Once all the required documentation has been gathered, your application is submitted to underwriting. Underwriting is the process of reviewing all of the information and making a decision as to whether a borrower qualifies for a loan. Underwriters evaluate your ability to repay the loan (income), your willingness to repay the loan (credit) and the value of the property that you've identified (collateral).

• Loan application. The information provided on your application helps the lender answer basic questions such as:

  • What is the source of your income, and is the source stable?

  • Is your income adequate to cover the expense of the new mortgage payment?

  • How much long-term debt (debt that will not be paid within the next 10 months) do you have?

• Credit history. Your credit history helps lenders evaluate your ability to manage debt. It reflects how repayment of your bills has been handled in the past. In some cases where borrowers don't have an extensive credit history, some lenders will consider alternative payment records, such as rental payments and utility bills.

• Property appraisal. An appraisal provides an estimate of the market value of the home that you wish to buy and is based on similar homes sold in the neighborhood. Lenders usually grant up to a certain percentage of the property's value in a mortgage loan. This percentage is called the loan-to-value (LTV) ratio. The rest of the property value is covered by your down payment.

• Hazard insurance. Hazard insurance (sometimes referred to as a homeowner's policy) protects you and the lender from loss in the event the home is damaged or destroyed by fire, storm or other hazards. You're responsible for obtaining hazard insurance prior to closing and for providing proof of insurance to your lender. The lender may also require additional insurance against loss by flood or earthquake.