Need for Mortgage Underwriting

Underwriting a mortgage is the process by which a lender decides whether to lend money, based on the value of the property, the borrower's credit history and any other relevant factors.

(PRWEB) November 4, 2004 -- Getting a mortgage is the main event in every persons life. When a person applies for a mortgage, the loan company or a lender goes for underwriting of the mortgage to find out whether he/she qualifies for a mortgage loan or not. Scientists who study and measure human behaviors have found that home buying is one of the most stressful experiences of our lives. Contributing significantly to this anxiety is waiting for the mortgage to be approved.

Underwriting a mortgage is the process by which a lender decides whether to lend money, based on the value of the property, the borrower's credit history and any other relevant factors. It is the process of verifying data and determining if the mortgage application should be approved or rejected based on verification of borrower's financial information such as credit history and scores.

This credit underwriting is done by loan company employee who reviews a loan applicants credit, loan repayment ability and the value of the collateral property to assess the amount of risk involved in making a loan. Based on the risk analysis, an underwriter recommends whether the lender should make or reject the mortgage and may match the risk to an appropriate rate of interest and term structure.

Thus mortgage underwriting involves following factors that the lender considers. They are:

a. Value of property

b. Borrowers credit history.(http://www.mortgagefit.com/credit-history.html)

c. Borrowers ability

d. Risk and

e. Borrowers willingness to repay the debt.

Hence all these factors fall into three major areas of underwriting (named three "Cs").

They are:

1. Collateral.

2. Credit reputation.

3. Capacity.

The lenders must assess these three areas while considering extending the loan.

1. Collateral- when reviewing collateral, lenders look at house value, down payment and property type. Usually, the amount of your loan can be no more than 95 percent of the appraised property value or 95 percent of the sales price of your home, whichever is less. Lenders may also verify the origin of your down payment.

(http://www.mortgagefit.com/down-payment.html ) . Lenders usually expect you to make a down payment of between 10 and 20 percent of the house's price and to pay closing costs, often three to six percent of the loan amount.

2. Capacity- when looking at capacity, your income, debt, and cash reserves are verified. Lenders generally prefer that your housing expenses (including mortgage payments, insurance, taxes, and special assessments) not exceed 25 to 28 percent of your gross monthly income.

This is a list of documents most lenders will require in order to process your mortgage application.

Verification of income

. Earnings statements: W-2 forms, recent pay stubs and tax returns for the past two years.

· If you are self-employed: profit and loss statements and tax returns for current year and previous two years.

· Additional income: social security, overtime bonus, commission, interest income, veteran's benefits and so on.

Verification of your assets

· List of bank account numbers, the address of your bank branch, checking and savings. account statements for the previous 2-3 months.

· List of savings bonds, stocks or investments and their approximate market values.

· Copies of titles to any motor vehicles that are paid in full.

Information about the purchase

· Copy of the ratified purchase contract.

· If you made a deposit to the seller to show that you are serious about buying the house, bring a copy of canceled deposit check on house.

Your debts

· Credit card bills for the past few billing periods.

· Other consumer debt such as car loans, furniture loans, student loans and other personal and cosigned installment loans with creditor addresses and phone numbers.

· Evidence of mortgage and/or rental payments.

· Copies of alimony or child support.

Lenders may also ask you about the origin of your down payment. If money for down payment is a gift from a relative, bring to the interview a copy of gift letter and copy of gift check. The gift letter states that the money will not have to be repaid.

3. Credit reputation- your credit history is considered when lenders are reviewing credit reputation. Lender orders a Credit Report supplied by a credit-reporting agency, on you to check your ability to repay a loan. If there any credit problems - a history of late payments, foreclosures or judgments, your lender may then ask you for a written explanation or clarification of any problems.

Your ability to obtain a mortgage depends on your financial habits, which are tracked by creditors. Before extending credit, lenders will want to examine the risk of not getting the money back. Make sure you know what's in your credit report before applying for a mortgage loan. That way, if there are any errors you can take steps to correct them before you make your application.

Examine the credit report carefully to see if it is up to date and correct. If you find an error, complete the Research Request Form that is sent along with your Credit Profile, and give details of the information you believe is uncorrected.

If you have bad credit, you need to find a lender that has easier underwriting guidelines and will accept a mortgage application with bad credit listed on the credit report.

Thus in short, information in the underwriting report helps mortgage lenders decides how much credit and what interest rate borrowers are eligible for. The better their underwriting report, the more likely they are to qualify for the best credit deals.

If you have any queries, feel free to visit this site

http://www.mortgagefit.com

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