The three Cs of underwriting are credit reputation, capacity, and collateral.
Credit reputation is basically your credit history, including past foreclosures, bankruptcies, judgments, and basically measures your willingness to pay your debts. These items will be reflected in your FICO credit score, which may halt furhter underwriting if you fall below a certain threshold.
Capacity deals with a borrower's actual ability to repay a loan, using things like debt-to-income ratio, salary, cash reserves, loan product and more. The underwriter wants to know that you can repay the mortgage you're applying for before granting approval.
Collateral deals with the borrower's down payment, property type, and property use, as the lender will be stuck with the home if the borrower fails to make timely payments.
All three must be considered simultaneously to understand the level of layered risk that could be present in said application. The underwriter must decide, based on all the criteria, if the borrower is an acceptable risk for the lender, and if the end product can be resold without difficulty to investors.
www.GregZaccagni.com & www.MortgageAdvisor.info
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