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Underwriting is the process lenders and insurers use to assess risk before approving a loan or insurance policy.
In Depth
When you apply for a loan, mortgage, or insurance, the underwriter evaluates your financial history, credit score, income, and other relevant factors. Their job is to determine if you meet the company's criteria and if the risk of doing business with you is acceptable. This assessment helps set the interest rate for loans or the premium for insurance policies, ensuring the company can cover potential losses.
Example
Before approving her mortgage, the bank's underwriting department reviewed Sarah's income, credit history, and the property's appraisal.