Related Terms
DEFINITION
Underwriting
Underwriting is the process by which a bank or financial institution evaluates the risk and financial viability of a borrower, investment or insurance application before making a decision. It involves evaluating all aspects of the loan application, such as the applicant’s credit assessment, the financial institution’s risk tolerance, and so on.
Synonyms
Risk assessment, credit evaluation, financial vetting
Acronyms
–
Share
Synonyms
Risk assessment, credit evaluation, financial vetting
Acronyms
–
Examples
A person applies for a mortgage to buy a new home. Before approving the mortgage, the bank’s underwriting team goes over the applicant’s financial details, such as their credit score, income, and employment history. They then calculate the debt-to-income ratio to determine whether the applicant will be able to comfortably manage the monthly payments. Lastly, they consider the needed collateral for the loan and compare the applicant to their risk model. They then establish the terms and conditions, such as the interest rate, and make an offer.
FAQ
What is the purpose of underwriting?
The purpose of underwriting is to assess and mitigate risk so that banks and other financial institutions don’t take on undue financial exposure.
What factors are considered in loan underwriting?
Key factors that are considered during loan underwriting include the applicant’s credit score, income, employment history, debt-to-income ratio, and the value of collateral (if any is offered).
What is the difference between underwriting for loans and for insurance?
While both underwriting processes have the goal of minimizing risk, the factors taken into consideration are different. Namely, loan underwriting necessitates establishing whether the client will be able to repay the loan. Underwriting for insurances on the other hand aims to determine the risk of insuring an individual or asset and calculating the appropriate coverage and premiums.
Book your demo today and see why leading financial institutions
worldwide trust Atfinity to drive their digital transformation.
Book your demo today and see why leading financial institutions worldwide trust Atfinity to drive their digital transformation.