Bay Area Real Estate Wiki

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====== Loan Underwriting ======

**Loan underwriting** is the process by which a lender **evaluates the risk** of making a loan by reviewing the **borrower, property, and loan terms**.

===== Key Characteristics =====
  * Determines whether a loan is **approved, denied, or conditioned**
  * Focuses on **risk assessment**
  * Applies standardized guidelines
  * Protects the lender and investors

===== Primary Factors Reviewed =====
  * **Borrower**
    * Credit history and credit score
    * Income and employment stability
    * Debt-to-income (DTI) ratio
    * Assets and reserves

  * **Property**
    * Appraised value
    * Condition and marketability
    * Location and use

  * **Loan**
    * Loan-to-value (LTV) ratio
    * Interest rate and term
    * Loan type and guidelines

===== Common Underwriting Ratios =====
  * **Loan-to-Value (LTV)** = Loan Amount ÷ Property Value
  * **Debt-to-Income (DTI)** = Monthly Debt ÷ Gross Monthly Income

===== Underwriting Outcomes =====
  * Approval
  * Conditional approval
  * Suspension or denial

===== Exam Tip =====
  * Underwriting evaluates **ability and willingness to repay**
  * Lenders rely on the **lower of purchase price or appraised value**