Question

1. Mortgage underwriting: The process of determining whether the risks of a loan are acceptable. What are the Three “Cs” of traditional underwriting?

Answer 1

Mortgage Underwriting is the process of assessing whether the borrower will be able to pay back the loan with interest or not. this procees is very complecated and lender tries to assess the risk associated with the loan.

The Three "Cs" of traditional Underwriting are as follows

1 . Character - Bankers will consider your personal character, which includes both your personal and business credit history. Character depends a great deal on other people’s impressions of you, including your trustworthiness and integrity, as well as your experience in the business and/or industry.

2. Capacity -  Does your business have the ability to repay the money you are borrowing? Lenders don’t want to lend you money if it won’t have a positive result on your company; nor do they want to throw good money after bad with a loan that will just maintain the status quo. They want to see growth as a result of their investment so that they can get their Money back with interest.

The questions that needs to be focused while the process are-

• How soon will your business show a profit as a result of the changes you plan to make with the loan proceeds?
• Will the profit be sustainable and how big will it be?

3. Collateral -  Collateral is extremely important in getting a small business loan.The Lender will want to see that, in case the profits you project from the business don’t pay out, you have a “backup plan” for how they will get repaid. This can include a secondary source of repayment; a guarantee from a third party; or assets owned by you or your business. Intangible assets like goodwill or expertise don’t count; banks want to see tangible assets such as equipment, property, inventory or accounts receivable that could be sold to pay off the loan if necessary.