How to Underwrite Loans
Calculate the lender's mandatory monthly costs., Determine the amount of debt the lender must pay off each month., Determine the potential lender's average monthly income., Divide the housing expenses by the monthly income amount., Divide the total...
Step-by-Step Guide
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Step 1: Calculate the lender's mandatory monthly costs.
Payments such as those equal to the proposed mortgage payments, taxes, and insurance comprise mandatory monthly costs.
These are costs that are necessary and cannot be compromised or adjusted with ease. -
Step 2: Determine the amount of debt the lender must pay off each month.
Debts from other loans, such as student loans for example, and revolving debts (credit cards) must be taken into consideration.
For revolving debts, 5% of the total debt is typically applied. , This amount includes salary, commissions and dividends which occur with regular frequency and therefore can be relied upon.
This amount is used to counterbalance monthly costs and debts. , This figure represents the Primary Housing Expense to Income ratio.
If this ratio is unfavorable, the borrower could be at risk for loan denial. , The result is known as the Total Obligations to Income ratio.
A favorable result that shows the income holding a strong proportion against total obligations can work for the proposed borrower seeking loan acceptance. , If the borrower is purchasing a home or property, this becomes increasingly important.
Whether or not the borrower has means (via payment methods such as cash, stocks, bonds, or property sale) to make a down payment on a new purchase can weigh heavily upon the acceptance of a loan application.
Furthermore, the larger the down payment, the smaller monthly payments may be, and vice
-versa. , This can include credit reports and scores from major credit bureaus such as Experian.
Each credit union may report different items and scores, so up to 3 may be used.
Items on the credit report must be verified and analyzed, with special consideration given to negative events such as charge offs, account closures by companies, previous loan defaults and late payment trends. , Once all the information that completes a potential borrower's financial profile is available, underwriters attempting to underwrite a loan must consider all of the factors and the trends and risks they represent. , Once an underwriter decides to approve a loan, he or she ought to use actuarial data to determine the specifics of the loan offered to the borrower. -
Step 3: Determine the potential lender's average monthly income.
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Step 4: Divide the housing expenses by the monthly income amount.
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Step 5: Divide the total debt
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Step 6: or monetary obligations
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Step 7: by the average monthly income.
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Step 8: Assess the availability of funds required to close.
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Step 9: Review the potential borrower's credit profile.
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Step 10: Weigh the available information and decide.
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Step 11: Work with the actuarial team to determine loan rates and fees.
Detailed Guide
Payments such as those equal to the proposed mortgage payments, taxes, and insurance comprise mandatory monthly costs.
These are costs that are necessary and cannot be compromised or adjusted with ease.
Debts from other loans, such as student loans for example, and revolving debts (credit cards) must be taken into consideration.
For revolving debts, 5% of the total debt is typically applied. , This amount includes salary, commissions and dividends which occur with regular frequency and therefore can be relied upon.
This amount is used to counterbalance monthly costs and debts. , This figure represents the Primary Housing Expense to Income ratio.
If this ratio is unfavorable, the borrower could be at risk for loan denial. , The result is known as the Total Obligations to Income ratio.
A favorable result that shows the income holding a strong proportion against total obligations can work for the proposed borrower seeking loan acceptance. , If the borrower is purchasing a home or property, this becomes increasingly important.
Whether or not the borrower has means (via payment methods such as cash, stocks, bonds, or property sale) to make a down payment on a new purchase can weigh heavily upon the acceptance of a loan application.
Furthermore, the larger the down payment, the smaller monthly payments may be, and vice
-versa. , This can include credit reports and scores from major credit bureaus such as Experian.
Each credit union may report different items and scores, so up to 3 may be used.
Items on the credit report must be verified and analyzed, with special consideration given to negative events such as charge offs, account closures by companies, previous loan defaults and late payment trends. , Once all the information that completes a potential borrower's financial profile is available, underwriters attempting to underwrite a loan must consider all of the factors and the trends and risks they represent. , Once an underwriter decides to approve a loan, he or she ought to use actuarial data to determine the specifics of the loan offered to the borrower.
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Doris Sanchez
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