Definition of Underwriting

Underwriting is a process where a lender or investor will research and assess the risks involved in making a loan or investing in an asset.

Why is this term important?

Underwriting is part of assessing the risk of an investment or asset and is completed by a variety of financial services including mortgage lenders, insurance providers and investment bankers.

In real estate, your mortgage lender will employ underwriters who will assess, examine and evaluate the housing market, in general, and the property you wish to buy specifically, to determine if the real estate market in this area is stable and whether or not the price you are willing to pay for the property is realistic and a fair market price.

If a mortgage lender underwriter has concerns about a specific property market or the price you are paying is deemed to be higher than the fair market value of the home, the lender may reject your application for a mortgage or dramatically reduce the amount of mortgage you qualify for.

Examples of term

When someone applies for a loan the application goes to an underwriter who makes a decision based on the process of underwriting.