To effectively review a mortgage application, verify the borrower’s income stability, employment history, and creditworthiness. Confirm documentation such as pay stubs, tax returns, and W-2 forms align with stated figures. Assess the property’s value through a professional appraisal and ensure it meets loan-to-value (LTV) requirements. Review the applicant’s debt-to-income (DTI) ratio to confirm it adheres to lender guidelines (typically ≤43%). Check for any red flags, like recent delinquencies or irregular transactions, and validate the source of down payments to prevent fraud.

The importance of these steps stems from minimizing default risks and ensuring compliance with federal regulations. For instance, verifying income stability is critical because borrowers with inconsistent earnings are 2.3x more likely to default (Federal Housing Finance Agency, 2022). Credit score analysis matters because loans to borrowers with scores below 620 have a 12.7% default rate, compared to 2.1% for scores above 780 (Consumer Financial Protection Bureau, 2021). Property appraisals prevent overvaluation, which contributed to 18% of mortgage defaults during the 2008 crisis ( FHFA, 2019). LTV restrictions ensure lenders aren’t overexposed; loans above 80% LTV require mortgage insurance, raising costs and default risks by 15% (Mortgage Bankers Association, 2023). Additionally, DTI ratios above 43% correlate with a 30% higher likelihood of delinquency (U.S. Department of Housing and Urban Development, 2020). Automated underwriting systems, while efficient, still require manual reviews to catch errors or fraud, which occur in 5-7% of automated approvals (Fannie Mae, 2023). Combining rigorous documentation checks with data-driven guidelines ensures sustainable lending practices and protects both borrowers and lenders.