Understanding how mortgage underwriters approve a loan can help homebuyers prepare to qualify for one
Credit is based on the history of on-time payments, credit mix, utilization, and age of accounts. Lenders use the middle FICO score reported across the three agencies to determine mortgage rates.
Capacity is the ability to repay the loan. Lenders calculate capacity based on the Debt to Income ratio or DTI. It's the sum of all monthly debts divided by gross monthly income.
Collateral refers to the value of the property used as a security interest to guarantee the mortgage. Lenders will assess the value of the property and determine Loan to Value or LTV to assess riskiness.
Cash is the money required to close the loan, including the down payment, lender fees, govt. fees and required escrow amount for taxes and insurance.