Tuesday, November 30, 2010

What is Underwriting?

Mortgage underwriting is a process lenders use to assess if the risk of offering a particular loan to a borrower is acceptable. They use the three C's of underwriting to assess risk and the terms of the mortgage.....credit, capacity, and collateral.

The first C involves pulling a borrower's credit score. This score can tell how well a borrower has handled their debts in the past and can be an indicator of ability and willingness to pay off their loan. The borrower's score will be pulled at the beginning of the loan process and again right before the loan closes, so they should make sure nothing is done to change their score in the meantime.

The second C is capacity, or the ability to make the payments. The underwriters will analyze the borrower's employment situation including length of job, stability of income, current debt, and assets.

The last C is collateral, or what's the property to be mortgaged. Is it worth the risk? This part is determined by the type of property, its value, and the intended use of the property. Value is determined by an appraisal. The loan-to-value is important in assessing the risk as well. Many times if loan-to-value isn't 80%, mortgage insurance will be required to be purchased in case of default.

Underwriting can make or break a deal. Sometimes they don't like the comps the appraiser used even if the appraiser says it appraises for the purchase price.

Bottomline.....you just can't bank on a deal until you're sitting at the closing table and all the signatures are on the papers! If you have more questions about the loan process, ask your preferred mortgage lender. See how long their underwriting process takes and if their underwriters are in-house or not.

Do you need a REALTOR who can help you through this process when buying a home? Call me to help you. Visit my website at www.BuyHendersonKYHomes.com.

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