The mortgage business ultimately comes down to underwriting, which is the process of assessing risks around the mortgage and likelihood of repayment. Let’s clear the air: underwriting isn’t about judging whether you’re “worthy” of a loan. It’s about making sure the details of your loan, the property, and your financial situation align to meet the guidelines set by Fannie Mae and Freddie Mac. These organizations help keep the mortgage market stable by buying loans from lenders and backing mortgage securities.
An underwriter’s job is to look at the credit, income predictability, identity, debt-to-income ratio, and property validation, and ultimately figure out whether it’s a good idea to lend the money to the homebuyer in question.
An underwriter acts as a safeguard, ensuring that the home you plan to buy is financially manageable, that you’re unlikely to default, and that the property is safe and within your budget for any necessary repairs.
Underwriting is highly regulated—and for good reason. We all saw what happened during the housing market crash, where loans were extended in reckless ways.
But it’s also critical that, as a lender, we approach underwriting through a very human lens. While the lending industry typically treats the underwriting process as “protecting the business from undeserving applicants,” our mission is to help people on their path to home ownership. That means taking the time to get their full financial picture, giving them credit for freelance gigs or supplemental income, and making sure their home is one that they could resell in the future.
What does underwriting mean?
Loan underwriting is all about assessing risk and ensuring that you’re making a sound financial decision. Think of the underwriter as your ally in the mortgage process. They carefully review your finances, credit score, and property details to ensure the home you’re buying is within your financial means. Their goal is to make sure that the mortgage you’re offered is not only affordable but also a smart choice for you. By doing this, they help you avoid overextending yourself and ensure that your new home is a secure and manageable investment.
What does an underwriter do?
At most lenders, underwriting involves cross-referencing various documents and verifying numerous details in a loan application. Underwriters meticulously check if your application and supporting financial materials meet the standards set by mortgage owners like Fannie Mae and Freddie Mac. This often includes communicating with past employers and waiting for you to upload necessary documents.
Even at the biggest, seemingly techie lending companies, the majority of the underwriting process is done with paper and highlighters, and it can take 30 to 45 days while people go back-and-forth with an applicant to clarify and confirm details about their employment history or investment history.
At Tomo Mortgage, we broke down the underwriting process into hundreds of different “conditions.” Using technology we’ve automated a lot of these so that humans can spend more time doing the things that humans do best—assessing circumstances and thinking about the human on the other side of the application—and save a ton of time and money in the process. It’s how we close on-time about 98% of the time, while the rest of the industry shoots for 40%.
For example, if you’re in the gig economy or doing freelance work, traditional underwriters might not always factor that income in properly when deciding how much you can borrow. But at Tomo Mortgage, we’ve got underwriters who get the gig economy grind. They know how to handle non-traditional income and can give you a more accurate loan approval based on your real earning situation.
How long does underwriting take?
Underwriting can be a bit of a waiting game. Typically, it takes anywhere from 7 to 30 days. The timeline depends on how quickly you get your documents in and how complex your financial situation is, as well as how responsive you and the people who your underwriter may need documents from are. Fast communication is key to moving things along.
What is manual underwriting?
Manual underwriting is when the automated systems get put aside, and a real person takes a deep dive into your application. This is especially useful if you’ve got a quirky financial situation or no traditional credit score. It’s a personal touch in a sea of algorithms.
Here at Tomo Mortgage much of our underwriting process has been automated, yet it is combed for unique cases where manual underwriting can be beneficial to getting the full picture of our client’s financial situation.
For example, we had a customer who had had his loan application denied by multiple lenders before coming to us. When our underwriters sat down with him, he explained that his documents show an income loss year to date, but that was because he had recently opened a new location for his business, and the large expenses were for purchasing new equipment. Through having a personal conversation we were able to approve this buyer, with a higher than expected total loan amount.
What is a no score loan through manual underwriting?
A no score loan through manual underwriting is for those who don’t have a conventional credit score. Instead, an underwriter looks at your overall financial picture—like your payment history and income—to determine if you’re a good risk.
Should I be worried about underwriting?
Feeling jittery about underwriting? It’s normal. But don’t sweat it too much. As long as your paperwork is in order and your finances checked out, underwriting should be just a routine step in getting your mortgage. Remember, at the end of the day, your underwriter is in your corner.
If you’re ready to start your journey to homeownership, get pre approved with Tomo Mortgage today.