What Do Underwriters Use to Approve Your Mortgage Loan?

Mortgage and Lending with The Federal Savings Bank

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


Comments (1)

Jerry Murphy, CRS, SRES
Long Realty West Valley - Anthem, AZ
Anthem, Phoenix, and Scottsdale AZ Real Estate

I understand the lenders want to minimize their risk Greg.  But they've gone to the other extreme these days.  Whereas four or five years ago lenders were lending money to folks if they could fog a mirror, now the underwriters have gone too far in the other direction and scrutinize EVERY LITTLE THING!  They act as if EVERYONE is a credit risk nowadays.  When you have a potential borrow with a credit score above 800, earning $150,000, with very little outstanding debt, good employment history, and no discernible negatives in their past credit history (an actual client we had), that person should not have to get raked over the coals to get a loan.  It's akin to a cop standing on a busy street corner and arresting everyone that walks by because "they look suspicious".   Thanks for the education though and best of luck to you.

Aug 26, 2009 01:51 PM