In the world of residential real estate financing, not every deal is created equal and not every deal gets funded. At Shelter Lending, we often see about 1 in 10 loan applications make it through underwriting to closing. That statistic can surprise many borrowers and mortgage brokers alike, but once you understand why, it becomes clear that it’s not about rejection, it’s about responsible risk management and protecting investor capital.
Today, we’re lifting the curtain on our underwriting process to explain exactly what goes on behind the scenes and why we have such a high bar for approval.
We’re Not Gatekeeping; We’re Evaluating Risk
At its core, underwriting is about assessing risk. Lenders like Shelter Lending are stewards of capital. The money we lend out comes from individual and corporate investors, and we’re tasked with ensuring that capital is deployed in a way that preserves principal and earns a healthy risk-adjusted return.
A high rejection rate isn’t about saying “no” it’s about saying “yes” only when the likelihood of success outweighs the risk.
Not Every Deal Meets Our Four Cornerstones of Underwriting
We look at every deal through the lens of four core criteria:
Property Quality
Is the asset structurally sound and well maintained? Is its location desirable? Would it be a highly marketable house to sell, or would there be strong income-producing potential if the property couldn’t sell?
Borrower Experience
Does the borrower have a proven track record? Have they successfully managed similar assets before? A seasoned borrower inspires confidence and reduces execution risk.
Market Fundamentals
Are local demands for real estate stable or improving? Is job growth supporting demand? Underwriting isn’t just about one property; it’s about the dynamics of the entire market where that property is located.
Loan-to-Value & Debt Service Coverage
Does the proposed financing structure make sense? We tend to review the file based on the overall merit and strength of the deal. We can be creative with providing alternative assets to strengthen the loan application, but at the end of the day, it must make sense for the borrower to take on the financial burden.
Fail any one of these areas, and the deal may not move forward.
Due Diligence Isn’t Optional, It’s Essential
We don’t just look at numbers on a spreadsheet.
Our underwriting process includes:
- Title and legal reviews
- Third-party appraisals
- Affordability review
- Realistic exit strategy
Any red flag, which could be property condition, lack of pride in ownership, cashflow management issues, unrectified past credit habits, or even declining market conditions can slow or stop the deal.
Market Conditions Matter (Especially in a Changing Economy)
In dynamic economic environments there are quite a few things like rising interest rates, tighter credit markets and shifts in demand, that can lead to lenders adjusting their risk appetite. Shelter Lending underwrites with today’s reality in mind. We have over 120 years of experience between us that helps shape our risk appetite, and how we approve loan applications.
Deals that can remain resilient in a range of conditions have a higher likelihood of making it through to approval.
Transparency Is Part of Our Process
We understand it’s frustrating for Mortgage Brokers when their deal doesn’t get funded, especially after they’ve invested time and energy into structuring the loan request.
That’s why Shelter Lending aims to be transparent every step of the way:
- You’ll know exactly what we’re reviewing
- We’ll explain our questions and concerns
- If a deal isn’t a fit, we’ll often help you understand how to improve it
We’re partnersin your growth even when we must say “not yet.”
The 1-in-10 Rate Reflects Discipline and Not a Lack of Opportunity
A common misconception is that a low funding rate means scarcity of deals. In reality, it means there’s an abundance of opportunities, but only a subset meet the rigorous standards that protect investors and ensure long-term performance.
By funding only about 10% of applications, Shelter Lending:
- Reduces defaults and losses
- Builds stronger investor relationships
- Maintains competitive pricing
- Supports borrowers with viable solutions for their current financial predicament.
How to Improve Your Chances of Getting Funded
If you’re preparing a loan application, here are a few ways to strengthen your position:
- Sharpen your underwriting package; submit complete applications, with accurate information, and professional conduct. Take the time to ensure you have added detailed submission notes, purpose of funds and the clear exit strategy.
- Address potential issues upfront – do your client research, review the information with your clients, dig into the nitty gritty and get the answers to the blemishes up front. The underwriting team has seen it all, we want the good, the bad and the ugly about your deal.
- Show track record or bring a strong partner – If you’re comfortable with these types of files and have done a lot of them in your history, that’s great! But if you are unsure about your file, dive into the deal with an experienced broker, who can help you navigate the nuances of the file. Don’t run away from it, we are all here to help you and your borrowers where we can.
- Set realistic expectations with your clients – Discuss with them their current scenario, and why traditional lending is likely out of the picture. Explain how rates are higher, and why. Ensure they are aware of the additional fees that are part of private lending, so that they can get their budgets prepared and ensure they are ready for what’s to come.
Great deals deserve great financing. Your preparation is how you can help get your clients there and your work prior to submission ensures we’re all on the same page moving forward.
Final Thoughts
The reality is that underwriting isn’t about rejecting deals, it’s about protecting capital for everyone involved. At Shelter Lending, our high underwriting standards reflect a commitment to long-term success, not short-term volume.
Understanding why about 1 in 10 deals get funded helps brokers align expectations with the realities of private mortgage lending and ultimately, help craft, stronger, more investable opportunities.
If you’d like help preparing your next loan package, we’re here to support you. Let’s build better deals together.