The mortgage process is complex and therefore separated into several distinct parts, one of which is mortgage underwriting. When you submit a mortgage application, it will invariably be subject to underwriting.
So that you can get an understanding of what this actually means, and thereby approach your mortgage application with confidence, we’ve put together this guide which contains all of the essential details. We’ll cover:
What is mortgage underwriting?
Mortgage underwriting is an integral process in which a lender evaluates the risk associated with lending you money. The ultimate goal is to ascertain your ability to repay the loan while ensuring that the property you’re purchasing serves as a viable security for the loan. Based on this assessment, the lender will make a decision to either approve or decline your application.
The mortgage underwriting process
Each lender follows a unique mortgage underwriting process, and so differences in procedure may exist. However, the mortgage underwriting process will generally involve a:
During this phase, your application undergoes a preliminary review to align with the lender's broad criteria. This includes top-view level factors such as age, employment status, and minimum income requirements.
The lender will conduct a credit check through one or more of the major credit reference agencies, using statistical modelling to assess the likelihood of potential challenges arising regarding you repaying your mortgage. Given the diverse credit check procedures and risk tolerances among lenders, it is entirely plausible to face a decline from one lender and approval from another. Similarly, if your credit score is low, indicating adverse credit, then there are specialist lenders available so that you can get a product matching your financial situation.
It should be noted that credit checks leave a mark on your report. So, if you want an idea of where you stand financially before applying, then you can use our free credit check tool (£14.99 per month after the free 30-day trial). Using it will help you to spot possible mistakes and instances of fraudulent activity on your record so that you can address any problems as soon as possible. The trial and subscription can be cancelled at any time.
Many lenders employ a dual approach involving an income multiple calculation and an additional affordability model. These assessments evaluate your ability to manage mortgage repayments while maintaining existing financial commitments, including taxes, debts, and childcare costs. The considerations also account for both current economic conditions and the possible impact of economic changes and interest rate increases.
Typically, lenders set income multiples ranging between 4-5x the applicant’s annual income. This calculation helps determine the maximum loan amount they are willing to offer you.
At times, lenders might categorise some property types as too high-risk for loan offerings. In addition to assessing the property's value, they scrutinise its characteristics, including construction methods, materials used, construction date, and the presence of any defects.
This thorough examination is conducted to ensure the property aligns with their established criteria, with each lender having specific policies concerning the types of properties they are willing to consider.
Fraud and money laundering check
Prior to granting approval for your application, your lender must be satisfied with the accuracy of the information you've supplied and verify the legality and legitimacy of the funds you're using for your mortgage deposit. In cases where there are uncertainties, they may request supporting evidence for particular transactions from your financial records.
Do all mortgage applications go to underwriters?
No, in many cases the underwriting process is automated, and decisions are driven by algorithms. However, specialised situations involving intricate income structures, poor credit histories, or high loan-to-value (LTV) ratios necessitate human judgement, leading to a referral for manual underwriting.
A case referral indicates that its complexity surpasses the capabilities of automated systems, but it doesn't necessarily imply rejection; human underwriters simply take a more nuanced approach, which is sometimes needed. Essentially, entrusting the intricacies and decisions to human underwriters serves to mitigate mortgage risk for lenders while ensuring that borrowers are well-positioned to meet their repayment obligations.
How long does underwriting take?
Automatic underwriting is a process which often concludes rapidly. Conversely, manual underwriting takes longer, ranging from a few hours to a week. The total duration hinges on factors such as the complexity of your case, the underwriter's experience, and the current workload of the underwriting department.
In some instances, underwriters may seek additional information or documentation, leading to slight delays. You can expedite the process by promptly responding to messages in your inbox, especially those requesting further personal information.
Why would an underwriter decline my application?
The underwriter plays a vital role in evaluating every facet of your application. A decline during the underwriting stage often stems from changes in your circumstances, such as acquiring a new loan or experiencing recent job loss.
Alternatively, the underwriter may uncover aspects in your finances that cause you to be categorised as high-risk, according to their criteria. This could result from discrepancies in your affordability, deposit, credit rating, or overall financial management.
What happens if an underwriter declines my application?
If your application receives approval, you can proceed with the homebuying process. Your solicitor will collaborate with the seller’s solicitor to finalise the contracts and establish a completion date.
In the event of an application decline, your next step should be to understand the reasons behind the decision. Once the issue is identified, there is a good chance it can be remedied. This might involve efforts to enhance your credit score, reduce existing debt, or accumulate a larger deposit. You can then collaborate with a mortgage broker to either renegotiate with the lender or explore the option of submitting a new application.
Get a mortgage broker to guide you through the underwriting process
The success of navigating through the underwriting process or encountering hurdles often lies in having the right specialist by your side. Therefore, when selecting a broker, it is important to find someone whose expertise aligns with your specific needs.
The Mortgage Genie’s expert mortgage brokers carry out an in-depth examination of your application and communicate any special circumstances to the lender. With access to the entire mortgage market, we can strategically place your application with the most fitting lender and product to increase your chances of achieving housing happiness.
For details on how we can help, be sure to get in touch with us today by calling 01915809890. And why not see how much you could borrow up to right now by using our mortgage calculator?
This information is a guide only and should not be relied on as a recommendation or advice that any particular mortgage is suitable for you. All mortgages are subject to the applicant(s) meeting the eligibility criteria of the specific lender. You should make an appointment to receive mortgage advice which will based on your needs and circumstances.