How to Be Loan Underwriter - Job Description, Skills, and Interview Questions

Jul 26, 2021 / 6 Minutes Read / By Albert

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When a potential borrower applies for a loan, the loan underwriter plays an important role in determining whether or not the loan should be approved. The underwriter evaluates the borrower's credit history, income and other factors to determine the risk of default. If the borrower is deemed to be a good risk, the lender will usually approve the loan.

On the other hand, if the underwriter determines that the borrower is too risky, the loan will likely be denied. The underwriter's analysis is critical to the lending process and can have a significant impact on the borrower's ability to secure financing.

Steps How to Become

Obtain a Bachelor's Degree. The first step to becoming a loan underwriter is to earn a bachelor's degree in a related field, such as finance, accounting, or economics. In addition to providing general education and developing essential skills, such as communication and problem-solving, a bachelor's degree program can provide a foundation of knowledge in banking and lending.
Get Relevant Work Experience. Many employers prefer to hire loan underwriters who have prior experience in the banking or lending industry. Obtaining a related job such as a loan processor, loan officer or bank teller can be beneficial in building the skills and knowledge necessary to become a loan underwriter.
Complete Additional Training. Most employers require loan underwriters to complete specific training in order to acquire the certifications necessary to become licensed. The Mortgage Bankers Association, for example, offers certification courses in loan origination and underwriting.
Obtain Licensure. In order to become a loan underwriter, individuals must be licensed and certified in the state in which they will be working. Licensing requirements vary by state, but typically require that loan underwriters pass an exam covering relevant topics such as mortgage regulations and loan products.
Stay Up-to-Date. Loan underwriters must stay up-to-date on developments in the banking and lending industry, as well as changes in local and federal laws that may affect their job duties. Depending on their employer, loan underwriters may need to renew their licensure or complete additional training on an ongoing basis.

The shortage of skilled and qualified loan underwriters has caused an increase in loan rejections and delays in loan approvals. As a result, lenders are having difficulty meeting customer demand for loans, which has led to a decrease in customer satisfaction. To address this issue, lenders are investing in training and recruiting experienced and qualified loan underwriters. This effort is essential for lenders to adequately assess loan applications to ensure that the right loans are approved quickly and efficiently, resulting in increased customer satisfaction.

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Job Description

Develops loan applications and analyses by evaluating borrower financial status, credit, and property evaluation to determine feasibility of granting loan or submits recommendations to lending officers
Analyzes loan requests and collateral documents to determine customers credit worthiness and make recommendations to Lending Officers
Examines loan documentation to ensure accuracy and compliance with lending regulations
Reviews credit reports to assess the degree of risk associated with granting a loan
Evaluates loan applications to determine whether they meet underwriting criteria
Assesses the marketability of loan products and makes recommendations to management
Negotiates terms and conditions of loans with applicants
Coordinates with other departments to ensure timely approval of loans
Answers customer inquiries regarding loan status, terms and conditions
Develops and maintains relationships with existing and potential clients

Skills and Competencies to Have

Knowledge of banking regulations and compliance.
Ability to analyze financial statements and credit reports.
Excellent written and verbal communication skills.
Excellent organizational and problem-solving abilities.
Ability to make well-informed decisions quickly.
Familiarity with underwriting software and systems.
Ability to interpret financial ratios and analyze risk factors.
Strong critical thinking skills and attention to detail.
Understanding of market trends and economic issues.
Knowledge of loan products and lending procedures.

Loan underwriters play a critical role in determining the risk of a loan for lenders. They review loan applications and evaluate borrowers based on their credit history, income, assets, and other financial information. To do this effectively, loan underwriters must possess a variety of skills, including strong analytical and problem-solving abilities, excellent communication, detail orientation, and financial knowledge.

Analytical skills enable them to assess loan requests quickly and accurately, while communication skills make it easier to communicate with borrowers and other stakeholders. Detail orientation allows them to spot errors and inconsistencies, and financial knowledge enables them to understand complex financial concepts and products. All these skills are essential for loan underwriters to assess risk accurately and make sound decisions about loan requests.

In turn, the correct assessment of risk will ensure that lenders are able to make the right financial decisions and protect against potential losses.

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Frequent Interview Questions

What experience do you have with loan underwriting?
How do you evaluate a loan application?
What criteria do you consider when reviewing an application?
How do you stay abreast of changes in the loan industry?
What challenges have you faced while underwriting loans?
What strategies do you use to stay organized and efficient when reviewing applications?
How do you maintain a balance between being thorough and timely with loan decisions?
How do you handle difficult conversations with customers regarding their loan application?
What do you think is the most important skill for a successful loan underwriter?
What advice would you give to someone looking to become a loan underwriter?

Common Tools in Industry

Automated Underwriting System. An automated underwriting system is a computer-based system used by lenders to automate the loan underwriting process. It can be used to quickly and accurately determine a borrowers eligibility for a loan based on their credit score, income, and other factors. (Eg: Fannie Mae Desktop Underwriter)
Loan Origination Software. Loan origination software is a technology used by lenders to streamline the loan application process. This software allows lenders to automate the steps involved in collecting, processing, and analyzing borrower information. (Eg: Calyx Point)
Credit Analysis Software. Credit analysis software is used by lenders to evaluate the creditworthiness of potential borrowers. This software can assess an individuals credit history and score in order to determine their risk level and the likelihood of them repaying a loan. (Eg: Experian Credit Analysis)
Fraud Detection Software. Fraud detection software is used by lenders to detect any potential fraud or suspicious behavior in loan applications. This software can identify irregularities in a borrowers application, helping lenders minimize their risk of fraud. (Eg: FICO Fraud Manager)
Mortgage Loan Servicing Software. Mortgage loan servicing software is a technology used by lenders to manage the servicing and collection of mortgage loans. This software can automate processes such as loan payments, balance calculations, and customer service tasks. (Eg: MSP Servicing)

Professional Organizations to Know

Mortgage Bankers Association (MBA)
American Bankers Association (ABA)
National Association of Mortgage Underwriters (NAMU)
National Association of Professional Mortgage Underwriters (NAPMU)
American Institute of Certified Mortgage Underwriters (AICMU)
National Association of Mortgage Professionals (NAMP)
Association of Mortgage Professionals (AMP)
Mortgage Industry Standards Maintenance Organization (MISMO)
Mortgage Industry Advisory Corporation (MIAC)
National Credit Union Administration (NCUA)

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Common Important Terms

Credit Analysis. The process of analyzing a borrower's credit profile to assess their creditworthiness and ability to repay a loan.
Mortgage Insurance. Insurance obtained by lenders to protect against loss if a borrower defaults on a loan.
Collateral. An asset pledged by a borrower as security for a loan.
Debt-to-Income Ratio. The ratio of total monthly debt payments to total monthly income, used to determine the borrower's ability to make loan payments.
Income Verification. The process of providing documentation to prove that the borrower's income is sufficient to make loan payments.
Appraisal. An evaluation of the value of a property by a qualified appraiser, used to determine the amount of the loan that can be made by the lender.
Financial Statement Analysis. The process of analyzing a borrower's financial statements to assess their ability to repay a loan.
Loan-to-Value Ratio. The ratio of the loan amount to the appraised value of the collateral that is being used as security for the loan.

Frequently Asked Questions

What is a Loan Underwriter?

A Loan Underwriter is a financial professional who evaluates and assesses the creditworthiness of potential borrowers in order to determine whether they are eligible to receive a loan.

What skills are required to be a Loan Underwriter?

Loan Underwriters need strong analytical and problem-solving skills, as well as knowledge of loan process, regulations, and credit requirements. They must also be able to interpret financial documents and understand risk assessment.

What is the job outlook for Loan Underwriters?

The job outlook for Loan Underwriters is positive, with an estimated 5% growth from 2019 to 2029. This is slightly faster than the average for all other occupations.

What is the average salary for a Loan Underwriter?

The median annual salary for a Loan Underwriter is $59,860 in 2020. Salaries vary depending on experience, location, and company.

What type of loan products do Loan Underwriters typically review?

Loan Underwriters typically review residential mortgage loans, home equity lines of credit, commercial loans, and consumer loans. They are responsible for verifying the accuracy of all loan information and documents.

Web Resources

How to Become an Underwriter - wgu.edu www.wgu.edu
Loan Underwriting Rules of Thumb - academia.edu www.academia.edu
Underwriter | Wex | US Law | LII / Legal Information Institute www.law.cornell.edu