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Underwriters are a bit like jurors: They soberly weigh the evidence and render a verdict. Unlike jurors, underwriters sometimes reach out to those they are, well, judging to obtain additional information, clarify a matter, or otherwise help the case for mortgage approval.

If the underwriter finds that you’re fiscally fit enough to take on a mortgage and that the amount you want to borrow is a manageable size, you’re on your way to a home purchase. So you want to put your best foot forward where the underwriter is concerned. By learning about underwriting, you’ll be prepared for the document-gathering and hurdles ahead.

What Is Mortgage Underwriting?

Underwriters protect a bank, credit union, or mortgage company by making sure that they only give loan approval to aspiring homeowners who have a good chance of paying the lender back.

If you’re wondering what is the underwriting process, here are some of their tasks:

•   Verify documents and financial information and make sure that enough savings exist to supplement income or contribute toward the down payment.

•   Check an applicant’s credit score and history and note any bankruptcies, late payments, significant debts, or other red flags.

•   Calculate the debt-to-income ratio by adding up monthly debt payments and dividing that number by monthly pretax income.

•   Request additional documents and ask questions if necessary. For example, if a homebuyer has had more than one job over the past year and their income is not consistent, an underwriter may want to see more assets.

5 Steps of the Mortgage Underwriting Process

The mortgage-seeking journey is a winding path that eventually arrives at the underwriter. Automated underwriting may approve your loan application, though a human underwriter will verify your application and documentation. If the software refers your application to manual underwriting, that’s usually a slower process.

Here are common steps leading to underwriting:

1. Explore Your Budget

Prequalifying for a mortgage is a quick move that will provide a ballpark budget for your home purchase, based on self-reported financial info. And you can employ a home affordability calculator to get a feel for your top price.

Think, too, about lending questions you’ll have during the mortgage process.

2. Get Preapproved for a Loan

Shop around for the best deal, and best-fitting loan, with a mortgage broker or direct lender. This is the time to submit documentation of your income, employment, assets, and debts and allow a hard pull of your credit score. What credit score is needed to buy a house? Much depends on whether you plan to use a conventional or government-backed mortgage loan (an FHA loan is more lenient).

A mortgage preapproval letter, often good for 30 to 90 days, indicates the lender’s willingness to lend you a particular amount at a tentative or locked interest rate. A preapproval letter also allows a buyer to act quickly in a seller’s market.

3. Find Your Home

Once you find a home that meets your needs, you’ll need to agree on a price. Ideally it is within the amount you’ve budgeted and been preapproved for.

4. Apply for the Loan

You may choose one of the lenders you gained preapproval from, or another lender, to apply for the mortgage. You’ll receive a loan estimate within three business days from each lender you apply with.

If you go with one of the former, you submitted documents in order to get preapproved. Still, the lender will likely ask for further documentation now that you’re ready to act on a purchase, and will take another look at your credit.

5. Wait for the Underwriting Verdict

A loan processor will confirm your information, and then it’s time for the underwriter to review your credit scores and history, employment history, income, debts, assets, and requested mortgage amount.

The underwriter will order an appraisal of the chosen property and get a copy of the title insurance, which shows that there are no liens or judgments. Finally, the underwriter will consider your down payment.

Then comes the decision on your mortgage application: approved, suspended (more documentation is needed), or denied. How long does underwriting take? The verdict could come in as little as a few days.

Required Information for Underwriting

Lenders are going to request a lot of documents from mortgage loan applicants.

Income verification. The lender will want to see W-2s from the past two years, your two most recent bank statements, and two most recent pay stubs. Those who are self-employed will need to document stable work and payments and ideally have a business website. Applicants will typically need to show evidence of at least two years of self-employment income in the same field.

Any additional income. Pension, Social Security, alimony, dividends, and the like all count.

Proof of assets. This can include checking and savings accounts, real estate you own, retirement savings, and personal property. A lender might want to see that a down payment and closing costs have been in an applicant’s account for a while.

Debts. Your debt-to-income ratio matters greatly, so list all monthly debt payments, each creditor’s name and address, account numbers, loan balances, and minimum payment amounts.

Gift letter. If you’ve received money from a family member or another person to put toward your home purchase, the lender will request a gift letter for the mortgage and proof of that funding in your account.

Rent payments. Renters will likely need to show evidence of payments for the past 12 months and give contact information for landlords for two years.

How Long Does Underwriting Take?

Underwriting may take a couple of days to more than a week. It all depends on how complicated someone’s finances are and how busy an underwriter is. Thankfully, underwriters typically do everything online these days, so an applicant can upload documents to a website or simply email them.

Can You Speed Up the Mortgage Underwriting Process?

Most of the methods used to speed up the underwriting process are not in the hands of the borrower but rather methods lenders can use to accelerate their review. An applicant can help ensure an efficient underwriting process by making sure they submit all the requested information and documents the first time around, thereby lessening the likelihood an underwriter will have questions.

How You Can Improve Your Chance of Being Approved

Before applicants try to get a mortgage, they can take a number of steps to improve their chances of getting approved.

Lighten the debt load. It’s critical to pay off as much debt as possible and to try to keep your credit utilization ratio below 30%, though some lenders like to see a ratio below 25%.

Applicants can pay off debt faster by making a budget (and sticking to it), using cash instead of credit cards to make purchases, and negotiating interest rates with creditors.

Look at credit reports. Applicants should also scour their credit reports and fix any mistakes so that their score is as high as possible. Federal law guarantees the right to access credit reports from each of the three major credit bureaus annually for free.

The reports show only credit history, not credit scores. There are ways to monitor your credit scores and track your money at no cost.

Attempt to boost income. Applicants may want to apply for higher-paying jobs or get to know the benefits of a side hustle so they can save more money.

Ask for a gift or loan partner. You could also ask a family member for a gift to put toward the down payment, or you could ask a relative with a stable credit history and income if they would apply for the loan as a co-borrower or cosigner.

With an underwriter extending a hand, a solution may be found that leads to approval.

The Takeaway

Ready to apply for a mortgage? Prepare for a probing look at your private life — the financial one — by an underwriter, who is gauging the risk of lending you a bundle of money. The underwriter looks at a homebuyer’s finances and history, the loan amount, and the chosen property and renders a verdict.

Looking for an affordable option for a home mortgage loan? SoFi can help: We offer low down payments (as little as 3% - 5%*) with our competitive and flexible home mortgage loans. Plus, applying is extra convenient: It's online, with access to one-on-one help.

FAQ

How long does it take for the mortgage underwriter to make a decision?

Underwriting can take anywhere from a couple days to a few weeks, depending in part on the complexity of a mortgage applicant’s financial situation and how thorough applicants are in submitting requested documents.

Is underwriting the last step before closing?

Not quite. After the underwriter signs off on the loan, it’s likely that your lender will want to do a final verification of your employment status, credit score, income, or all of the above. You’ll then be sent closing documents to review, and you’ll need to arrange payment of the closing costs, usually via a cashier’s check or bank transfer. At that point, you should be headed to a closing.

How often do underwriters deny loans?

About one in 10 loan applications are denied, according to the Consumer Finance Protection Bureau. Denials are less common for conventional loan applicants than for those applying for Federal Housing Administration (FHA) loans. Denial rates tend to be higher for refinance applicants than for home purchasers.

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*SoFi requires Private Mortgage Insurance (PMI) for conforming home loans with a loan-to-value (LTV) ratio greater than 80%. As little as 3% down payments are for qualifying first-time homebuyers only. 5% minimum applies to other borrowers. Other loan types may require different fees or insurance (e.g., VA funding fee, FHA Mortgage Insurance Premiums, etc.). Loan requirements may vary depending on your down payment amount, and minimum down payment varies by loan type.

Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.

SOHL-Q224-1945575-V1

Credit card scams have been well publicized in recent years, but you may not be aware of the uptick in debit card scams. According to FICO®, the total number of compromised debit cards in 2023 was up 96% over the last year surveyed, and more than 315,000 cards were impacted.

Whether swiping your debit card in person or while shopping online, you’ll want to be vigilant. Here, learn the ins and outs of debit card fraud, plus how to protect yourself.

What Is Debit Card Fraud?

Debit card fraud occurs when an unauthorized third-party or individual uses your debit card to take out cash or make purchases without your permission. Scammers can use sensitive financial details — your card number, PIN, CVV code, and expiration date — to make purchases that drain your bank account.

If left undetected, debit card fraud could potentially wipe out your bank balance. You’ll need to go through a process to dispute the charges and/or withdrawals to try to get your money back.

💡 Quick Tip: Tired of paying pointless bank fees? When you open a bank account online you often avoid excess charges.

Common Debit Card Fraud Tactics

Debit card scams can take many forms. Here are some of the most common types of debit card fraud.

Skimming Devices

Fraudsters install skimming devices on ATMs and payment terminals. These devices can look as if they are simply part of the machine; they fit over the slot where your card usually goes. If you unwittingly insert your debit card, the skimmer can scan the microchip on your card. Your card’s details can then be downloaded, stored, and used without authorization. Skimming can happen at any payment terminal, but it tends to be most common at gas station pumps and ATMs.

Phishing Scams

A phishing scam occurs when scammers create fake sites, and/or send bogus emails or text messages in hopes of luring you to reveal your debit card details. Then, your financial credentials can be used by criminals.

These fraudsters often pretend to be an individual or company with a too-good-to-be-true offer or an urgent situation that spurs you to take action. For instance, they might offer a new laptop at a remarkably low price, or they could tell you your bank account has been compromised and you need to update your credentials immediately.

The goal is to get you to click on a fake site and input your debit card information. While less common, you might get a phone call with an offer that requires your card info on the spot.

Card Theft

Another common way fraudsters can use your debit card to make purchases or take out cash is to steal your physical card. Once they have their hands on your card, they might try to guess your PIN by taking a stab at what your PIN might be — for instance, your birth year. (This information may also be gleaned from social media accounts or the dark web once they have your name.)

Scammers might also figure out your PIN by “shoulder surfing” or subtly peering over your shoulder as you punch in your PIN at an ATM. Once they have that information, they could steal your card and use it to empty your checking account.

Recommended: When Were Debit Cards Invented?

Preventing Debit Card Fraud

Here are steps you can take to safeguard your personal and financial card data from would-be thieves:

Secure Your Card

You can secure your card by signing the back of your debit card, keeping your PIN private, and changing your PIN regularly.

You might also want to consider using a credit card for online purchases and when paying for gas at the pump. Credit cards typically have greater fraud protection than debit cards.

Monitor Accounts Regularly

By monitoring your accounts, you can spot any suspicious debit card activity more quickly. For instance, set text or email alerts for debit card transactions and aim to check recent activity through your bank’s mobile app.

Many people find checking their bank accounts once or even a few times a week is a wise move. It’s also a good idea to comb through your recent banking statements for anything that seems out-of-the-ordinary, such as:

•   Purchases you didn’t make, including micro payments of a dollar or so

•   Unauthorized big-ticket transactions

•   Multiple purchases from the same store you didn’t authorize

Use Chip Cards and Digital Wallets

Chip cards use EMV technology, which involves a tiny embedded computer chip that makes it harder for fraudsters to skim and access your debit card’s details. They can be less susceptible to fraudulent activity than those with the standard magnetic strip.

Digital wallets have greater protections, too. They employ security features such as encryption and tokenization, which add a wall of protection against fraudsters trying to access your card data. Additionally, because digital wallets are stored on your phone, they’re usually safeguarded by biometric screening, multi-factor authentication, and passwords.

What To Do if Fraud Occurs

Should you fall victim to hackers, know that it can (and does) happen to anyone. With more sophisticated tactics and greater technology, fraudsters are getting better at finding ways to snag your debit card data. Here’s what to do should you find yourself a victim of debit card fraud.

Report It Immediately

If your debit card has been lost or stolen or you suspect fraud, the first step is to report it to your bank immediately. Reporting the fraud as soon as possible limits your financial responsibility and can halt the damage the scammer can do. Contact your bank ASAP if you notice unusual activity and request guidance. Depending on your particular situation, you may also have to take steps to report identity theft.

Dispute Fraudulent Charges

If the issue is a fraudulent charge on your debit card, try contacting the merchant to see if you can resolve the issue on their end.

At the same time, you’ll also want to dispute fraudulent charges by contacting the bank or credit union, as mentioned above. It’s important to do this ASAP (and no more than 60 days after the problem occurs). Once you dispute a charge, the financial institution can take up to 90 days to investigate and resolve your dispute.

You can also request a “chargeback” on debit card transactions. Essentially, a chargeback occurs when you dispute a transaction and reverse it. The money that got charged goes back into your account as the financial institution investigates the issue. When it’s resolved, you either keep the credit or, if the bank decides there wasn’t fraud, the funds are taken out of your account.

Get a New Debit Card

When you report fraudulent charges, the bank or credit union can freeze your account, which blocks anyone — including yourself — from using it. If they aren’t already sending you a new debit card, ask for one. Your old card is compromised, so you’ll want a new one.

Also, if you lose your debit card, that’s another reason to call your bank about freezing your account and getting a new one sent to you. Your missing card could be in the hands of a criminal.

Recommended: What Is An ATM Card?

Debit Card Fraud Protections

Under the Electronic Fund Transfer Act (EFTA), if you let your financial institution know within two business days after you notice suspicious activity, you are typically only liable for up to $50. If you inform them after that 48-hour period but within 60 days, you could be liable for up to $500. If you don’t notify them until more than 60 days has passed since the incident, you could face unlimited losses.

Tips for Safer Debit Card Use

Next, delve into best practices to keep your debit card and its details secure.

Avoid Unsecured Wifi

Hackers will go to great lengths to try to tap unsecured networks and steal private information, including personal details, passwords, and data about your checking and savings accounts, plus other financial intel.

To avoid making your banking data vulnerable to thieves, don’t use public or unsecured wifi. Instead, make sure you’re on a secure network. Secure networks have protective measures in place to ward off unauthorized access and theft.

Update PINs and Passwords

Make it a habit to update your debit card and app PIN and banking passwords regularly. Make sure you use unique, strong passwords. In other words, alphanumeric passwords that also contain special symbols. You’ll also want to steer clear of using weak passwords that can be easily guessed, like your date of birth.

Use Credit Cards for More Protection

Credit cards can offer greater protection than debit cards. When a hacker uses your credit card for fraudulent purchases, they’re not using your money but your credit. So you won’t risk having your bank account wiped out.

Plus, most credit cards provide zero liability protection for unauthorized charges. And, if you notice any suspicious activity, you can likely freeze your card to prevent any additional credit card scams from occurring.

The Takeaway

While debit card fraud is on the rise and scammers are more sophisticated in their tactics, you can take steps to prevent debit card fraud from happening. Monitoring your accounts regularly, keeping your credentials private, and being wary of skimmers are among those moves that can help you keep your bank account secure.

Interested in opening an online bank account? When you sign up for a SoFi Checking and Savings account with direct deposit, you’ll get a competitive annual percentage yield (APY), pay zero account fees, and enjoy an array of rewards, such as access to the Allpoint Network of 55,000+ fee-free ATMs globally. Qualifying accounts can even access their paycheck up to two days early.

FAQ

What are common debit card fraud red flags?

Red flags for credit card debt include multiple transactions from the same retailer, unusually large purchases, or purchases made in a place you haven’t visited. It’s always a good idea to check your transactions and monitor your banking activity regularly, at least once a week.

Are debit or credit cards safer?

Credit cards offer greater fraud protection and are generally safer to use than debit cards. Many major card issuers offer zero liability fraud protection. However, you can accrue interest on your purchases, while debit cards simply tap funds you have on deposit.

Can a bank reverse fraudulent debit charges?

Yes, a bank may be able to reverse fraudulent debit card charges. You can request a chargeback, for example, when a transaction goes awry. If your card was lost or stolen and there has been suspicious activity, let your financial institution know ASAP. If you alert them within two business days after discovering the fraudulent charges, you generally won’t be held accountable for more than $50. If it’s been more than two days but less than 60 days, you can be liable for $500. If you wait more than 60 days, you could endure unlimited losses.

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Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.

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