Underwriting - The process of analyzing a loan application to determine the amount of risk for the lender making the loan. Underwriting involves evaluating the borrower’s creditworthiness and the property itself and then selecting the appropriate loan term and interest rate.
If your loan is denied in underwriting your mortgage broker can request a exception. Exceptions can be granted by the underwriter so a borrower who may normally be denied is issued a loan approval. Exceptions are difficult to recieve and most cases will require the borrower to write a letter of explanation for the underwriter to review.
Depending on your loan product, you might benefit from automated underwriting if it is available. The benefits to automated underwriting include speed, ease of use and its universal acceptance.
In underwriting some of the key factors that an underwriter reviews to determine if your loan meets their guidelines are: debt to income ratio (also known as DTI), loan to value (also known as LTV), employment type and history, income verification, length and history of credit file, satisfactory appraisal, and loan benefit. Underwriters review many other things too, but these are the main factors that they use to consider approval of a loan.
After underwriting your lender should issue you a commitment letter, stating specifically what conditions need to be satisfied. The commitment letter should also state your rate and terms of your loan.
If you receive an "approval" letter which contains language similar to "Subject to Underwriting Approval", it is a sure sign that your loan has not been officially approved.