Underwriting is a process by which the risk involved in any financial transaction is determined. The term underwriting has its roots in the risks undertaken by underwriters who literally wrote their names underneath the perils described. This started in the United Kingdom where underwriters used to evaluate and undertake risks on sea voyages involving large shipments and huge amount of merchandise.

• This process of underwriting is also prevalent in the mortgage process where the risk involved in the transaction is calculated. If you do not meet certain criteria then you may be denied any mortgage. The risk involved is calculated by underwriters and if approved the mortgage can be initiated.
• There are many things and factors that an underwriter will consider before approving the contract. Some of the things that are considered before a mortgage is initiated are the income to value ratio, the credit history, credit score, and all the assets and liabilities of the mortgagor. Although some factors play a more important role than others; all these are taken into consideration before approval of the contract.
• The lending company or mortgagees usually use computer software to determine the risks that are involved in the mortgage. However some facts that directly influence the approval of a mortgage are – the debt service ratio which provides the ratio between a person’s income and his or her debt obligations. There is a certain acceptable limit for such ratio and only those who fall in this bracket are considered for the mortgage.
• It is important to note that the credit report plays a vital role in the underwriting process in any type of mortgage. A string of loan enquiries unrelated to the mortgage within six months prior to application of the mortgage will certainly bring the credit score down. Therefore it is important to avoid anything that adversely affects your credit report such as outstanding debt or unfulfilled obligations.
• Sometimes the ratio of the salary to the amount involved in the mortgage is considered before approving the contract. This means that there is a set and predetermined ratio between the annual income and the amount of mortgage. Anything above this fixed boundary is not available to the mortgagor since the risk of default increases.
• The bottom line is that underwriters can predict the risk involved in the transaction and save the lender from any losses due to default. Therefore underwriters are the people who are responsible for the approval of a mortgage and determine whether an application is to be accepted or rejected. Underwriters are usually actuaries or financial experts who can scientifically and accurately determine the feasibility of the mortgage contract.

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