Mortgage underwriting is the process by which a lender evaluates the risk associated with a loan by examining the borrower's financial situation and the value of the property to be purchased.
The process of qualifying a borrower and a property in connection with a loan application is known as mortgage underwriting. During this process, a lender will assess the borrower's creditworthiness, financial history, and the value of the property being purchased to determine the risk associated with the loan. Banks and financial institutions engage
in this process to ensure that the borrower is liable and capable of repaying the loan, which is considered an asset to the bank. In the context of a 30-year mortgage loan, the initial underwriting is crucial for the bank to understand the value of the loan in the present market, which can be assessed by estimating what another party is willing to pay for it. This takes place in the primary loan market, and the subsequent buying and selling of these loans occur in the secondary loan market.