What is loan underwriting?

Loan underwriting is fundamentally the process of assessing a borrower's creditworthiness as well as the potential risk associated with lending to them. During this phase, underwriters thoroughly examine various aspects of the borrower's financial situation, such as credit scores, income, debt levels, and employment history, to determine whether they meet the lender's criteria for securing a loan. This evaluation is crucial, as it informs the lender whether they should approve or deny the loan application, based on a well-informed judgment of the likelihood of repayment.

In contrast, disbursing funds pertains to the actual release of loan money to the borrower, which comes after underwriting. Closing a loan refers to the final steps in the mortgage process, where documents are signed and ownership is transferred. Initiating a mortgage application is about starting the process, which happens before underwriting takes place. Thus, understanding underwriting is essential, as it serves as a critical control point in the overall lending process, ensuring that risks are well-managed and that loans are granted to qualified applicants.