Mortgage Underwriting: Understanding The Process

To help you confidently approach your mortgage application, we’ll explain exactly what the underwriting process involves, the potential problems that could arise, and how to avoid or overcome them.

What is mortgage underwriting?

Mortgage underwriting is when a lender decides to approve or decline your application. They will assess the level of risk involved in lending to you and whether this falls within their predetermined acceptable range.

What does mortgage underwriting involve?

The underwriting process is often completed automatically, and an algorithm makes the decision. Some more complicated cases require human judgment, so they’re referred for manual underwriting. Having your case referred means it’s too complex for a computer, but that’s not necessarily bad news – a human might take a more generous view. Generally speaking, if your circumstances are in any way not simple, manual underwriting is your friend!

Each lender, from mainstream providers such as NatWest and Barclays to more specialist operators, has their mortgage underwriting process, and no two lenders do it the same way. Still, usually, it includes the following components:

High-level checks

Your application will be reviewed to ensure you meet the lender’s general criteria, i.e., age, employment status, minimum income requirement, and legal residency. There’s little flexibility here, so you could be automatically declined for various reasons, such as being an older borrower or having a low income.

Credit checks

The lender will run a credit check with one or more major agencies (Experian, Equifax and Transunion) and use statistical modelling to judge whether you will likely have issues repaying your mortgage. Every lender has a different credit check procedure and risk tolerance, so it’s possible that you could be declined by one lender and approved by another.

If your application is referred for manual underwriting based on your credit history, the underwriter might consider your explanation for past issues and whether your circumstances have improved since.

If you’re concerned about this stage, you can download your credit reports beforehand and take steps to remove any inaccuracies or outdated information that could hinder your application. 

Also, if you have any bad credit on your record, don’t panic! Speak to a specialist bad credit broker who will help you identify suitable lenders to address these issues.  

Affordability checks

Your lender will conduct an income multiple calculation to decide the maximum amount you can borrow. Each lender sets their maximum income multiple, but it’s usually between four and 5.5 times your annual income.

If your affordability status is not clear-cut, a manual underwriter will examine aspects of your financial situation, such as your typical monthly outgoings, your debt-to-income ratio, and any likely future changes to your finances, to judge whether you’ll be able to keep up with your mortgage repayments.

Property checks

Your lender isn’t only deciding whether to lend to you but also whether to lend against the property you’re buying. Certain property types are considered higher risk than others – as they may be harder to sell or maintain their value in the future (particularly relevant in the event of a repossession) – such as flats above shops and homes with non-standard construction. Hence, each lender has a policy on which types they’ll consider.

The policy can be extremely detailed (for example, a lender might allow a flat above a retail outlet but not a flat above a commercial food outlet or may allow a flat above a commercial food outlet in certain postcodes), so a manual underwriter may be involved, and they might ask you for more details.

Fraud and money laundering checks

Before approving your application, your lender must be confident that the details you have provided are all correct and that the money you’re using for your deposit has come from a legitimate source. If they have any doubts, they may ask you to provide evidence.

How long does underwriting take?

Automatic underwriting can happen very quickly. The manual underwriting process is longer, from a few hours to a few days. This depends on how complex your case is, how experienced the underwriter is, and how busy the underwriting department is (certain times of year see a far higher volume of applications).

In a minority of cases, the underwriters might make multiple requests for more information or documentation, which can cause slight delays. You can speed up the process by working with a broker to help you prepare your application and spot any potential issues.

What to do if you think you’ll be declined

There are various reasons why your application could be declined during underwriting.

Most commonly, it will be due to:

• Affordability, i.e. you don’t earn enough to qualify for the size of the loan you applied for with this lender, or your income comes from a source that they won’t consider (e.g. benefit income)
• Deposit requirements, i.e. you don’t have a large enough deposit to borrow from your chosen lender or from a source they won’t consider (e.g. profits from cryptocurrency)
• Bad credit, i.e. you were disqualified from consideration based on the overall picture of your previous borrowing or a specific incident in your credit history (e.g. a prior mortgage default)
• Bank account conduct: Underwriters will want evidence that you’re budgeting correctly for mortgage payments and all other costs associated with owning a property, such as council tax and utility bills.

So, you might have a strong suspicion that your application will be declined if you’re applying to borrow an amount that’s five times your salary or more or if you have a low deposit or bad credit.

Don’t let this discourage you from applying for a mortgage. We’ve helped countless people get a mortgage in these circumstances by connecting them with a broker who specialises in similar cases.

We work with specialists in:

• Bad credit mortgages
• Low deposit mortgages
• High-income multiple mortgages
• Low-income mortgages
• Mortgages for older borrowers
• Mortgages for non-standard homes

They can use their knowledge of these niche markets to direct you toward the lenders most likely to approve your application. They may also be able to use their relationships with these lenders to help push your application over the line. Contact us if you’d like to speak to one of the brokers we work with.

What happens after underwriting

If your application is approved, you can continue with the homebuying process. Your solicitor will work with the seller’s solicitor to finalise the contracts and set a completion date. It’s a good time to look into home insurance and life insurance.

If your application is declined, the next step is to work with your broker to either renegotiate with the lender or consider a new application. Find out more by reading our dedicated article on declined mortgages.

Why Use OnlineMortgageAdvisor?

No matter your mortgage situation, we’ve got you covered. Our mortgage experts support you from start to finish of your application.

With access to hundreds of lenders, your dedicated mortgage adviser can find the best possible mortgage deal for your circumstances. We’re so confident in our service that we guarantee it – if you find a better mortgage deal elsewhere, we’ll give you £100*.

Call 0330 818 7026 or make an enquiry for a free consultation, and a member of our team will explain exactly how we can help