When you apply for a mortgage loan, the success of your application depends on underwriting. Underwriting is the process used to decide whether to accept or reject a loan application. It is also used to qualify a borrower for a loan program. Qualifying for a loan is not an all-or-nothing scenario. A borrower may be rejected for the least expensive loan, but approved for a higher-risk, more expensive loan.
There has been a major change in the underwriting process in the past decade. Today, fewer and fewer people do the actual underwriting, instead, it is done by computers. This is called automated underwriting. As the name implies, a machine (rather than a person) does the work, and approves or rejects the application. Somewhat surprisingly, this has been a major benefit to many borrowers. It turns out that it is much tougher to get approved by a person than by a machine. The computer has been programmed in most instances to be much more forgiving for problems with credit, income, and debt than were the human underwriters. And, the computer does not worry about losing its job if it approves too many bad loans.
Regardless of whether a person or computer is actually doing the underwriting, there are three major factors that are considered in the underwriting process:
1. credit history;
2. income-to-debt comparison; and,
3. property value-to-loan comparison (down payment).