What Do Underwriters Do?

August 26, 2009 15 Comments »
What Do Underwriters Do?

Here’s some Q&A with regard to the home loan approval process: “What do underwriters do?”

Once you actually apply for a home loan, your mortgage application will be submitted and sent along to a loan underwriter, who will determine if you qualify for a mortgage.

The underwriter can be your best friend or your worst enemy, so it’s important to put your best foot forward.  The expression, “you’ve only got one chance to make a first impression” comes to mind.

An Underwriter Will Approve, Suspend, or Decline Your Mortgage Application

Put simply, the underwriter’s job is to approve, suspend, or decline your mortgage application.

If the loan is approved, you’ll receive a list of “conditions” which must be met before you receive your loan documents.  So in essence, it’s really a conditional loan approval.

If the loan is suspended, you’ll need to supply additional information or documentation to move it to approved status.

If the loan is declined, you’ll more than likely need to apply elsewhere, with another bank or mortgage lender.

The Three C’s of Underwriting

That said, you may be wondering how underwriters determine the outcome of your mortgage application?

Well, there are the “three C’s of underwriting,” otherwise known as credit reputation, capacity, and collateral.

Credit reputation has to do with your credit history, including past foreclosures, bankruptcies, judgments, and basically measures your willingness to pay your debts.

(What credit score do I need to get a mortgage?)

If you’ve had previous mortgage delinquencies or even non-housing related delinquencies, these will need to be taken into account.

Typically these items will be reflected in your three-digit credit score, which can actually eliminate you without any further underwriting necessary if you fall below a certain threshold.

Your history supporting significant amounts of debt is also important; if the most you’ve ever financed has been a plasma TV, the underwriter may think twice about approving your six-figure loan application.

Capacity deals with a borrower’s actual ability to repay a loan, using things like debt-to-income ratio, salary, cash reserves, loan program and more.

This covers whether the loan is interest-only, an adjustable-rate mortgage or a fixed-rate mortgage, cash-out refinance or simply rate and term.

The underwriter wants to know that you can repay the mortgage you’re applying for before granting approval.

(How much house can I afford?)

Finally, collateral deals with the borrower’s down payment, loan-to-value ratio, property type, and property use, as the lender will be stuck with the home if the borrower fails to make timely mortgage payments.

Underwriters Consider Layered Risk

Now it’s important to understand that the three C’s are not independent of one another.

All three must be considered simultaneously to understand the level of layered risk that could be present in said application.

For example, if the borrower has a less-than-stellar credit score, limited asset reserves, and a minimal down payment, the risk layering could be deemed excessive, leading to denial.

This is the underwriter’s discretion, and can certainly be subjective based on other factors such as job type, how long the borrower has been in the job, why the credit score is less than perfect, and so on.

The underwriter must decide, based on all the criteria, if the borrower is an acceptable risk for the mortgage lender, and if the end product can be resold without difficulty to investors.

Layered risk is a major reason why the mortgage crisis got so out of hand. Scores of borrowers applied for mortgages with stated income and zero down financing, which is certainly very high risk, and were easily approved.

Rising home prices covered up the mess for a while, but it didn’t take long for everything to unravel. This is why sound mortgage underwriting is so critical to a healthy housing market.

(photo: Joelk75)


  1. Renee April 15, 2015 at 1:53 pm -

    My husband recently switched from employee to contractor that receives 1099. We are being told that regardless of credit score and down payment we will have to show 2 years of Self Employment tax returns in order to be considered. Is there any way around this and if we apply will we considered at all?

  2. Colin Robertson April 15, 2015 at 4:53 pm -

    Hi Renee,

    Changes in employment can present challenges, especially going from W-2 to self-employed, and certainly if it’s less than two years. But if he’s been doing it over a year and it’s in the same line of work and an equal or better position than his former one, it may be possible to get financing. It might be best to speak with a broker or two so they can scan their range of offerings to see what lenders might be willing to help. And maybe also reach out to some portfolio lenders who keep their loans and thereby underwrite a bit differently.

  3. RAD June 3, 2015 at 2:51 pm -

    if i have less than stella credit and a student loan in default, which is now being rehabilitated, how can i get my pre approval from a lender, ??

  4. Colin Robertson June 3, 2015 at 3:53 pm -


    You may still be able to get approved but it’s probably better to apply when your credit score is higher…lower rate, more options.

  5. rodger August 23, 2015 at 12:47 am -

    I included my home in a bankruptcy 5 years ago but the mortgage company has failed to foreclose on the loan, I have reestablished my credit and have a good credit score can I still buy a home?

  6. Jessica September 14, 2015 at 7:07 pm -

    So I have no credit. It’s not been established and I’ve also never made a large purchase, so i feel as if we would get laughed at. Nearing 30 would love to pay toward owning a home, our home. What are options for someone who doesn’t have a credit report,or a larger purchase, But a good income and years of management for the same company.

  7. Colin Robertson September 15, 2015 at 9:14 am -


    A lender might be able to use alternate credit such as utility bills, cell phone bill, etc. But it’s better to have a car loan/lease and/or some credit cards with some years of history on each line to make qualifying a lot less hassle-free. Good luck!

  8. Caitlyn October 22, 2015 at 5:22 pm -

    My fiancé is currently in the process of purchasing a new home. He was approved for the loan, and then they started asking for other things. He did what they asked, and now we can’t close. If he was already approved, why are we still dealing with underwriter?

  9. Colin Robertson October 26, 2015 at 4:22 pm -


    Could be a million different reasons. Every time new information is shared with the lender there’s a possibility for denial or the need for additional documentation. Sadly it’s a very intensive, bureaucratic process. Best to ask the lender directly what is needed and why.

  10. Jay November 30, 2015 at 9:58 pm -

    I had past payment problems on my last house due to a child being born 4.5 months premature and having to pay for a lot of dr. Bills and testing. Now my son is fine and we have another child and need to move into a bigger house. The end result I filed chapter 13 100% repayment plan in 2012 paid it all in full in just one year. since then I haven’t been on any payments credit cards or mortgage and my signature loan with my bank has been paid on time and almost paid off my credit score is a 681 717 677 idk why transunion is higher than the others. But will a underwriter deny me because of my past payment problems although I’ve had no late payments in over 3 years?

  11. Colin Robertson December 1, 2015 at 11:27 am -


    There are waiting periods to get a mortgage after filing BK, but if extenuating circumstances can be documented the period is much shorter. Depends on the type of loan and what you can prove.

  12. Nick January 12, 2016 at 12:06 pm -


    I am going the USDA route, I am very close to the income cap limit to qualify. I am just curious if underwriters are able to get some real time report from the gov that says you have had withholdings from your employer therefore your income or do they take your income verification straight from your paystubs.


  13. Colin Robertson January 12, 2016 at 4:49 pm -


    The USDA is pretty strict when it comes to income to ensure the loans go to those who need them. They’ll likely ask for paystubs and W-2s and consider household and projected income.

  14. Kay February 4, 2016 at 5:27 pm -

    I have had rental issues that are on my credit report from the past 6 years. My report is at 676. My husband and I have been pre approved for a loan his score is a 767. What are the chances we may be denied?

  15. Colin Robertson February 4, 2016 at 5:33 pm -


    Credit score is just one piece of the pie. Your score could certainly be better but it being low may just affect the rate you receive, not whether you are approved or not. Good luck!

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