Mortgage Banking 101
Mortgages seem like a simple financial product; however, they are truly complex. There are many federal, state, and local laws and regulations that lenders are required to follow to offer a mortgage solution. In addition, it makes sense for a potential borrower to look at being approved from the lender's perspective. Remember, if you were to loan someone a lot of money, what supporting information would be important for you to evaluate? This question is partially answered by the understanding of what is known as the 4 C’s of mortgage banking = Credit, Capacity, Cash, and Collateral. Having accurate information for these questions will go a long way to having an underwriter approve your loan application.
The 4 C’s of Mortgage Banking:
- Credit: What is someone’s credit score and how have those debts been paid over time?
- Capacity: What is the income a borrower can demonstrate so that an affordable payment can be made?
- Cash: How much money is required to be approved for a loan and how much money is involved with the transaction?
- Collateral: What is the value of the home that is pledged for a loan?
In addition to these concepts, lenders are required to meet compliance laws. These legal requirements help ensure fairness for pricing and approvals. Banks want to make certain they are approving loans for all borrowers with the same profile and offering the same terms to similar profiles.