The Mortgage Underwriting Approval Process

What to Expect and How Long It Takes

Image shows an interracial, queer couple looking elated as a mortgage lender tells them that they're approved for a mortgage. On the computer screen between them it reads: "Mortgage lender: approved!"

Image by Ellen Lindner © The Balance 2019

The mortgage underwriting approval process isn't something most people would say they enjoy. It often feels like an exceptionally long dental appointment. You've dutifully gathered the mountain of documentation required to obtain a mortgage. You hand this information over to your loan officer or a mortgage processor, and the underwriters will review your documents for thoroughness, completeness, and accuracy.

You hope you covered everything correctly, but almost everyone messes something up. They forget to check some box, omit a statement, or miss a signature. Don't worry: Your missing documents or signatures will be requested along with clarification on anything that's incorrect on your documents.

It can be a headache, but it helps if you know what's coming and how to be ready for it. Here's what to expect out of underwriting the process.

What Is Mortgage Underwriting?

Underwriting is simply the process your lender goes through to determine your risk level as a potential borrower. It involves a review of every aspect of your financial situation and history, from income, bank accounts, and investment assets to past reliability in paying back your loans. They do this by reviewing documents you submit, reviewing your credit report, and following up with questions for clarification.

Your debt-to-income (DTI) ratio—the amount of your monthly debt payments compared to your gross monthly income—is an important factor that underwriting reviews. To know your DTI, use a mortgage calculator to estimate your monthly mortgage payment, then add to it your other monthly debt payments.

Getting Started With Underwriting

When you begin the underwriting process, you’ll probably be quizzed right off the bat about any large deposits in your checking or saving accounts or how much of your 401(k) plan is vested—or at least if you're planning on making a down payment of less than 20%. This is standard, so it's nothing to be concerned about, but be quick with your answers and any additional documentation. It's absolutely needed to get the process moving.

Your Choice of a Lender 

The next step in the underwriting process can vary a great deal depending on your loan officer and lender. The mortgage lender and loan officer you choose, the type of loan you need, and the general level of detail you've put into gathering your documents will play a large part in determining your personal level of underwriting discomfort.

Your file will be passed on to a corporate mortgage processor in a centralized location that is typically nowhere near you, at least if you are with a large bank or lending institution. These processors are typically overworked and underpaid, so you can expect a longer time frame. Lenders try to maximize a number of loan files that everyone has to process and underwrite—it's a quantity-over-quality approach.

Smaller lenders and independent mortgage brokers usually staff cohesive in-house teams. This results in more efficient operations when everyone is under one roof. 

Even so, there are many good reasons to use a big bank. The giants can generally afford to take more chances than the little guy, and that's great if you find yourself in a gray zone for approval. They also typically offer a wider variety of niche mortgage products for things such as renovation and construction financing. But you'll have to give up a little something in the way of efficiency in exchange for these advantages. 

The Effect of Turn Time

All mortgage lenders have a turn time, the time from submission for underwriter review to the final lender's decision. The turn time can be affected by a number of factors big and small. Internal policy on how many loan operations the staff carries at one time is often the biggest factor, but things as simple as weather conditions—think Rochester, New York, in the winter—can throw off lender turn times quickly.

Ask your loan officer what they expect your turn time will be and consider that factor in your ultimate choice of a lender. Keep in mind that purchase turn times should always be less than refinance turn times. Homebuyers have hard deadlines they must meet so they get first priority in the underwriting queue.

Under normal circumstances, your purchase application should be underwritten (approved) within 72 hours of underwriting submission and within one week after you provide your fully completed documentation to your loan officer. This can take as long as a month, though, depending on the circumstances.

Approved, Denied, or Suspended 

The underwriter will typically issue one of three decisions on your application: approved, suspended, or denied.

If it's approved, underwriting will typically assign conditions you'll have to meet for full approval. This might be clarification regarding a late payment, a large deposit, or a past life transgression. It could simply be a missed signature here or there. 

If it's suspended, which is not completely unusual, there is probably something in need of clarification.

These delays are typically employment- or income-related, but occasionally an asset verification question can also lead to a suspension. In this case, you’ll get two conditions: one to clear the suspension and the standard conditions needed for full approval.

Finally, if you're denied, you'll want to find out exactly why. Not all loans that start as denials end up that way. Many times a denial just requires you to rethink your loan product or your down payment. You might have to clear up a mistake in your application or on your credit report.

Approved With Conditions

The status of the vast majority of loan applications is "approved with conditions," or "conditional approval." In this case, the underwriter simply wants clarification and additional docs, mostly to protect himself and his employer. He wants the closed loan to be as sound and risk-free as possible.

Quite frequently, the additional items aren't requested to convince the underwriter, but rather to make sure the mortgage meets all the standards required by potential secondary investors who might end up buying the closed loan when everything is said and done. 

Your Role in All This 

Your primary job during the time your loan is in underwriting is to move quickly on document requests, questions, and anything else that's asked of you. No matter how ridiculous you think the doc request might be, you need to jump through each hoop as quickly as possible.

Do not take the inquisition personally. This is just what underwriting does. Just handle the last few items and submit them so that you can hear the three best words in real estate: "Clear to close!"

Once you hear those wonderful words, there will be only a few more routine hoops to jump through. Cut your down payment check, sign on the dotted line, and get ready to move into your new home.