Underwriting is the act of guaranteeing the financial viability of a project or securities issuance.
In real estate, a lender engages in underwriting when it assesses a project sponsor’s or home buyer’s creditworthiness as well as a project’s riskiness.
In another context, the term can refer to an investment bank’s process of packaging and selling stocks or bonds. It does this to help its clients raise capital.
According to Bankrate, a borrower goes through five steps in the process before potentially securing a mortgage.
- Prequalification: reporting basic financial information and undergoing a credit check.
- Verification: providing supporting documentation and, if successful, receiving a pre-approval letter.
- Appraisal: ensuring that the offer price is within rational bounds for market conditions.
- Title search: engaging in due diligence to be certain that there are no formerly unknown claims against the property, and that the company which performed the title search is insured to guarantee its accuracy.
- Closing: exchanging funds for title, and signing all the requisite paperwork.