Knowledge Is Key To Buying and Selling Real Estate

By Attorney Miriam L. Sumpter Richard

Date: January 6, 2004

WHAT IS MORTGAGE LOAN UNDERWRITING?

Property purchased with any type of mortgage first must be qualified. After the property has been appraised, surveyed and the title searched, the loan underwriter will make a decision about the property. The purchaser also must be qualified. Four major qualifying guidelines generally are used in borrower qualifications and risk analysis. They are:

(1)    The quantity and quality of the borrower’s income.
        (Does the borrower have the ability to repay the debt?)

(2)    Other assets of value
        (What is the proposed mortgagor’s net worth, and what is the ratio of total
        liabilities to total assets?)

(3)    Past credit History
        (Is the borrower willing to repay the debt?)

(4)    Loan to Value ratio
        (How much equity is the borrower investing?)

Loan underwriting (borrower qualification and property qualification) should not be confused with buyer qualification, which has to do with what the buyer wants and can afford. The loan underwriting process begins with the FNMA/FHLMC uniform residential loan application for all one to four family homes.

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