“The 4 C’s of Underwriting”- Capacity, Credit, Cash, and Collateral!

• CAPACITY is the analysis of comparing a borrower’s income to their proposed debt. It considers the borrower’s ability to repay the mortgage.
• CREDIT is the statistical prediction of a borrower’s future payment likelihood. By reviewing the past factors (payment history, total debt compared to total available debt, the types of monies: revolving credit vs. installment debt outstanding) a credit score is assigned each borrower which reflects the anticipated repayment.
• CASH is a review of your asset picture after you close. There are really two components – cash in the deal and cash in reserves. The more reserves you have usually means less risk. All assets are typically sourced by the underwriter.
• COLLATERAL refers to the appraisal of your home. It considers many factors – sales of comparable homes, location of the home, size of the home, condition of the home, cost to rebuild the home, and even rental income options. Appraisals are really the only one of the 4 C’s that can’t be determined ahead of time in most cases.    

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