Underwriting is the process of determining whether a loan application is approved or denied which encompasses all of the diligence checks, credit assessment, analysis.

The process is all about verifying all the information an applicant has submitted and declared with documentation.

Including checks on credit records, running financial ratios to determine the affordability of the borrower, and loan to value considerations.

An approver then decides whether an applicant’s loan request can be approved.

Underwriting requirements can be grouped into 2 categories:

  1. Internal requirements
  2. External requirements

Internal requirements refer to the criteria and standards that the lender determines internally.

For example, one lender might decide that a transport allowance provided by the applicant’s employer can be deemed as part of personal income, while another lender might not take it into consideration at all.

External requirements refer to criteria and conditions that government agencies implement for all lender to follow.

For example, conforming loans cannot exceed a certain mortgage loan amount.

As underwriting consist of verifying information of a potential borrower with documentation, it should not be confused with qualification.