WHAT IS UNDERWRITING?
Underwriting is the process of evaluating a loan application to determine the risk involved for the lender.
You must be aware of four factors that lenders look at when deciding whether you are qualified. These factors are often called the “Four C’s” of mortgage loan qualification.
- Capacity (Your Income)
- Cash (Your Down Payment)
- Character (Your Credit)
- Collateral (The Property)
As we look at these factors, keep in mind that underwriting is not an exact science; and everyone's situation is different.
In processing your loan application, we will be primarily interested in two things:
- Your financial situation and credit history, as they will determine your ability and willingness to repay the loan.
- The property that you plan to buy as it serves as collateral for the loan.
The income of each borrower to be obligated for the mortgage debt must be analyzed to determine whether it can be expected to continue through the first three years of the mortgage loan. Verifications of employment will be sent to all previous employers for the past two years. There are provisions on it for the employer to indicate probability of continued work and to comment on the applicant’s qualities as an employee. Complete tax returns including W-2 forms, 1099 forms, etc. must be provided.
A credit report will be ordered at the time of application on each and every applicant, who will be responsible for the repayment of the mortgage debt. Past credit performance is the most useful guide in determining the borrower’s attitude toward future credit obligations. A borrower who has made payment on previous or current obligations in a timely manner represents reduced risk. We look at how payments have been made on previous mortgage or rent accounts, as well as, payment history on all installment loans and revolving accounts.
The borrower should have no late payments on their credit report for one year prior to applying.
At least two years must have passed since the bankruptcy was discharged; and the borrower has re-established good credit; and has demonstrated an ability to manage financial affairs.
The borrower should have no outstanding collection accounts or past due obligations. A period of financial difficulty in the past does not necessarily make the risk unacceptable if a good payment record has been maintained since.
Court ordered judgments need to be satisfied before loan approval.
Delinquent Federal Debts/Liens
If a borrower is presently delinquent on any Federal debt, such as, small business loans, Federal taxes, student loans, tax liens, etc., they must be satisfied.
Foreclosure of Previous Mortgage Loan
A borrower whose previous residence or other real estate property was foreclosed on or has given a deed-in-lieu of foreclosure through the Minnesota Chippewa Tribe Finance Corporation is not eligible for another loan.
To determine the loan amount you are eligible for, two guidelines are used:
- Your proposed house payment should total no more than 27% of your gross monthly (before tax) income.
- Your new house payment plus other monthly long term debts (more than six months) should total no more than 40% of your gross monthly income.
Once you have selected a home to purchase, the lender will hire an appraisal at the borrowers expense of the home/property to determine its value and ensure that its meets the Minnesota Chippewa Tribe Finance Corporations’ minimum specification requirements.
Since the lenders security is the subject property, the value must meet or exceed the loan amount.