What is the process of assessing a loan applicant's financial information to determine loan risk called?

The process of assessing a loan applicant's financial information to determine loan risk is known as underwriting. This stage is critical in the mortgage lending process, as it involves a thorough analysis of the applicant's income, credit history, debt-to-income ratio, and other financial factors. Underwriters utilize this information to decide whether the applicant meets the lender’s criteria for a loan and to identify the overall risk associated with granting the loan.

During underwriting, the underwriter verifies information provided by the borrower and examines it against the lender’s guidelines. This may include reviewing documentation such as tax returns, pay stubs, and credit reports. The outcome of the underwriting process will ultimately influence whether the loan is approved, denied, or if additional conditions must be met before approval can be granted. Understanding this process is essential for loan officers, as it directly impacts their ability to make informed lending decisions.