Question 1

What are the Four Cs of credit used by underwriters to evaluate a mortgage application?

Accepted Answer

The Four Cs are Capacity (ability to repay), Capital (assets/reserves), Credit (credit history), and Collateral (property value).

Question 2

In mortgage underwriting, which of the Four Cs refers to a borrower's ability to repay the loan based on income and existing debts?

Accepted Answer

Capacity refers to the borrower's ability to repay, measured primarily through debt-to-income ratios and stable employment/income.

Question 3

In mortgage underwriting, what does 'Capital' represent as one of the Four Cs?

Accepted Answer

Capital represents the borrower's assets, savings, and reserves that can be used for down payment, closing costs, and post-closing financial stability.

Question 4

Which of the Four Cs of credit does the property appraisal most directly support?

Accepted Answer

Collateral — the appraisal establishes the market value of the property, which secures the loan and limits the lender's risk.

Question 5

What is the 'front-end' (housing) debt-to-income ratio, and what does it measure?

Accepted Answer

The front-end DTI divides the borrower's total monthly housing expense (PITI) by gross monthly income; it measures how much income goes toward housing costs.

NMLS SAFE Exam: Underwriting Basics

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