What does the term "underwriting" mean in mortgage lending?

Underwriting in mortgage lending refers to the assessment of loan eligibility and risk. This critical step involves evaluating a borrower's financial background, including credit history, income, debts, and assets, as well as examining the property that serves as collateral for the loan. The underwriter determines whether the borrower meets the lender’s criteria for approval and assesses the risk involved in granting the loan. By analyzing these factors, the underwriter ensures that the lender is making an informed decision regarding the potential for loan repayment and the overall risk of default.

The other options, while related to the mortgage process, refer to different stages. Closing the loan involves finalizing the transaction after underwriting and ensuring that all parties meet legal and financial obligations. Evaluating the property's condition, often through an appraisal, is focused on determining the property's market value and condition but does not encompass the broader risk assessment for the loan. Calculating monthly payment amounts, while important for borrowers to understand their financial obligations, is a separate process that occurs after a loan has been approved and is part of loan servicing rather than underwriting.