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Question 1
What are the Four Cs of credit used by underwriters to evaluate a mortgage application?
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?
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?
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?
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?
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.