Underwriting is Subjective
To many people the underwriting process is a mystery, however in the mortgage industry it really boils down to something very simple - risk assessment. An underwriters job is to assess the probability of an applicant defaulting on the mortgage loan. If the underwriter feels there is a low level of default, a loan will generally be approved provided it meets all program and documentation guidelines. If the underwriter feels the loan is a high risk, it can be declined despite meeting program and documentation guidelines.
This is important especially in today's climate. The CFPB is on a witch hunt for lenders approving sub-par loans and sometimes lenders are punished unfairly due to a high rate of defaults that may not even be the lender's fault. Litigation on top of litigation has tightened the standards of many lending institutions. With that being the case, underwriters are going to be analyzing loan files even more prudently, and making sure that there is little doubt a loan will perform prior to issuing an approval.
What many people don't understand is that underwriting goes beyond guidelines and beyond program parameters. Underwriting has a subjective element. If an application meets program guidelines and has satisfactory documentation, it can still be declined if an underwriter feels it is too great a risk.
Files being declined in this manner are few and far between, but they do happen. There are some applicants who barely squeeze within program guidelines, but really have nothing that would be considered strengths. Spotty credit history, barely enough assets to cover required down payments and no history of savings, high debt-income ratios (this has become the biggest killer), and payment shock are some factors that, when combined, can kill a deal despite meeting program guidelines.
As an applicant, the best thing you can do is prepare your loan application as if you were preparing a resumé. Exhibit your strengths as a borrower, and offer explanations and compensating factors for your weaknesses. Working with a good loan officer will help you have the best shot at getting approved for a mortgage loan and preparing for any questions or concerns an underwriter may have. The more questions your loan officer has for you the better, because the more information that's given up front means less information will be requested later. If all of an underwriters questions are answered before they can ask them, the chances of a seamless loan approval process are dramatically increased.