The 4 C’s of Mortgage Underwriting

On October 20, 2015, Posted by , In Lender Corner, With No Comments

Loan approval is based on several criteria that the underwriter analyzes during the underwriting process. It is important that all 4 are meet in order to secure a mortgage.  

Credit
Scores and Payment History of the borrower play a big role in the mortgage approval process. Credit is the statistical prediction of a borrower’s future payment likelihood. Applicants have to meet the minimum credit scores of the program that they are applying for. Programs such as FHA could allow a score as low as 580 while Conventional mortgage has a 620 minimum credit score. In addition, underwriters look at how many trade lines a borrower has on their credit report. A trade line is an open credit item that a borrower has. Those include a credit card, car payment, current mortgage, school loans, secured and unsecured loans. Lastly, credit scores affect the interest rates for all mortgage programs.

Capacity
Income and Employment Stability of the borrower is another factor that is analyzed during underwriting. Lenders look at two calculations called ratios. The housing ratio, and the total debt to income ratio divided by the borrowers gross monthly income. Housing ratio includes the Principal & Interest, property taxes, homeowners insurance, PMI if applicable, and HOA dues if applicable. The total debt to income ratio includes the proposed housing payment and all other debt that the applicant has. The underwriter also reviews the applicants time in the current job and whether they meet the minimum employment history.

Cash
Cash for Down Payment and Reserves if needed from the borrower. The applicant has to have enough assets to pay for the down payment, closing costs & prepaids, and any reserves if needed. Many programs allow the entire down payment to be gifted from a family member. For Instance, FHA’s minimum 3.50% and Conventional mortgage’s minimum 3% down (with PMI) can be a gift from a family member or other acceptable sources.

Collateral
Value of the property that the buyer is looking to purchase is one of the factors that is analyzed during the underwriting process. In addition, the property has to meet the particular program guidelines. FHA, VA, USDA have different property guidelines requirement than the conventional mortgage program. Depending on the amount of the Jumbo loan, some lenders will require two appraisals in order to determine the actual value.

By Hussam Saada
Precision Mortgage
1750 Ellington Rd, # 3
South Windsor, CT 06074
Office: 860-644-0378
Cell: 860-418-7835
Email: hsaada@precisionmortgagect.com
NMLS# 766714

 

 

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