Demystifying Underwriting

Your loan is in underwriting. This term often strikes fear and confusion into the hearts of borrowers and REALTORS®. Multiple manifestations can come to mind. Some envision a great and powerful wizard, the Oz of lending, who shapes an arcane process where the future of a buyer’s dreams face a whimsical decision. Others see in their mind’s eye a sadistic torturer who devises endless lists of seemingly Herculean stipulations to make the process seem impossible. In reality, it is just a person like you and I doing their job.

Underwriting is simply matching up a borrower’s financial situation with the specific guidelines or requirements of a particular loan program. The aim of this process is, in fact, very simple. It is almost like working down a checklist. The execution of the process, however, can be anything but simple.

To begin with, there is not a single set of guidelines. The risk management groups of the banks who issue the loans create guidelines for each individual program. These guidelines are very specific requirements and they define what degree of creditworthiness is acceptable for the level of risk for the loans. They usually number from 20 – 40 specific requirements and each requirement must be met for the loan to be approved.

To add to the complexity, each client file is different. I have been in the business since 2002 and have yet to feel that I have seen the same deal twice. Granted there are similarities in the assets, employment or credit rating of individuals, but each client is the sum of their individual parts. When aggregated, these variables create an infinite number of combinations that must, in turn, be mapped onto the aforementioned program guidelines.