Mortgage underwriting:
What actually happens

Carl Aktinson

6-minute read

Last updated: 11th March 2020

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Mortgage underwriting isn't a fun subject, but a big (and therefore scary) part of the mortgage process. Let's take a look at what underwriting is, why lenders underwrite and what a mortgage underwriter actually does – plus is there anything you can do to boost your approval chances?

What is underwriting?

Any financial application could go through 'underwriting': a bank loan, a consumer loan like Hitachi, even insurance. That's because underwriting is basically the process where a lender takes on your financial risk for a fee (the money you pay in interest). At the end of it, they need to be 'happy' this risk is acceptable.

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

A mortgage underwriter works for a mortgage lender.

In mortgage underwriting you can imagine with £100,000s involved, the risk can get high, really quickly, so the process can be firm and lengthy.

Your income, affordability, debts, credit profile and property will all be assessed before you get your mortgage approval – and it's the underwriter's job to do this.

Once the mortgage underwriter has given your application an approval, you're pretty much home and dry: a mortgage offer's almost certainly on the way, but if your circumstances do change between the offer and completion, the lender does reserve the right to decline your request for funds.

What part of the mortgage application process is underwriting?

Every lender has a slightly different process, and there are varying levels of automation and manual checking across the board. However, in general, mortgage risk assessment, of which underwriting is a big part of, works like this:

Pre soft credit check

  • Think of these like high-level, broad-brush filters designed to rule out application based on age, term, bankruptcy etc

Scorecarding

  • Usually happens after a fact find and a soft credit check
  • You'll be given a score that's an amalgamation of lots of different info income, employment status, debts etc
  • You need to pass the minimum score to progress you application
  • Again, this is still quite high level
  • After this you may receive a Mortgage Agreement in Principle

Property valuation and underwriting

  • Your lender will independently value your property
  • The mortgage underwriter will then perform an in-depth review of the loan and your finances
  • They may request additional documents during this time

What happens during mortgage underwriting?

In the UK when your mortgage application goes to the underwriting stage, all the info will be reviewed once more: property details, credit reports, bank statements, and your mortgage application form.

As mentioned, the underwriter is assessing the risk of your application, they want to know the chances of you not paying back the loan.

They also want to check the validity of any documents you submit, and make sure that you meet all the lender's and regulatory requirements for the loan.

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

Mortgage underwriting checks

Mortgage underwriting checks

Policy rules

These are a set of ratios and calculations you must satisfy.

These cover stuff like your age, your credit history, your legal status, maximum loan amounts, LTVs.

Credit reporting

Not necessarily your credit score, however. Each lender will use their own statistical model based on the credit records of past and current applicants. They are aiming to determine your ability to repay.

Affordability assessment

Most lenders use a mix of an income multiple calculation and a separate affordability model. The affordability model will test your ability to repay the mortgage while maintaining your current outgoings – debts, tax, child care etc. They will test your ability to repay both under current economic conditions and if rates were to rise or the economy was to change.

Each lender will typically have an income multiple between 4 and 5x the customer’s annual income and they'll use this to determine how much they are willing to lend.

For example, 4.5 x £30,000 (gross salary) = a maximum loan of £135,000.

Fraud and money laundering checks

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.

The property

Some lenders believe certain types of property are too risky to lend on. In addition to checking the value of the property, they will also check type of property, construction method or materials, date of construction, defective properties, etc. to make sure it passes these criteria.

How long does underwriting take?

You'll usually have your mortgage underwriting decision within a week.

Mortgage underwriting your individual application actually doesn't take that long, but the length of the mortgage underwriting process can depend on:

  • The experience of the mortgage underwriter
  • The volume of applications – some times of the year are more popular (spring) than others (Christmas)
  • The intricacies of your application

Most lenders say a week to cover themselves, and a few will tell you if they are especially busy at the point of application.

Anything you can do to speed up underwriting?

Because underwriting happens behind closed doors and is seen as a bit secretive, there's a temptation to send off your mortgage application and then wait for a decision.

Keep checking your inboxes, because you can speed up the underwriting process by quickly providing any additional info the underwriter asks for.

Try not to worry or take any additional request personally, just provide the info they need to help make the decision, and hopefully get you closer to that mortgage approval.

Why would an underwriter reject your mortgage application?

As mentioned, it's the underwriter's job to leave no stone unturned, so applications that get declined at this stage can usually be lumped into 2 categories:

Your situation has changed since you received your mortgage decision in principle

You've lost your job or taken out a new loan, for instance.

The underwriter has found something in your finances that flags you as high risk

This may be due to non-disclosure of an existing financial commitment or discrepancies in your income, for instance. Mortgage applications have even been rejected due to bad language in payment references.

Note: Most of these issues can be avoided with a good broker

At Mojo we act like a buffer between you and the lender's rules and underwriters. If we see something that we think may get your application declined, we'll either work with you to change it, or suggest you apply to a different lender who may have slightly different eligibility criteria.

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

The first thing to do is find out why. Lenders usually tell you, and if Mojo is your broker, we'll certainly do our best to find out on your behalf.

Once you know the issue, there's a good chance you can fix it by working to improve your credit score, reducing some debts or saving for a bigger deposit.

If you get a mortgage application 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.

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