What Is Underwriting?

Short answer

Underwriting is the stage where the lender's underwriter verifies everything in your file against the program's guidelines: credit, income, assets, the appraisal, title, insurance and, for condos, the building. The output is a conditional approval with a list of items to clear, then a final approval known as clear to close. In Miami, underwriting typically takes a few days to two weeks, with condo review and insurance often the slowest pieces.

Definition

Underwriting is the lender's risk assessment of the borrower and the property. It combines an automated underwriting system decision with a human underwriter who reviews documents, calculates income and DTI, and issues conditions that must be satisfied before closing.

Worked example

A self-employed buyer in Coral Gables submits two years of returns showing $142,000 and $168,000 in net income. The underwriter averages them: ($142,000 + $168,000) / 2 = $155,000 a year, or $12,917 a month, and adds back $9,000 a year of depreciation ($750 a month) for $13,667 of qualifying income. Debts of $1,200 plus the proposed payment of $5,600 give a DTI of $6,800 / $13,667 = 49.8%. The automated system approved up to 50%, so the file passes, but the underwriter conditions the file on a year-to-date profit and loss statement showing income is not declining. The P&L shows $120,000 through September, on pace for $160,000, so the condition is cleared.

The underwriting steps

• Automated underwriting: the file runs through Fannie Mae's DU or Freddie Mac's LPA (or a lender's engine for non-QM) for an initial decision and document requirements.
• Initial underwrite: a human underwriter reviews credit, income, assets and the application, and issues a conditional approval.
• Property review: appraisal, title commitment, insurance and condo documents are reviewed.
• Conditions: you supply missing items; the underwriter clears them.
• Clear to close: final approval; the closing disclosure is issued.

What slows underwriting down

Missing pages, unexplained deposits, income that changed recently, a slow condo association, an appraisal that comes in low or needs repairs, and new debts opened during the process. Do not change jobs, open credit or move money around between application and closing without telling your loan officer.

In South Florida

Miami files carry extra underwriting layers: condo project review (questionnaire, budget, insurance, milestone inspection and SIRS), flood zone determinations and flood insurance, windstorm coverage with acceptable deductibles, and large or foreign deposits that need sourcing. Self-employment and multiple income sources are common and take longer to calculate. Non-QM and foreign national underwriting is manual by design. The fastest closings come from complete files: send every page of every statement, explain large deposits upfront and respond to conditions the same day.