What is the purpose of loan underwriting?

The primary purpose of loan underwriting is to assess a borrower’s credit risk. During the underwriting process, lenders evaluate various aspects of a borrower's financial status, including credit history, income, debts, employment stability, and the value of the property being financed. This comprehensive evaluation helps the lender determine whether the borrower is likely to repay the loan as agreed, which is critically important in minimizing the lender's risk.

By analyzing these factors, underwriters can make informed decisions about approving or denying a loan application and can also dictate the terms of the loan based on the assessed risk. This process safeguards the lender's interests while ensuring that borrowers are assessed fairly based on their financial profiles.

The other options pertain to different aspects of the mortgage process: approving loan servicing fees is part of managing the loan after approval; locking in an interest rate refers to stabilizing the rate before closing; and facilitating property appraisals is an important step for determining property value but is distinct from the actual credit risk evaluation that defines underwriting.