What is typically evaluated during the underwriting process?

The underwriting process is a critical step in the financing of residential real estate, as it involves assessing both the borrower's creditworthiness and the value of the property being financed. Evaluating the borrower's creditworthiness includes examining their credit score, income stability, employment history, and debt-to-income ratio. This ensures that the borrower has the financial ability to repay the loan.

Simultaneously, the underwriter assesses the property value through an appraisal, which determines whether the property is worth the amount being financed. This evaluation helps to ensure that the lender is not risking a loan amount that exceeds the value of the collateral property. By focusing on both components—borrower and property—the underwriting process is designed to minimize the risks associated with mortgage lending and ensure that loans are made to qualified individuals for properties that can support the loan amount.