When an individual applies for a loan from a mortgage lender, he has to submit many documents such as his/ her credit history, income proof etc. All these documents and data get sent to the credit analyst, who takes the final call, whether to approve the loan or not.
Do you know what do these credits analysts examine before arriving at the final decision?
These are the five C’s, viz, Character, Conditions, Capital, Capacity, and Collateral. They are the parameters on which the application of mortgage loan seeker will be judged.
The 5C’s of Credit in the Mortgage Loan Underwriting Process Explained
1) Character
Mortgage lenders use the applicant’s credit history as a basis to judge whether he/she is likely to repay the loan or not. The lenders will obtain the said report from any of the three credit bureaus, and use it as tool to analyse in the manner the loan seeker has paid off his/her previous loans.
If the loan application has paid off his previous debts in a timely and regular manner, and has a favourable credit score the credit analysts will regard the application in a good light.
If on the other hand, the credit score of the mortgage loan applicant is marred by things like late payments, tax liens, the mortgage loan underwriting process will take longer time. This is because the loan applicant will have to have a discussion with the loan officer and provide good reasons for the delayed payments.
2) Conditions
Th lenders during the mortgage loan underwriting process will also take into consideration the current state of the industry. They will regard factors like
- How stable and sustainable the real-estate market presently is.
- Whether the prices of the property are looking to shoot up or go down.
- Is the property in question priced as per the present market value.
- The income source of the mortgage loan applicant.
All these questions help the mortgage lender asses if the purchase is a good decision for the loan seeker. They want to avoid taking high-risk decisions that might put the loan seeker in a difficult position to pay off the loan.
3) Capital
The mortgage loan underwriting process also includes a close assessment of the loan seekers present financial state. They do this by reviewing his / her balance sheet, which show the assets and the liabilities he /she has. This helps the mortgage lender asses the applicant’s ability to pay off the loan, in case something unforeseen happens, like a job loss.
The loan officer would like to see that the loan applicant has enough cash reserves and liquid assets that can be sold off to repay the debts.
Some of the things that loan officer will verify include property ownership and credit report.
4) Capacity
Assessing the loan applicant’s capability to pay off the debt is a very critical part of the mortgage loan underwriting process. To do this the lenders take a look at the income sources of the loan applicant and whether it is enough to cover the living expenses and for paying off the debt.
Here are the two things mortgage lenders consider:
- Primary Income Source: In case of salaried people, the credit analysts will review the amount and the stability of the income. They will create a trend report based on your income history and previous tax returns. It is also important that the loan seeker has had the job for quite some time.
- Secondary Income Source: This is more like a back-up plan in case the income source ceases. The secondary income sources include spouse’s salary or income, earnings from rent or other investments.
5) Collateral
In the mortgage loan underwriting process, lenders have to consider the collateral. In case of most mortgage loans, the property itself serves as a collateral. However, in some rare cases, the loan taker pledges some asset he / she owns.
How Do We Assist You In The Mortgage Loan Underwriting Process
We have years of experience in helping mortgage lenders and credit unions in their mortgage loan underwriting process. Our agents make sure that loan you provide is complaint with the secondary market regulations.
Our experts take a close look at critical documents like the mortgage loan applicant’s credit records, income history to help your underwriter correctly assess their ability to repay the loan in time. We also help you verify the employment of the borrower.
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Who Are We And Why Are We Considered As An Industry Authority?
This article is penned down by the experts at Expert Mortgage Assistance. We help the mortgage loan underwriting process by assisting in clearing loan Conditions, title review, appraisal review, fraud review and others.
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