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Real estate underwriting: The basics

On Behalf of | Jun 14, 2019 | Real Estate Transactions |

Real estate underwriting can provide a valuable advantage for those who are looking to purchase real estate. Individuals looking to purchase a home or businesses looking to purchase property as part of a business venture will likely go through the underwriting process. This piece will provide some basic information about what the process is and how it works.

Real estate underwriting: Defined

Essentially, real estate underwriting is the review of the applicant before a lender approves a loan to purchase real estate. More specifically, the United States Department of Housing and Urban Development defines real estate underwriting as a “process of analyzing a loan application to determine the amount of risk involved in making the loan; it includes a review of the potential borrower’s credit history and a judgment of the property value.”

Real estate underwriting: The process

The underwriter will review the value of the property and the financial standing of the applicant. If the applicant is a business, the underwriter will review the business’ asset liquidity and financial standing to determine any potential risk.

If funding is intended for a real estate project, the underwriter will likely also review the applicant’s history and similar projects.

Real estate underwriting: The risks

The main risk present to the borrower in this situation involves approval. A failure to receive approval can mean the borrower does not receive the funds needed to move forward with the transaction.

Buyers and lenders can take steps to mitigate the risks that come with real estate transactions by seeking the counsel of an attorney experienced in underwriting services.