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Collateral, Credit, Capacity
The 3 C’s of underwriting.
In attempting to approve home buyers for the type and amount of mortgage they want, mortgage companies look at two key factors: the borrower’s ability and willingness to repay the loan. Ability to repay the mortgage is verified by your current employment and total income. Generally speaking, mortgage companies prefer for you to have been employed at the same place for at least two years, or at least be in the same line of work for a few years.
The borrower’s willingness to repay is determined by examining how the property will be used. For instance, will you be living there or just renting it out? Willingness is also closely related to how you have fulfilled previous financial commitments, thus the emphasis on the credit report or rent and utility bills.
The other variable in an underwriting decision is the collateral. The mortgage company will evaluate, generally via an appraisal, the property to determine whether the sales prices is supported. This is done by looking for other similar properties in the vicinity that have comparable characteristics, In other words a 2 bedroom house will not generally have the same value as a 5 bedroom house on the same street in the same neighborhood.
It is important to remember that there are no rules carved in stone. Each applicant is handled on a case-by-case basis. So even if you come up a little short in one area, perhaps one of your stronger points will make up for the weak one. Everyone involved in real estate is in the business of selling homes, in one way or another. Therefore, if the loan makes sense, mortgage companies and insurers will do their best to see that you qualify.
By its very nature, mortgage insurance is an aid to affordability, because it allows families to purchase homes with less cash on hand. The industry plays a central role in helping low- and moderate-income families become homeowners.
More and more borrowers are taking advantage of low down payment mortgages and becoming homeowners with as little as 5 percent down. For more information on how you can take advantage of the benefits of a low down payment home loan with mortgage insurance, contact your local mortgage professional or real estate agent.