The 3 C's of Underwriting Home Loan Borrowers Must Know

There is a common expression in the mortgage industry that consolidates all the things that underwriters are looking at before they approve a home loan into 3 categories, known as the “3 C’s of Underwriting”.  When applying for a home loan in Texas, or any other part of the US, it is important for applicants to put their best foot forward because in case their application is rejected, they would not only have to reapply through some other lender, but it may also decrease their chances of getting their home loan application approved. Now, if you are wondering what is that you need to do to ensure that an underwriter does not reject your home loan application, we will explain the three C’s of underwriting that underwriters consider  approving or rejecting an application.



One of the most important factors that help determine whether an underwriter would approve your loan application or not is the credit reputation of the applicant. To check the credit reputation, an underwriter checks your credit report that includes an applicant’s credit history such as bankruptcies, past foreclosures, delinquencies if any and other important information. To ensure your application is not rejected on the basis of credit, pay your credit card bills, monthly installments on time and review your credit report on a periodic basis to check for errors.


Another important factor that underwriters consider at the time of processing a loan application is the borrower’s capacity to repay a loan. To determine the payback capability of an applicant, underwriters take into account factors such as income, cash reserves, debt-to-income ratio, assets, loan program requirements, and more. What underwriters mainly look for here is a stable source of income. The stability of different borrowers vary depending upon their source of income. For example, income requirements that indicate a stable income may vary for W2 hourly wage earners, salary with commission income earners,  and W2 salary income earners.   


Before approving a loan, lenders need to determine the actual value of the property for which a borrower is wanting to take out a mortgage loan to purchase. It is important for a lender to ensure that the approved loan amount is less than, or equal to, the value of the property. This helps lenders recover the loan amount in case a borrower defaults. One main benefit of a home appraisal is that it verifies the condition and value of the property. This information is not only beneficial for lenders, but for home buyers too.

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