Underwriting is the process by which a lender evaluates the risk of making a loan and decides whether to approve it. An underwriter reviews the borrower's income, assets, credit, and debts along with the property's appraised value.
The goal is to confirm that the borrower can repay the loan and that the property provides adequate collateral. Underwriters verify documentation, assess the debt-to-income ratio and loan-to-value ratio, and check that the file meets the loan program's guidelines.
Underwriting can result in approval, denial, or, most commonly, conditional approval requiring additional documents. Clearing all conditions leads to a final loan commitment, which must happen before closing. It is often the most scrutinized and stressful stage of financing.