Underwriting is a process by which lending institutions, such as banks and insurers, use to determine whether a client is eligible to receive a loan. In the underwriting process, the lender passes the client’s information and background through a thorough analysis in which they determine the risk involved in lending the person the money.
In the underwriting phases, the lender may consider factors like:
- The borrower’s credit history and score
- The purpose for which the money is supposed to be used
- The amount of money in question
- Repayment terms (i.e., payment dates, interest rates, etc.)
Some lenders may even employ complex formulas or computer programs to assess risk, as it is generally up to them to make the final decision to approve a loan or not.
In a real estate context, underwriting is mainly used in the context of approving a borrower for a mortgage loan. This is also known as “mortgage underwriting.” This is a similar process to other types of lending such as personal loan underwriting or business loan underwriting.
However, real estate underwriting is unique in that the lender must usually work with a property appraiser to evaluate the property in question, not just the background of the borrower. This is because part of the risk involved in a mortgage loan involves the condition of the property, as well as any potential title defects.
Underwriter liability can sometimes be a legal issue in certain underwriting claims. These can often go in either of two directions: approving loans that should not be approved, or denying a person a loan which causes the person losses (common in business cases). For instance, an underwriter may be held liable for mortgage fraud in cases where they approve a loan that shouldn’t have been approved based on the person’s income.
Legal consequences may include monetary damages for losses caused by the underwriter’s actions. In some cases, state or even federal charges can result from more serious violations.
The underwriting process can often be a detailed, complex project. You may need to hire a qualified real estate lawyer if you need assistance with obtaining a home loan or any underwriting issues. Your attorney can help guide you through the process and may assist with negotiations. If you need to file a legal claim or appear in court, your lawyer can provide you with representation for those times as well.