Underwriting can have many meanings depending on the context it is used in. There is underwriting of a loan or mortgage, there is underwriting by a life insurance policy and there is Forensic underwriting. Today our main point we will discuss is the underwriting used in reference to a mortgage.
An underwriter is someone who reviews all your financial information and determines if you are a risk for the lender to issue you a loan.
Mortgage underwriting is the process a lender uses to determine if the risk (specifically the risk that the borrower will not have the funds to pay) of offering a mortgage loan to a particular home buyer. Most of the risks and terms that underwriters consider fall under the three C’s of underwriting: credit, capacity and collateral.
What is the Process?
- Verification of such items as employment history
- Salary and financial statements
- Borrower’s credit history (which is detailed in a credit report)
- Lender’s evaluation of the borrower’s credit needs and ability to pay.
By judging these factors the lender will have an idea if they should approve you for your loan. Each lender has their own set of guidelines based off of the Freddie Mac and Fannie Mae. What the Debt to Income ratio can be and minimum salary’s. Read more of our latest series of Home Buying.
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The underwriter is someone who reviews all your financial information and determines if you are a risk for the lender to issue you a loan.