Mortgage underwriters look at five things before approving your loan: your credit, your income and employment, your monthly debts relative to that income, the cash and reserves you’re bringing to the table, and the property itself. Their job is to decide whether lending you the money is an acceptable risk under the guidelines set by the investor or program behind the loan, whether that’s Fannie Mae, FHA, or VA. Everything they request during underwriting ties back to one of those five areas, and anything that changes in those areas between application and closing can put the approval in jeopardy.
Credit Score and Credit History
Credit is usually the first thing an underwriter checks, and the way the score is chosen is more specific than borrowers expect. Fannie Mae’s guidelines call for at least two scores per borrower. When three scores are pulled, the middle score is used. When only two are available, the lower one controls. On a loan with multiple borrowers, the underwriter then takes the lowest individual score in the group as the representative score for the whole file.1Fannie Mae. Determining the Credit Score for a Mortgage Loan
Minimum scores depend on the program:
- Conventional (Fannie Mae): 620 for manually underwritten fixed-rate loans and 640 for adjustable-rate mortgages. Loans run through Desktop Underwriter have no hard minimum floor, though a low score still affects pricing and approval odds.2Fannie Mae. General Requirements for Credit Scores
- FHA: 580 to qualify for the 3.5 percent down payment. Scores of 500 to 579 require at least 10 percent down. Below 500, FHA financing isn’t available.3U.S. Department of Housing and Urban Development. Does FHA Require a Minimum Credit Score
- VA: The VA sets no minimum score, but individual lenders commonly cut off around 620.4U.S. Department of Veterans Affairs. Eligibility for VA Home Loan Toolkit
The score is only the surface. Underwriters read into the history behind it. Payment history draws the closest look, because a single 30-day late payment can trigger a written explanation request. High credit utilization looks riskier than a smaller balance-to-limit ratio. The age and mix of your accounts show whether you’ve handled different kinds of debt over time.
Severe credit events don’t disqualify you permanently, but they come with waiting periods. Under Fannie Mae’s guidelines, you need four years after a Chapter 7 or Chapter 11 bankruptcy discharge, or seven years after a foreclosure, before a new conventional loan is possible. Documented extenuating circumstances like a medical emergency or job loss can shorten those to two and three years.5Fannie Mae. Borrower Eligibility Fact Sheet – Prior Derogatory Credit Event FHA timelines can be more forgiving when a documented hardship caused the event. Outstanding tax liens or judgments that could take priority over the mortgage generally have to be cleared before closing.
Income and Employment
Underwriters want confirmation that your income is stable and likely to continue for at least the next three years. That review starts with a two-year employment history. You don’t have to have stayed at the same employer, but you need a consistent record in the same field.6Fannie Mae. General Income Information
Salaried borrowers usually clear this stage with recent pay stubs, W-2 forms, and sometimes tax returns. Variable income like bonuses, commissions, or overtime gets averaged over two years, so a single strong quarter carries less weight than a steady pattern. If your variable pay has been trending down, expect the underwriter to use the lower figure or ask about it.
Self-employed borrowers face a harder review. The underwriter reads two years of federal tax returns and calculates qualifying income after business expenses and deductions like depreciation. The same write-offs that lower your tax bill also lower your qualifying income, which catches many self-employed applicants off guard.6Fannie Mae. General Income Information
Debt-to-Income Ratios
The debt-to-income ratio is the math at the center of underwriting. Two versions matter. The front-end ratio compares your projected monthly housing cost (principal, interest, taxes, insurance, and any HOA dues) to your gross monthly income. The back-end ratio adds every other recurring debt on top: car payments, student loans, credit card minimums, and other installment obligations.
Ceilings depend on the program and the path. Conventional loans run through Desktop Underwriter can go up to a 50 percent back-end ratio. Manually underwritten conventional loans start with a stricter 36 percent baseline, which can stretch to 45 percent with strong credit and adequate reserves.7Fannie Mae. Debt-to-Income Ratios FHA manual underwriting uses 31 percent front-end and 43 percent back-end as its standard, with compensating factors pushing those higher.8U.S. Department of Housing and Urban Development. Manual Underwriting
One older rule worth correcting: the 43 percent DTI cap that used to define qualified mortgages no longer applies. The CFPB replaced that limit with a price-based threshold tied to the loan’s APR relative to a benchmark rate.9Consumer Financial Protection Bureau. Qualified Mortgage Definition Under the Truth in Lending Act Regulation Z – General QM Loan Definition
Assets, Down Payment, and Reserves
The underwriter verifies that you have the money for the down payment, closing costs, and a cushion afterward. Plan on providing at least 60 days of bank statements. Lenders want to see funds seasoned in your accounts, because money that appears right before closing could be a disguised loan that hasn’t hit your credit report yet.
Any large deposit outside your normal paycheck pattern will need to be sourced with documentation. An inheritance, a tax refund, or the proceeds from selling a car are all fine, but you’ll need a paper trail. The point of the scrutiny is to rule out hidden debt that would push your real obligations past what the DTI already captured.
Gift Funds
Family money can go toward the down payment and closing costs, with specific rules. For conventional loans, acceptable donors are relatives by blood, marriage, or adoption, domestic partners, and people with a documented long-standing relationship with you. The donor can’t be the seller, builder, agent, or anyone else with a financial interest in the transaction. A signed gift letter stating the amount, the donor’s relationship to you, and that no repayment is expected is required.10Fannie Mae. Personal Gifts
For a one-unit primary residence, the entire down payment can come from gifts regardless of the loan-to-value. On a two-to-four-unit property or a second home financed above 80 percent, you have to put at least 5 percent of your own money in before gift funds can cover the rest.10Fannie Mae. Personal Gifts
Cash Reserves
Reserves are what’s left in your accounts after down payment and closing costs, measured in months of mortgage payments. Fannie Mae has no minimum reserve requirement for a one-unit primary residence processed through Desktop Underwriter, though the system may still call for reserves based on the overall risk picture. Requirements climb from there: two months for a second home, and six months for investment properties, two-to-four-unit primary residences, and cash-out refinances with a DTI above 45 percent.11Fannie Mae. Minimum Reserve Requirements
The Property
The house is the collateral, so the underwriter needs to confirm it’s worth what you’re paying. A licensed appraiser inspects the property and compares it to recently sold homes of similar size and features nearby. If the appraisal comes in below the purchase price, the loan won’t fund at the higher amount. You’d have to renegotiate, bring extra cash, or walk away.
The appraiser also flags health, safety, and structural concerns. FHA standards are especially detailed: the property has to protect the health and safety of occupants, secure the lender’s investment, and be structurally sound. Failures under those standards must be repaired and re-inspected before closing.12U.S. Department of Housing and Urban Development. HUD HOC Reference Guide – Repair Conditions Conventional appraisals are less prescriptive, but serious issues like foundation cracks, roof damage, or lead-based paint hazards still have to be addressed.
Flood Zone
Every property runs through a flood zone determination on FEMA’s standard form. If any part of the main structure sits in a Special Flood Hazard Area, flood insurance becomes a condition of the loan, even if the property has never flooded. Properties in Coastal Barrier Resources System areas require flood insurance regardless of zone.13Fannie Mae. Flood Insurance Requirements for All Property Types
Condominium Projects
Condos add a whole second layer, because the underwriter has to evaluate the project, not just the unit. Fannie Mae uses its Condo Project Manager tool to check the association’s finances, insurance coverage, and legal status.14Fannie Mae. Condo Project Manager An association with inadequate reserves, a high share of investor-owned units, or pending litigation against the building can make the entire project ineligible for conventional financing. This is one of the more common reasons a condo purchase stalls when the borrower and the unit both look fine.
Title
A title search examines the ownership record for anything that could compete with the lender’s mortgage: unpaid contractor liens, unresolved easements, boundary disputes, or previous owners with a lingering legal interest. The underwriter needs all of that resolved before closing so the lender ends up in first-lien position. Title insurance backs up whatever the search might have missed.
Automated vs. Manual Review
Most files run through an Automated Underwriting System before a human ever looks at them. Fannie Mae’s version, Desktop Underwriter, evaluates credit, income, assets, and property data together and returns a recommendation. The most favorable is “Approve/Eligible,” which tells the lender the loan meets Fannie Mae’s standards subject to verification.15Fannie Mae. Desktop Underwriter and Desktop Originator
When the automated system can’t approve a file, or when the borrower doesn’t fit automated evaluation, the file goes to manual underwriting. Manual underwriting applies stricter DTI limits (36 percent back-end on conventional, versus 50 percent in Desktop Underwriter) and often more documentation.7Fannie Mae. Debt-to-Income Ratios The tradeoff is that a human can weigh compensating factors the automated system may not fully credit, like significant reserves, a strong saving history, or residual income well above the payment.8U.S. Department of Housing and Urban Development. Manual Underwriting Manual review is common on FHA and VA loans for borrowers with thin credit files or past credit events.
What the Decision Looks Like
The result most borrowers get is the one they don’t expect: conditional approval. The underwriter is prepared to approve the loan once you provide additional items. Typical conditions include updated bank statements, proof of homeowners insurance, a gift letter for down payment funds, or a written explanation for a large withdrawal or credit inquiry. Once every condition is satisfied, the file goes back for a final review and, if everything holds, a “clear to close” that lets the closing proceed.
A full denial is less common. It comes when the underwriter identifies a fundamental problem: income that doesn’t qualify, a score below the program minimum, or an appraisal that undermines the deal. If you’re denied, the lender must provide a written explanation. A suspension means the file has too many unresolved questions for a decision either way and sits until you supply what’s missing.
How Borrowers Lose an Approval Before Closing
The window between application and closing is not the time to make financial moves. Underwriters are working from a snapshot, and anything that changes it can force a re-evaluation or a denial. Data in the file also gets cross-referenced against everything else you’ve submitted; the underwriter or lender will run a verbal verification of employment no more than 10 business days before the note date for salaried and hourly borrowers, and within 30 calendar days of the note date for self-employed income.16Fannie Mae. Verbal Verification of Employment
Changing jobs during underwriting can delay or kill the loan, especially if the new role changes your pay structure (salary to commission, for example) or moves you into a different industry. Even a lateral move at the same pay can trigger a re-review. If you can wait until after closing, wait.17Chase. Changing Jobs During Mortgage Approval Process
Applying for new credit is just as risky. Every new inquiry signals possible new debt. The CFPB advises borrowers to avoid applying for credit cards, car loans, or other financing right before or during the mortgage process.18Consumer Financial Protection Bureau. What Happens When a Mortgage Lender Checks My Credit The furniture-store card that gets you a discount can cost you far more in delayed closing or worse loan pricing.
Large purchases that drain your accounts are the other classic mistake. Lenders run a final check of credit, employment, and balances shortly before closing. If your reserves have dropped because you bought appliances or put a deposit on a car, your DTI or asset picture may no longer qualify. The safest rule for the whole underwriting window: don’t spend, don’t borrow, don’t change jobs, and don’t take in large deposits you can’t document until the keys are in your hand.