What Is Mortgage Underwriting and How Does It Work?

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Mortgage underwriting is the process whereby a lender assesses the risk of lending you money. Ultimately the lender has to determine if you are able to pay back the loan and confirm the property is a suitable security to lend against, before deciding to either approve or decline your application.

The process of underwriting includes checks on your:

  • Affordability
  • Credit history
  • Property
  • Eligibility (in the context of the lender’s own policies and criteria)

What is a mortgage underwriter and why are they necessary?

A mortgage underwriter is employed by a mortgage lender. When loans amounting to hundreds of thousands of pounds are being provided, the level of risk can be very high. This means that lenders apply strict rules and checks that can take time to be carried out.

They need to thoroughly assess your income, debts, credit profile, affordability and property before they can decide whether to approve your mortgage application. It is the underwriter who carries out these checks.

Once the mortgage underwriter is satisfied and decides to approve your application, you can pretty well assume you have been successful. You are almost certain to receive a formal mortgage offer at this point; the only remaining concern is that if your circumstances change between receiving the offer and completing the purchase, the lender reserves the right to reject your request for the funds.

Where does underwriting come in the mortgage application process?

Every lender’s process is slightly different, and the levels of automated and manual checking throughout the process vary significantly. Generally speaking, the risk assessment part of a mortgage application (of which underwriting is a big part) goes like this:

Soft search & credit check

This is like a high-level filter designed to identify key issues based on things like term, age, affordability, credit history, etc.

All lenders have a different process, but in general you receive an internal score that takes lots of different information into account, such as your employment status, income, outstanding debts, etc. Your score must meet the minimum level in order to progress your application, after which you might receive a Mortgage Agreement in Principle (AIP).

Bear in mind that the AIP stage is still a basic part of the checks, and doesn’t mean a lender will lend you money, just that they are willing to review a full mortgage application.

Property valuation and underwriting

Your lender will have an independent valuation of the property carried out, sometimes at your expense. After this, the mortgage underwriter will perform an in-depth review of your application, finances and your supporting documents, like bank statements and payslips. They will often request additional documents during this time, to help support your mortgage application.

What happens during the underwriting process?

In the UK, when a mortgage application reaches the underwriting stage, all the information will be examined. This includes:

  • Credit reports
  • The mortgage application form
  • Proof of Income
  • Bank statements
  • Property details
  • Proof of Deposit

As we have stated, the underwriter is working to assess the level of risk with your application. They want to develop a picture of how likely it is that you might be unable to repay the loan.

They also need to confirm that the documents you submit are valid. And they have to be sure that you meet all the lender’s regulatory requirements for a loan.

There are usually 5 key considerations that determine a lender’s underwriting decision

Policy & Criteria

These are various calculations and ratios that you need to satisfy. They cover things like your age, your legal status, your credit history, income, loan-to-value (LTV) and maximum loan amounts.

Credit Score

This is not necessarily your credit score, like from Experian or Equifax for example. Lenders usually have their own internal statistical models that are based on the credit records of existing and past applicants. These are aimed at determining how likely you are to be able to repay.

Affordability assessment

Most lenders will use a combination of an income multiple calculation and an additional affordability model. These will test your capability to take on the repayments whilst keeping up with your existing outgoings such as taxes, debt and childcare costs. They factor in both the current economic conditions and the potential for changes in the economy and rises in rates.

Lenders typically have an income multiple of between 4x and 5x the applicant’s annual income. This is used to determine the maximum amount they are willing to offer.

Fraud and money laundering checks

The lender must be satisfied that the source of your income is legitimate and legal. This is why they sometimes have question marks about a gifted deposit, and may ask for further details. They might also request that you provide further clarity over some transactions from your records.

The property

Lenders sometimes determine certain types of property to be too high-risk to offer loans on. This means that, in addition to checking the property’s value, they will also check what type of property it is. They may look at the construction method and the materials used, as well as the date of construction and the presence of any defects, all with an eye to ensuring it meets their own criteria.

Read More on the reasons your property could be unmortgageable.  

How long does mortgage underwriting take?

Your mortgage underwriting decision is usually made within a week. The mortgage underwriting on an individual application doesn’t actually take particularly long, but there are certain factors that will affect the length of time the process takes, including;

  • The experience level of the mortgage underwriter
  • The number of applications being dealt with – generally, speaking there are more mortgage applications taking place in spring than around Christmas time, for example
  • The ins and outs of your application

Most lenders give a timeframe of  a couple of weeks to cover themselves. Some will let you know if they are particularly busy when you apply, so that you can be prepared for a slightly longer wait.

Is there anything you can do to speed up underwriting?

The underwriting process takes place behind closed doors and is regarded as quite secretive. For this reason, many people will just submit their application and then just wait to hear something.

However, it is important to keep on checking your inbox, because you may be able to expedite the underwriting process by promptly providing any additional information the underwriter requests.

Try not to be too worried or to take additional requests personally. Just give them the requested information to help them make their decision and hopefully you’ll move closer to being approved.

Why would an underwriter decline your mortgage application?

It is the job of the underwriter to explore every aspect of your application. If you are declined at the underwriting stage, it usually comes down to one of two reasons:

  • Your circumstances have changed since the mortgage decision in principle was offered. For example, you’ve taken out a new loan or you’ve lost your job.
  • The underwriter discovers something in your finances that places you in the high-risk category. This could be due to non-disclosure of a financial commitment or a discrepancy in your income, for example. Some mortgage applications have even been rejected because of bad language in a payment reference.

A good broker can help you avoid most of these issues. At Think Plutus, we can serve as a buffer between you and the underwriters at the lender. If we spot something that may cause your mortgage application to be declined, we can work with you to amend it or recommend you approach a different lender whose eligibility criteria is more accommodating to your personal needs and circumstances.

What happens if a mortgage underwriter declines your application?

The first step is to determine why that decision was made. Most lenders will tell you, and Think Plutus will go all out to find out for you. Once the issue is identified, there is a good chance it can be fixed. You may need to work on improving your credit score, reducing some of your existing debt or saving up for a larger deposit.

If your mortgage application is rejected at the underwriting stage, this will show up on your credit report.

Want an expert in your corner?

Think Plutus will go over your application with a fine-toothed comb and inform the lender of any special circumstances in your application. We also have access to the full market of mortgage providers and products, so we can place your mortgage application with the most suitable lender. With Think Plutus in your corner, you give yourself the best possible chances of success. Get in touch today.

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