loan underwriting process
Loan Underwriting Process
Getting a loan approved is certainly a difficult task due to the hurdle of loan underwriting. The process of underwriting a loan can be quite lengthy because of the need to collective vital information of the borrower and ascertain his/her credit worthiness. An underwriter also has to ascertain the income source or monthly income of the borrower, and the income to debt ratio.
- Income: One of the most important aspects that is considered during the process is the income of the borrower. The loan's installment is also calculated as per the income of the borrower. The size of the loan, i.e., the total amount that is lent, the down payment, and rate of interest are all decided upon the income of the borrower.
- Debt to Income Ratio: The second important factor that is considered is the debt to income ratio, which is the ratio between the monthly payable debts and monthly income. Debt to income is sometimes also calculated for the entire year. The intention of calculating such a ratio is that it gives the perfect amount of income that is going to be used to pay the debt.
- Employment and Source of Income: A very important aspect that is considered by the underwriters is the employment status of the borrower, and the source of income. Underwriters also further analyze the income projection and the growth of income rate, in cases where the loan is very long-term.
- Credit Report: The credit report of a person considers two important facts―the credit history and the credit rating. The history is a record of all the previous credit related activities of the borrower. The rating is a figure that denotes the credit weight of the borrower. A rating is usually expressed in the form of a credit score, and is calculated on the basis of the credit history, late payments, and defaults.
- Projection of the Property: The value projection of the property is also considered by the underwriters. This projection is taken into consideration in cases where the asset is a real estate. There are cases where mortgage and home loans are defaulted by the borrower, or foreclosure has to be initiated. In such a case, the lender takes over the ownership of the property, and sells it off to recover losses. The projection of the value of the property, is thus, an important aspect of mortgage loan underwriting.