Mortgage Underwriting: What actually happens

Updated: Jun 11



As you go through the mortgage process, underwriting is one of the final parts of your mortgage application.


In this article, we will cover the following topics.


What is mortgage underwriting?


What is a mortgage underwriter and why does a mortgage application go to an underwriter?


What part of the mortgage application process is underwriting?


What happens during mortgage underwriting?


How long does underwriting take?


Anything you can do to speed up underwriting?


Why would an underwriter reject your mortgage application?


What happens if a mortgage is declined during the underwriting process?



What is Mortgage underwriting?


Mortgage underwriting is a process in which your lender takes on your financial risk assessment for a fee (the interest your pay). The lender needs to be comfortable with the risk of the loan.


Underwriting checks involved include:


- Understanding your credit history

- Security Property in Question

- Your affordability

- Know Your Customer (KYC) and Anti Money Laundering Checks (AML) checks


What is a mortgage underwriter and why does a mortgage application go to an underwriter?


A mortgage underwriter’s job is to assess ‘delinquency risk’, meaning the overall risk that you will not be able to pay the mortgage and works internally with the risk team to assess the income, affordability, credit profile and security address of the client.


Once a mortgage underwriter has given approval, the next step would be a formal offer and exchange of contracts.


A full breakdown of the mortgage process can be found here. With a formal mortgage offer, the lender does reserve the right to withdraw the application if circumstances change.


What part of the mortgage application process is underwriting?


Lenders have different criteria for underwriting depending on the type of mortgage and the way the financial product is structured. The basic process is as follows:


1. Pre-Soft Credit Check


  • A soft credit check is an initial look at certain information on your credit report. Companies perform soft searches to decide how successful your application would be without conducting a full examination of your credit history.


2. Score carding


  • Generally, happens after completion of a fact find and initial soft credit check

  • You’ll be given a score that takes into consideration multiple factors including income, employment status and debts.

  • After this point, you will receive a Mortgage Agreement in Principle


3. Property valuation and in-Depth Review


  • Your lender will choose a valuer on their panel to independently value the property

  • An in-depth review of your loan will be complete on your finances where additional documents may be asked.


What happens during mortgage underwriting?


When your mortgage application goes into the underwriting stage in the UK, the underwriters use a variety of sources of information to assess your attitude to credit, repayments, and your lifestyle.


Underwriters will assess your creditworthiness and the degree of potential risk involved in the agreement based on information from credit referencing checks, your financial history and your mortgage application form.


The final underwriting decision is usually based on 5 different things as shown below:


Mortgage Underwriting Decision
Mortgage Underwriting Decision

Policy Rules:


There are certain conditions that need to be satisfied before moving ahead. These include establishing your debts, age, current resident status, maximum loan amount and the property itself.


Affordability


As part of a lender’s affordability checks, they’ll also want to know about any debts you have – as paying these back may impact your ability to make mortgage repayments.


The affordability model essentially looks at your ability to repay the mortgage whilst maintaining your current outgoings. It also takes into consideration the ability to repay under the current and projected future changes in economic conditions, for example, the recent rise in Bank of England interest rates.


Credit Reporting


In addition to affordability checks and any debts, your credit report will also show the lender if you’ve ever missed payments or defaulted on debts in the past.


Having a good credit report is likely to make you appear less risky and more attractive to the mortgage lender. You will be able to download an up-to-date credit report following this link.


Fraud Checks


As part of AML (Anti Money Laundering) and KYC (Know your customer) rules, the lender needs to be satisfied it knows where all your money is coming from. That's why sometimes if you have a gifted deposit, they may ask for more details. They may also ask you to clarify some transactions.


Property Valuation


The underwriter will also want to know about the home you’re looking to buy. While the property valuation report is separate from the underwriting itself, a review of it will form part of the underwriter’s decision-making process.


How long does underwriting take?


Generally, mortgage underwriting can be completed within a week. The length of the underwriting process can depend on:


  • The experience of the mortgage underwriter

  • The volume of applications. There are periods that are more popular for refinancing or purchasing (Spring) than others (Christmas)

  • The complexities of your application. It’s important to understand that if the mortgage underwriter doesn’t have all the requested information, this will delay the process and the time it takes.


Accelerated Finance can help make sure you have supplied all the correct information for the underwriting process to get underway and for the process to run smoothly.


Anything you can do to speed up underwriting?


As underwriting can happen behind closed doors, it’s seen as secretive but if you follow the two points below, the application could be closer to approval.


  • Full disclosure: There are a lot of ways the lender can uncover information that you may have thought was safely buried. Full disclosure early on will give you and your lender the opportunity to evaluate whether past misdeeds are deal killers or just need extra information to overcome


  • Be ‘all in’ with document requests- mortgage getting is all about documenting the information needed used to approve your loan. This is one of the top reasons that the loan process gets delayed. For the most part, if your lender didn’t need it, they wouldn’t have asked for it. Spending a few hours making sure all documentation is in order can save you time and money.


Why would an underwriter reject your mortgage application?


There are several common reasons why underwriters deny loans in an application. We give below six possible reasons why an underwriter could deny a loan.


1. Your Credit Score is too low indicating that you’re a high-risk investment who may have trouble making on-time payments or handling the financial responsibilities of the loan.


If your credit score is low, you may want to work on increasing it before applying. It’s important to make sure you don’t do anything during the mortgage process to cause a drop in the score such as missing a payment or maxing out a credit card.


2. Your Debt-To-Income Ratio (DTI) is Too High. Most lenders require a DTI of less than 50%. If you have a lot of debt, you should work on paying it down before applying for a mortgage. This will allow you to increase your cash flow and prove to a potential lender that you have enough money coming in to pay for the mortgage.


3. Your Employment Status has recently changed: Lenders like to see financial stability. If you’ve recently lost your job, this can change the mortgage decision in principle. If you’re switching from a job in the same field and with equal or greater pay, this typically won’t be an issue.


4. You have unusual bank account activity: Property purchasing or refinancing comes with a lot of costs. In many cases, your lender will want to see that you have enough money in the bank to cover expenses for at least 6 months.


If you are receiving large amounts of money as a gift, you can provide a gift letter from the donor explaining the gift does not need to be paid back.


5. There are problems with the property: If a valuation uncovers a major issue, like a bad foundation, the loan may be denied as the home would be seen as a bad investment. To prevent this from happening, it’s wise to inspect the property fully.


6. You have a history of Missed Mortgage Payments: If you have previously owned a property, being able to show evidence of paying your mortgage consistently and on time will demonstrate to the lender there is minimal risk to having you as a client.


There’s a common misconception that mortgage companies will never lend to those with a poor credit history. There are plenty of bad credit mortgages on offer from specialist lenders that are willing to be more flexible with their criteria and consider cases from individuals who have had arrears, defaults, county court judgements, individual voluntary arrangements, debt management plans or suffered bankruptcy in the last six years.


Accelerated Finance are specialist mortgage brokers who can help with cases of adverse credit.

You may need to pay a slightly higher interest rate when you first take out the loan, as the provider will automatically consider you to be a higher risk.


But if you keep up your repayments, and take active steps to improve your credit rating, there’s no reason why you can’t find yourself in a much better financial position in the months and years to come – and access a much better deal when you eventually come to remortgage.



What happens if a mortgage is declined during the underwriting process?


If your application is declined during the mortgage underwriting process, you will be advised on what the issue was. There is a good chance of fixing this issue if you work on either improving your credit score, reducing your debt, or saving for a bigger deposit.


If the mortgage application is declined at the underwriting stage, it will show up on your credit report, so it may be advisable to wait a few months before applying again, even with another lender.


Accelerated Finance pride itself in keeping you informed through each of the steps of the mortgage process. Combining our property expertise with new technology, we make it easy for you to secure the finance you need to buy, build, renovate and grow your portfolio.





Disclaimer:


This article is intended to provide a general understanding of the topic. The contents should not be treated as advice.

Your home may be repossessed if you do not maintain repayments on your mortgage


Please note we only offer mortgages for commercial purposes whether it is buy to let or property development projects.