De-mystifying the underwriting process

Have you ever wondered what happens when your loan goes to underwriting?  Actually, have you ever wanted to know what underwriting is?  For most buyers, and many Realtors, the underwriting  concept is like having your loan disappear into a black hole.  But, understanding the concept could give you a "heads up" on some things to anticipate before making your initial loan application.

The lender's underwriter determines a buyers"s purchasing power by using a set of guidelines to help determine the degree of risk in making the loan.  The underwriter often uses the 4 C's:

Credit History: How much you owe; if you pay bills on time; how often you borrow, do you live within your means; Will you repay the loan?

Capacity: Income vs. expenses; occupation, income, how long in same line of work; monthly debt obligations; number of dependents, do you pay child support or alimony; Can you repay the loan?

Capital: Is the money for down payment and closing cost coming out of your own funds or will you receive a gift from family members?  How much money will you have left after closing?

Collateral: Is the value of the property sufficient to repay the loan in case of default?  Will the lender be protected if you fail to repay the loan?