A small mistake can stop a mortgage loan from moving forward. Underwriting issues are quiet problems that slow down the process, confuse borrowers, and create extra work for lenders.
These problems happen even to experienced teams. Knowing what causes common underwriting issues—and how to prevent them—is one of the best ways to keep loans moving smoothly and protect your pipeline.
Main takeaways from this article:
- Underwriting issues usually happen because of problems with a borrower’s credit, income, assets, or missing documents, as well as mistakes made inside the lending process.
- Missing paperwork, wrong income numbers, and unexplained large deposits are some of the most common reasons loans get delayed or denied.
- Slow or manual workflows make errors more likely and lead to inconsistent decisions.
- Clear checklists, better borrower guidance, and early reviews help prevent most underwriting problems.
- Using tools like IncomeXpert helps underwriters work faster, make fewer mistakes, and follow guidelines correctly.
What are underwriting issues, and why do they occur?
Underwriting issues are problems that stop a loan from being approved the way it was submitted. These problems can also lead to loan defects later, which may cause a lender to repurchase the loan.
These issues usually fall into two groups:
- Borrower-level problems, such as credit issues, income mistakes, missing documents, or unclear asset information
- Operational problems, such as manual errors, unclear rules, or slow workflows
If these issues aren’t caught early, they can delay closing, increase costs, and hurt the borrower’s experience. Many problems happen because documents are missing, a borrower’s situation is complicated, or the review process doesn’t catch errors soon enough.
Did you know: FHFA’s 2024 report shows that strong income, asset, and documentation reviews are essential for avoiding loan quality problems.
Learn more about common underwriting challengesUnderwriting issues often stem from small mistakes in income, assets, or documentation. If your team needs deeper guidance on how to spot and prevent these issues, these resources can help. |
Six borrower-level underwriting issues and how they arise
Borrower-level issues come from problems with a borrower’s credit, income, assets, or documentation. These issues are often the first obstacles an underwriter must solve.
1. Credit issues
Credit problems often lead to extra conditions or even loan denials. Late payments, high credit card balances, and recent negative marks make a borrower look riskier.
Underwriters must check whether the issue was a one-time event or part of a pattern, and whether the borrower has compensating factors that help offset the risk.
2. Income and employment issues
Income review is one of the hardest parts of underwriting. Common problems include Frequent job changes, short work history, or income that doesn’t fit traditional patterns.
Early in the year, January and February pay stubs may show inflated year-to-date (YTD) income because December pay is included. This “zone of confusion” can cause incorrect income calculations.
Other variable-income challenges include:
- Commissions, bonuses, and overtime require strong documentation to prove stability
- Seasonal income must be compared year over year
- Self-employment income usually needs two years of tax returns
- Multiple income streams each one must be reviewed separately
3. Asset and funds-to-close issues
Underwriters must confirm the borrower has enough money for the down payment, closing costs, and required reserves. Problems often include:
- Unexplained large deposits that cannot be explained
- Bank statements with missing pages
- Not enough history to show the borrower truly owns the funds
All funds must meet agency rules for being sourced and seasoned. Gift funds also require proof that the donor can give the gift and intends to do so.
4. Documentation gaps and inconsistencies
Documentation problems commonly delay loan approvals. Mismatched information across forms—like names, income numbers, or account details—creates confusion and requires clarification.
Early-year issues also show up here. Borrowers may not have their W-2s yet, and a January paystub may show fewer than 30 days of income, requiring extra documents.
Quick fact: CoreLogic’s Mortgage Application Fraud Risk Index reported an 8.3% increase in mortgage fraud indicators in Q2 2024, with many cases linked to missing or inconsistent income and asset documentation.
Common documentation issues Some of the biggest delays in underwriting come from simple documentation problems, such as:
Even small mistakes like these can slow down the entire loan process. |
5. Debt-to-income instability
A borrower’s debt-to-income (DTI) ratio is one of the most important numbers in underwriting. Problems happen when:
- New debts appear during the process
- Income changes or is calculated incorrectly
A higher DTI means a higher risk, and the borrower may need extra strengths (called compensating factors) to qualify.
6. Property-related issues
The property itself can also cause underwriting problems.
- A low appraisal may require a bigger down payment or different loan terms
- Inspection repairs can delay the closing until fixed
- Unique property types may need extra documents or may not meet agency rules at all
These issues can affect both loan approval and the borrower’s timeline.
Five operational underwriting challenges that reduce quality and consistency
Operational issues happen inside the lender’s process. These problems can cause mistakes, slow down loans, and lead to different decisions from different underwriters.
1. Manual income calculations and workflows
When underwriters use spreadsheets and do manual calculations, it’s easy to make mistakes. Even experienced underwriters can miss something or use a rule incorrectly.
Manual work also leads to inconsistency—two underwriters may look at the same file and come up with different answers.
It’s also worth noting that lenders that rely on manual income calculations and fragmented workflows experience significantly higher defect rates and longer turn times compared to lenders using automated underwriting tools.
2. Fragmented or poor-quality data
Borrower information is often stored in many places—emails, PDFs, LOS systems, or notes. When the information is scattered, it’s harder to get a full picture of the borrower. Re-typing information between systems increases the chance of errors.
3. Inconsistent application of guidelines
Guidelines can be confusing. If a lender doesn’t have clear processes, different underwriters may apply the rules differently.
This causes inconsistent decisions and can increase the chance of loan defects or repurchase risk.
4. Difficulty evaluating complex or emerging borrower profiles
Some borrowers have income that doesn’t fit traditional patterns—like gig workers, people with multiple remote jobs, or borrowers with crypto assets. These cases require more knowledge and a clear, consistent review method to avoid mistakes.
5. Bottlenecks that harm borrower experience
Slow processes, repeated requests for the same documents, and unclear communication can frustrate borrowers and loan officers.
These delays also increase costs and make the mortgage process take longer than it should.
See how Blueprint improves underwriting accuracyIf you’re reviewing tools that can improve workflow quality and reduce manual mistakes, Blueprint offers a closer look at automated income analysis, documentation checks, and standardized workflows. |
How to prevent common underwriting issues
Lenders can avoid many underwriting problems by using clear processes, better documentation habits, and strong communication with borrowers.
1. Standardize documentation practices
Create simple checklists that show exactly what documents each borrower needs. Review everything before sending the file to underwriting.
- Make sure pay stubs show at least 30 days of income
- Check that bank statements include all pages
- For January files, get last year’s pay stubs or W-2s
- Confirm names, addresses, and account numbers match
Fast fact: MGIC’s recent fraud-prevention guidance shows that missing documents and incorrect income numbers are major causes of loan defects.
2. Teach borrowers how to maintain financial stability during the process
Borrowers may not realize how their actions affect approval.
- Tell them not to take on new debt
- Ask them not to change jobs during the loan process
- Remind them not to make large deposits without proof of where the money came from
Giving borrowers clear expectations helps avoid delays.
3. Use explanation letters correctly and consistently
When something in the file needs clarification, ask for a simple, direct letter of explanation (LOE).
- LOEs should answer the specific question being asked
- Avoid vague or overly long explanations
Train your team on when LOEs are needed and what they should include.
4. Strengthen pre-underwriting review
Check the file for issues before the underwriter sees it.
- Review income for missing documents or math errors
- Check that bank statements are complete and large deposits are explained
- Make sure the application matches the supporting documents
A strong pre-review reduces conditions and speeds up approvals.
5. Build and enforce standardized workflows
Create step-by-step processes for common situations so all team members follow the same approach.
- Document how to handle exceptions
- Train staff regularly on guidelines
- Share examples of common mistakes so the team can avoid them
Consistent workflows lead to fewer errors and faster loan decisions.
Strengthen your underwriting processIncomeXpert standardizes calculations, automates income reviews, and helps reduce the issues that lead to defects and repurchase risk. |
Reduce underwriting issues with IncomeXpert
Fixing both borrower problems and internal process problems is important for smooth and accurate underwriting. When lenders use clear checklists, teach borrowers what to avoid, and follow the same steps every time, many issues can be prevented.
IncomeXpert helps by automating income calculations and creating consistent workflows. It follows agency rules, builds clean reports, and reduces manual mistakes.
With IncomeXpert, underwriters can focus on real risk instead of basic math. This makes the process faster, more accurate, and safer for lenders.
Want to improve your underwriting process? Request a demo to see how IncomeXpert can help.