4 C’s of Underwriting
If you are thinking about buying a home it is likely you will be applying for a home loan. It’s a good idea to know what a mortgage lender will look for when looking over your application. Understanding the 4 C’s of Underwriting will help you to get a picture of where you will stand on getting a home loan. Follow our guide below to help you gain an understanding and potentially improve certain areas.
It’s that time of year and the home buying season is in full swing. If you are ready to make the leap and buy a new home, knowing how your loan application will be evaluated could be crucial to your approval. Start by reading up on the 4 C’s of loan underwriting, and then follow that up by speaking to a mortgage professional. Knowing what you’ll need to qualify will help your loan process go smoothly.
4 C’s
Credit
We’ve spoken about credit many times, and it is important to understand. Read some other blogs we’ve written to help get a grasp on it. Basically, credit scores are a tool which allow lenders to look at how likely a person is to pay back their debt. Having a high credit score not only improves your chances of getting a loan, but it also affects what kind of interest rate you will get. If you believe your credit score is holding you back from owning a home reach out to me for a free consultation.
Capacity
Capacity refers to a borrower’s ability to repay their loan. Lenders look at the person’s debt to income ratios to determine if they can afford their mortgage payment. Things like student loans, car payments, and credit cards will affect how much you will be approved for. How your debt is calculated could be affected by recent guideline changes. Therefore, it is extremely important to speak with a professional before throwing in the towel because your debt load looks high.
The other aspect of debt to income is the income part. Lenders will look at the stability of your work, the length of time you’ve been in that job or field, and the way you get paid. Calculating your income is not always as straight-forward as it seems, and again it’s important to speak to a loan officer.
Cash/Capital
This refers to a person’s assets. The two parts of this are cash in the transaction and cash in reserves. Underwriters will look at bank and asset statements to determine where the money for closing is coming from. All large deposits must be documented, and while gifts can be used for down payments, there must be a paper trail. As a result, don’t make any large deposit without first consulting your loan officer.
Collateral
The collateral is the home your purchasing. It’s value is determined by a third party appraisal. The appraisal can’t be determined ahead of time and is therefore one of the biggest variables. No one wants to foreclose on a home, but there has to be adequate collateral to avoid loss. Having the right real estate agent in your corner will help you avoid an appraisal coming in lower than your offer.
Understanding the 4C’s of underwriting will help you gain some insight into how your loan application will be looked at. Each aspect works with the other, and having a good position in one could help offset a limitation in another. Reach out to me to go through your 4C profile to determine how much home you can buy! Call or text at (314) 472-DOUG (3684)
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