What does it mean to "underwrite" a mortgage?

To "underwrite" a mortgage refers to the process of assessing the risk of lending to a borrower. This involves evaluating various factors related to the borrower's financial stability and creditworthiness, such as credit score, income, employment history, and existing debt levels. The underwriter's job is to analyze this information to determine whether the borrower meets the lender's guidelines for approval and to establish the terms of the loan if approved.

This crucial step helps lenders mitigate potential losses by ensuring they lend only to borrowers who are likely to repay the loan. The underwriting process is a foundational aspect of mortgage lending, designed to protect the lender's interests while also ensuring borrowers are not over-stretched financially.

Other options describe processes related to mortgage lending but do not pertain to the specific function of underwriting. For instance, finalizing the loan closing process involves completing paperwork and transferring ownership, while calculating the repayment schedule pertains to the details of loan servicing. Selling a mortgage on the secondary market refers to the trading of mortgage-backed securities and is a different aspect of mortgage finance altogether.