Underwriting is the process your application goes through to determine whether or not you are eligible for the loan you’ve requested. Each loan program has a set of guidelines. These include things like the minimum credit score, maximum debt-to-income ratio, minimum down payment and reserves. To qualify for a loan, you must fit within its rules.

There is also a subjective component to underwriting a loan. Underwriters are trained assess the “4 C’s”:
• Character – Your financial history, particularly your credit report, but more than that. Does your financial history show you are likely to repay this loan?
• Capacity – Your ability to pay. Do you have enough income to afford the loan payment, your other bills and support yourself?
• Capital – Your assets. Do you have the ability to pay the down payment? Will you have a cushion of savings left after closing?
• Collateral – The security for the loan. Is the property you are buying of an acceptable type and condition, worth what you are paying and marketable?

Most mortgages go through two rounds of underwriting: Automated and Manual. Automated underwriting systems (AUS) are good at verifying a file meets all objective guidelines and offer a statistical measure of the risk profile of a loan, but the final credit decision always rests with human underwriter.