What Is Underwriting in Real Estate?

What is underwriting in real estate

Underwriting in real estate is the process of a third party determining how much risk a lender or insurance company is willing to take on a person.

There are three types of underwriters in real estate:

  • Mortgage underwriter
  • Title insurance underwriter
  • Homeowner’s insurance underwriter

Each of these underwriters are tasked with ensuring you and the property you are buying will be a safe investment for their companies to make.

All forms of real estate underwriting occur in the background of the closing process, and you will have no contact with the underwriter other than through your lender, insurance agent or title company.

Now that you know what underwriting in real estate is, lets look at the role each underwriter plays in the process when you buy a house.

The Role of the Mortgage Underwriter

A mortgage underwriter’s role is to determine your financial ability to pay the lender back for your mortgage.

To do this, a mortgage underwriter will investigate all of your financial records, including:

  • Bank statements
  • Debt-to-income Ratio
  • Credit Report
  • Tax Records
  • Outstanding Debt
  • Verify Down Payment

Once the mortgage underwriter has determined all of your financial records to be accurate, they will need to look at or order an appraisal of the home you are buying to determine whether or not the size of the loan reflects the total value of the home.

But don’t worry, the underwriting process normally only takes 1-3 days so you won’t be slowed down if there are no financial problems and the home’s value matches the loan amount.

The Role of the Title Insurance Underwriter

The role of the title insurance underwriter is to look through the results of a title search and determine if it is safe to insure the deed to the property you are buying.

Because title insurance is a one-time fee and covers you for the entire time you own the home, the title insurance underwriter needs to make sure there is minimal risk of someone making a claim to the property like an heir or a lien.

Liens are simply legal claims against your property, which are most commonly for previous owners failing to pay their taxes or contractor.

Once sorted out, the title insurance underwriter will determine whether or not your home is insurable and that the company that insures you can defend the claim to your title if it is challenged in a court of law.

The Role of the Homeowners Insurance Underwriter

The role of homeowners insurance underwriters is to compare the physical risk of your home is too risky to insure.

The homeowners insurance underwriters will take into effect anything that could raise the risk of insuring your home, such as being located in a flood area, the risk of falling trees on your property, or even how old your home is and if there is foundational damage.

But good news, even if one underwriter rejects your approval for a homeowners insurance policy, another may clear you so it is important to get multiple quotes.

Underwriters in real estate are the people that determine how much risk will be involved when providing you with a peace of mind that both you and the company that hires them are protected.  The more information and more accurate the information provided to them is, the faster and easier it is for them to do their job.

And now you know what underwriting in real estate is, the process and how it impacts you in your search for a home or property.

Get More Tips Like These

If you like this post, you'll love our monthly newsletter! You'll get a new theme with ideas for your real estate business from marketing tips to legal advice. Subscribe today!

Get An Instant Quote!