CRU Underwriting Decision-Making & Loan Approval

Question 1

What is the primary role of an underwriter in mortgage lending?

Accepted Answer

To evaluate risk and approve or deny loan applications

Answer

The primary role of a mortgage underwriter is to critically assess the risk associated with a loan application. They meticulously review the borrower's credit history, income, assets, and the property's appraisal to determine if the loan meets lender and investor guidelines. Based on this comprehensive evaluation, the underwriter makes the final decision to approve, deny, or suspend the loan.

Question 2

What is a key factor in underwriting decisions?

Accepted Answer

Credit history and score

Answer

Credit history and score are paramount factors in underwriting decisions because they provide a clear indication of a borrower's past financial behavior and their likelihood of repaying the mortgage. Underwriters analyze these to assess creditworthiness, payment reliability, and overall financial responsibility. A strong credit profile significantly increases the chances of loan approval and favorable terms.

Question 3

What document is commonly used to assess borrower income?

Accepted Answer

W-2 or tax returns

Answer

W-2 forms and tax returns are standard and crucial documents used by underwriters to verify a borrower's income. W-2s show wages earned from an employer, while tax returns provide a comprehensive overview of all income sources, deductions, and tax liabilities. These documents help underwriters accurately calculate a borrower's stable monthly income for debt-to-income ratio calculations.

Question 4

What does a debt-to-income (DTI) ratio help determine?

Accepted Answer

Borrower's ability to repay debts

Answer

The debt-to-income (DTI) ratio is a key financial metric used by lenders to assess a borrower's capacity to manage monthly payments and repay debts. It compares a borrower's total monthly debt payments to their gross monthly income. A lower DTI indicates a greater ability to handle additional debt, such as a mortgage, and is a strong indicator of repayment capability.

Question 5

Which of the following is considered compensating factor in underwriting?

Accepted Answer

A strong credit history

Answer

A compensating factor is a positive aspect that can offset a negative one in the underwriting process. A strong credit history demonstrates a borrower's reliability and ability to manage debt, which can mitigate other potential risks, making the loan more favorable for approval.

(CRU) Certified Residential Underwriter Practice Test

(CRU) Certified Residential Underwriter Practice Test

CRU Underwriting Decision-Making & Loan Approval