similar group of automated collateral evaluation options.
Whether an appraisal can be waived depends on the specific transaction and automated underwriting result. A borrower cannot simply choose to skip one.
What Does the Underwriter Review?
The exact file depends on the loan and borrower.
A standard full-document mortgage can involve documents and data such as:
| Document or Information |
What It Helps Verify |
| Mortgage application |
Borrower, income, asset, debt and property information |
| Credit report |
Credit history and liabilities |
| Paystubs and W-2s |
Employment and qualifying income when applicable |
| Tax returns |
Income sources that require tax-return analysis |
| Bank or investment statements |
Funds for closing and reserves |
| Purchase contract |
Price and terms of a purchase transaction |
| Appraisal or permitted valuation alternative |
Collateral value and applicable property information |
| Title information |
Ownership and liens affecting the property |
| Insurance information |
Required property insurance coverage |
| Employment verification |
Current employment when employment income is used |
The documentation can be lighter or more extensive depending on the automated underwriting findings, mortgage program and complexity of the file.
A full-document mortgage generally relies on traditional documentation of income and assets, but even within that category the required documents are not identical for every borrower.
Some Income Takes More Underwriting Work
Salary income with a straightforward employment history can be relatively simple to document.
Variable or business income usually requires additional analysis because the lender has to establish how much of the income is stable enough to use.
That can include self-employment, commissions, bonuses, overtime, part-time work, second jobs and rental income.
Current Fannie Mae rules illustrate why a blanket “two-year rule” is too simplistic.
For bonus, commission, overtime and tip income, a two-year history is recommended, but income received for at least 12 months can sometimes qualify when positive factors support the shorter history.
The lender must also evaluate the income trend.
Fannie Mae's current variable-income rules require different treatment when earnings are stable or increasing versus declining.
For example, commission income can be usable, but the amount shown on your latest paystub is not automatically the amount the underwriter will use.
Common Underwriting Outcomes
Lender terminology can vary, but the file generally moves toward one of several practical outcomes.
Approved With Conditions
A conditional approval means the underwriter has reviewed the file but still needs specified requirements satisfied before final approval.
A condition can involve an updated bank statement, employment verification, explanation of a credit inquiry, property document or another item needed to complete the file.
Conditional approval is not the same as clear to close.
Pending or Suspended for More Information
A lender may use terms such as pending or suspended when the file does not contain enough information to complete the underwriting decision.
This terminology is lender-specific.
The next step is generally to obtain the missing documentation or resolve the issue that prevented a decision.
Denied
A loan can be denied when the verified file does not meet the applicable requirements.
That can happen because of income, debts, credit, assets, property eligibility or another underwriting issue.
This is one reason a mortgage can still be denied after preapproval.
Clear to Close
After underwriting conditions are satisfied and the lender completes its remaining approval steps, the loan can reach clear to close.
Clear to close generally means the lender has completed the major underwriting requirements needed to proceed toward closing.
Final closing requirements still have to be completed.
How Long Does Mortgage Underwriting Take?
There is no federal or agency rule establishing one standard number of days for mortgage underwriting.
Turn times depend on the lender's workload, the complexity of the file, property requirements and how quickly outstanding conditions can be resolved.
A straightforward file can move through individual underwriting reviews quickly, while a file involving self-employment, appraisal issues or repeated documentation requests can take longer.
The more useful way to think about the timeline is by stages:
| Stage |
What Happens |
| Processing |
Documents and third-party information are assembled for underwriting |
| Initial underwriting |
The underwriter evaluates the available loan file |
| Conditions |
Additional documents or explanations are requested if needed |
| Condition review |
The lender determines whether submitted items satisfy the outstanding requirements |
| Final approval |
The lender confirms the loan satisfies its remaining underwriting requirements |
| Clear to close |
The loan moves into the final closing stage |
The dedicated timeline for how long mortgage underwriting takes should be used for lender-turn-time estimates rather than treating one range as a universal underwriting rule.
What You Can Do While Your Loan Is in Underwriting
The goal during underwriting is to avoid unnecessary changes to the financial profile the lender is reviewing.
Respond promptly when the lender requests documentation.
Avoid opening new credit unless necessary, since a new debt can affect your liabilities and DTI.
A job change should also be discussed with the lender before closing. Fannie Mae requires a late-stage verification of employment for borrowers using employment income, and a change in employment status can require the loan to be reevaluated.
Do not assume that moving large amounts of money between accounts will automatically cause a problem, but keep a clear paper trail.
Transfers between verified accounts are easier to document than unexplained deposits.
Large purchases can also reduce the assets you planned to use for closing or reserves.
How Refinance Underwriting Is Different
A refinance goes through many of the same core underwriting checks as a purchase, but the transaction itself is different.
There is no purchase contract or seller.
The lender instead evaluates the existing mortgage, new loan terms, property and borrower under the requirements for the refinance program.
Some refinance transactions can qualify for an appraisal alternative.
For example, Fannie Mae's DU can offer value acceptance on eligible refinance casefiles, which removes the requirement for a traditional appraisal when all applicable conditions are met.
Do not assume a refinance always requires less income or asset documentation, though.
Documentation requirements vary by loan type, automated underwriting findings and any special refinance program being used.
Compare Lenders Before the File Gets Deep Into Underwriting
You are not legally committed to a lender simply because you received a Loan Estimate or started underwriting.
But changing lenders later in the process can create practical costs.
The new lender generally has to establish its own application and underwriting file, and the switch can affect the closing timeline.
The CFPB notes that switching lenders can delay or jeopardize a scheduled closing.
That makes the shopping stage a useful time to compare Loan Estimates before the transaction moves too far into processing and underwriting.
Bottom Line
Mortgage underwriting is the lender's detailed verification of the borrower, loan and property before final approval.
The underwriter looks at credit, repayment capacity, funds for the transaction and the collateral securing the mortgage.
Automated systems such as DU and LPA can evaluate eligibility and risk, but lenders still have to verify the information and satisfy applicable documentation requirements.
If the underwriter requests conditions, the file is not necessarily starting over. The lender is identifying information or requirements that still have to be resolved before the loan can proceed to final approval and clear to close.
FAQ
What Do Mortgage Underwriters Look For?
Underwriters review whether the borrower, loan and property satisfy the applicable mortgage requirements. That can include credit history, qualifying income, employment, debts, DTI, assets, funds for closing, reserves and the property's value and eligibility. The exact review depends on the mortgage program and the individual file.
How Long Does Mortgage Underwriting Take?
There is no universal underwriting timeframe. The lender's workload, complexity of your income and assets, appraisal or property issues and the number of conditions can all affect timing. Underwriting can also involve multiple reviews as requested documents are submitted and cleared before final approval.
Is Approved With Conditions a Good Sign?
It means the underwriter has reviewed the file and identified specific requirements that still have to be satisfied before final approval. It is further along than an initial application, but it is not a guarantee that the mortgage will close. The remaining conditions still need to be documented and accepted.
Can You Talk to the Mortgage Underwriter?
Usually, your loan officer or processor communicates with underwriting and sends you requests for documents or explanations. Whether a borrower communicates directly with an underwriter depends on the lender's process. The important part is to answer condition requests through the lender's designated channel and provide complete documentation.
What Is the Difference Between Preapproval and Underwriting?
Preapproval is generally a preliminary review of your finances before or early in the homebuying process. Underwriting verifies the complete loan file against the requirements for the actual mortgage and property. A preapproval therefore does not guarantee final approval after the property and supporting documentation are reviewed.
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