In mortgage terms, what does "underwriting" refer to?

Underwriting in the context of mortgages primarily involves a detailed risk assessment that evaluates the likelihood of default by the borrower. This essential step in the mortgage lending process enables lenders to determine whether a borrower qualifies for a loan based on their financial history, creditworthiness, income, and the value of the property being financed. The underwriter reviews various documents, such as credit reports, income statements, and property appraisals, to make informed decisions about the borrower's ability to repay the loan.

This process is crucial for lenders as it helps minimize the risk involved in lending by ensuring that loans are extended only to borrowers who meet specific criteria. By accurately assessing the risk of default, financial institutions can protect their interests and maintain the stability of their lending portfolios.