When you apply for a loan, you may hear that the loan is "in underwriting." Though this is one of the last steps in the application process, the bank will not approve your loan unless the underwriters are satisfied with your application. If the underwriters don't believe your loan is a good risk, the bank won't lend you the money.
The United States Department of Agriculture sponsors home loans for qualifying individuals that intend to purchase or construct a home in a rural area. To qualify for a USDA loan, the borrower must meet income and credit requirements. At the time of publication, the USDA requires a borrower's monthly mortgage payment to be no more than 29 percent of his gross monthly income, and his total debt can't exceed 41 percent of his gross monthly income.
When a USDA loan goes into underwriting, the underwriters examine the borrower's application and supporting documents to determine whether the borrower is a good credit risk. Underwriters will approve most borrowers who meet the minimum requirements for the program. However, underwriters examine applications of borrowers with past credit problems or high debt closely before making a decision.
A loan in underwriting has four possible outcomes. If the borrower doesn't qualify for the program, the underwriters will decline the application. If the underwriters have questions about portions of the application, they will suspend the loan and ask for more information. If your application satisfies the underwriters, they will approve your loan either outright or conditionally. Conditionally approved loans typically require additional documentation before closing.
Prior to underwriting, a loan officer examines your application and packages it to emphasize your strong points as a borrower. If the underwriters decline your loan, the loan officer may repackage the loan and resubmit it for approval. If the underwriters still refuse your application, you may consider borrowing a smaller amount of money or applying for a different loan program.