taking notes on a book about loans

What is Underwriting?

Kimber Severance

Borrowers need a way to get their applications approved and lenders need a way to process those applications. This process is called underwriting.

When taking out a loan you’ll undertake several steps and processes. First, you’ll have to weigh your loan options. Then you’ll fill out an application and provide the necessary documentation. At this point, your loan application will enter the loan underwriting process. 

What Is Underwriting?

It is the process that a loan application goes through before being approved or denied. It’s when the lender goes over the information on an application to determine whether the applicant can get approved for the loan or not. This process will include verifying the information on the application and weighing the amount of risk that the borrower poses to the lender. 

In simpler terms, you can think of it as the process of decision-making. When someone submits an application, a decision needs to be made about that application. The ones receiving the paperwork then have to put in place a decision-making process. 

Even when you get pre-approved for a loan, you probably still had to provide some financial information before the lender was able to make you pre-approved. 

Who is an Underwriter?

Someone who performs the underwriting process, or aids the application in this process, is called an underwriter. They can sometimes be referred to as a loan officer. They sometimes even work alongside the applicant to make sure they have all the necessary documents. They also work alongside the lender to work with the lender’s specific requirements and qualifications. Then the underwriter will let the lender know whether the lender can fund the loan or not. 

Mortgage Underwriter

When buying a house, you may work directly with a real estate agent and a loan officer to walk you through the mortgage application and the mortgage underwriting process. You can’t make a home purchase without these officials helping determine whether you can afford the home and setting up the repayment process. 

Insurance Underwriter

There are also underwriters for things outside of loans and mortgage lenders. Insurance underwriters review insurance applications to help the insurance company make decisions about insurance coverage and plans. 

What Is The Underwriting Process?

Every lender will have their own underwriting process that they put applications through. But often this process is ultimately looking to learn more about the applicant’s financial situation and their ability to repay the loan. 

This is as much for the applicant’s benefit as it is for the lender. Lenders need the loans they fund to be repaid and borrowers need to take out loans that they have the ability to repay. This process helps make sure that happens so approved applicants are less likely of defaulting on their loans.  

A typical underwriting process will review the following information: 

  • Income 
  • Assets and property 
  • Debt history 
  • Current debts 
  • Credit history 
  • Credit score 
  • Identity 
  • Employment status 

As an applicant, your involvement in this process will most likely be minimal. The borrower will need to fill out and submit an application and then wait to see if the application gets approved or not.  

If the underwriters need more information or clarifications, they might contact the applicant for more information. If your application is denied, then you’ll most likely get an adverse action notice that will outline why the underwriting process denied you. 

The Underwriting Process for Payday Loans 

Since payday loans are usually smaller loans, their underwriting process can often take less time than larger loans like home loans. There is also a chance that this process will need less information, like your credit history and employment status. 

Payday loans usually require the following information for the decision process: 

  • Income 
  • Bank statements
  • Pay stubs 
  • Assets and property 
  • Debt history 
  • Current debts 
  • Credit history 
  • Credit score 
  • Identity 
  • Employment status 
  • Payday information 

The Underwriting Process for Title Loans 

One extra step included in the underwriting process for title loans is the car title and the value of the car. With this type of loan, a car, its title, and its value are involved. So paperwork to show these things is also necessary for the loan decision-making process. 

Title loans usually require the following information for the decision process: 

  • Income 
  • Bank statements
  • Pay stubs 
  • Assets and property 
  • Debt history 
  • Current debts 
  • Credit history 
  • Credit score 
  • Identity 
  • Employment status 
  • Car title 
  • Car value assessment 
  • Car inspection 

The Underwriting Process for Home Loans

The underwriting process is an important part of the loan process, but it can be especially important for borrowers looking to get a mortgage loan. This process and the loan officers involved can help work with the applicant to make sure they don’t take out a mortgage they can’t afford. 

The underwriting process for home loans will require lots of information about your finances and your home. They usually need not only your credit history and income information but an entire home appraisal and other asset information from the borrower. 

Home loans usually require the following information for the decision process: 

  • Income 
  • Bank statements
  • Pay stubs 
  • Assets and property 
  • Debt history 
  • Current debts 
  • Credit history 
  • Credit score 
  • Identity 
  • Employment status 
  • Home appraisal
  • Home inspection 

How Long Does Underwriting Take?

How long the underwriting process takes depends on the number of variables involved. If you are taking out a smaller loan then this process will likely be faster. If you are taking out a larger loan then this process will likely take longer. Likewise, the more information a loan requires, the longer the decision process will take opposed to loans that require less information. 

In Conclusion, 

If you’ve ever wondered how lenders decide whether an application is approved or not, now you know! It’s all thanks to the lender’s underwriting process. So whenever you take out a loan, know that all the work you put into your application and gathering all those documents was all part of an important process to get you approved.