What Do Mortgage Underwriters Do?

Mortgage Underwriter

AZ Mortgage Underwriter’s Role

Mortgage Underwriters have a very specific and important job.  The mortgage process is made up of several processes all of which ultimately lead to an underwriter approving or declining the loan.   Too often, we hear stories from clients coming to us that involve an underwriter spoiling (or at least complicating) their home loan experience.  While getting a “surprise” decision from an underwriter is typically due to a loan officer not performing their due diligence on the front end, I wanted to help explain just what it is that a mortgage underwriter does and is responsible for.

Mortgage Underwriter’s Role:

In short, an underwriter is responsible for making sure an Arizona borrower meets each and every mortgage rule for the particular type of loan they are applying for.  Here is how it works:

Once a Phoenix area loan officer assembles a complete file (including signed loan application/disclosures, income documents and asset documents along with a contract if a purchase along with an appraisal if one is required) the next step is to submit the file to an underwriter for review and final approval.  An underwriter is required to review each of the following aspects of a loan application (and many more):

1. Borrower’s income
2. Borrower’s assets
3. Borrower’s credit
4. Borrower’s debt
5. Borrower’s residential status (US Citizen etc…)
6. The subject property (Value, property type/eligibility)

These are just a few broad categories that a mortgage underwriter must analyze on each and every Arizona loan application.   In addition, each category is much more in-depth than what I have listed above.  For example, the category of income is not as simple as determining if a borrower has enough income to qualify.  An underwriter must determine what income is eligible/allowed per loan guidelines which in and of itself can be a complicated process.  The underwriter must also calculate what income amount can be used.  All of the following are examples of different variables related to the income category:

  • Grossed up social security income, pension/retirement income, add backs for depreciation/mileage etc.., losses that need to be deducted, notes receivable that can be added, child support/alimony that can be added to or needs to be subtracted from income, loans for a self-employed borrower due within a year that need to be considered, interest/dividend income,  self-employed income, commission and bonus income, income from a borrower with more than one job and many more

Each of these variables is analyzed against a guideline that is specific to the type of mortgage the borrower is applying for (FHA, VA, Conventional, USDA or JUMBO).  It is the loan officer‘s job to properly advise the client relative to these guidelines before granting pre-approval.  It is the underwriter’s job to make sure the file the loan officer submits meets each detailed guideline before allowing a mortgage company to actually fund the borrowers new home loan.

The underwriter is ultimately responsible to make sure that the mortgage company they represent is originating and funding home loans that meet investor guidelines (investor in this context means Fannie Mae, Freddie Mac, FHA, VA, USDA and specific Jumbo investors).  If an AZ mortgage company funds a loan and does not meet the investors guidelines that lender is now responsible for that entire loan.  This results in something called a “buy back” (the mortgage industry’s equivalent of a four letter word).  When an investor audits a loan, they are looking to see that the originating lender is making sure borrowers meet guidelines.  If not, the lender must buy the loan back, put it back on their books and also face possible penalties along with a possible ban from being able to originate/fund that particular type of loan going forward.  If you recall, several lenders have had their ability to originate FHA loans revoked for similar violations in recent years.


Let’s say that an underwriter approves a file based on a borrower’s child support income that they will receive for the next 2 years.  Typical guidelines for including child support income state that a mortgage lender must document that the borrower has received the income for at least 12 months AND that they will receive it for 3 years going forward after their loan closes.  Since the underwriter allowed income that the investors guidelines do not allow that lender will ultimately have to buy that loan back due to the fact that they did not follow the rules.

Before it ever gets to that point, an underwriter will almost always decline a loan application.  They are the individual that stands between a mortgage company and the investor.  Their job is absolutely critical when it comes to keeping a mortgage company in business and to make sure that only loans that meet investor guidelines are being originated.

Why Do Some Underwriters Seem to be Tougher Than Others?

If all underwriters are evaluating files based on the same investor guidelines why do they seem to look at files differently?  GREAT QUESTION!!  ALL underwriters are granted objective leeway and are required to think through each file.  This means that each underwriter (while basing their decisions off of the exact same guidelines) may interpret each file a bit differently.   With so much pressure on lenders to originate quality mortgages, underwriters now tend to dig a little deeper  when evaluating a loan application.


There is a guideline that states that the source of funds for a gift that comes from a family member does not need to be documented (meaning we do not need to show where the donor of the funds got the funds from).  However, if a borrower has a an unsecured line of credit in their name with a $0 balance/$20,000 high limit and they then receive a $20,000 gift from their parents, the underwriter may ask for more documentation to show where the parents got the $20,000 from (even though guidelines do not require this) in order to make sure that the gift did not in fact come from the borrower’s unsecured line of credit.  An underwriter may require this due to the fact that borrowers are not allowed to pull funds from unsecured lines of credit for down payment.

Why would the underwriter go outside of guidelines and do this?   After loans are closed and the originating lender sells them, investors can re-pull a borrower’s credit during their post close audit.  If the investor does pull a credit report and they see that the borrower did pull $20,000 from their line of credit  (by noting that the line of credit’s balance has increased) the investor will then dig deeper to make sure the borrower did not pull $20,000 from their line of credit, give it to their parents and then have their parents give it back as a gift.  If the investor digs deeper and finds that the borrower did fund their own gift the investor would knock on the originator’s door and make them buy the loan back in a heartbeat.

How to Avoid Underwriter Surprises

There is not a 100% fool-proof way to predict how an underwriter is going to think HOWEVER this is where working with an experienced loan officer that works with his/her own underwriting staff is extremely important.  Your AZ loan officer should be able to review a loan application and all supporting documents and spot any red flags.  In fact, if you have a loan officer working for you that is very picky, detailed and asks you for more documents than necessary this is a very good sign.  That means your Phoenix area mortgage partner is on their toes.  They are accurately preparing your file for underwriting and making sure to not leave any stone un-turned.

If you have any questions about how underwriting works in today’s mortgage world please do not hesitate to call or email me.

By Jeremy House



  1. Jeremy and his team are the BEST!!!. After 5 tries it finally worked!!! Also Jeremy got me all the credits he could, Brought down my closing costs to zip. Way to go Jeremy!!


  1. […] in-house underwriting can make all the difference in the home buying process.  Lender’s with in-house underwriting have a direct connection between the loan officer and underwriter.  There is no “middle […]

Speak Your Mind