The Four Pillars of Underwriting
Mortgage underwriting evaluates four core dimensions — known in the industry as the "Four Cs": Credit, Capacity, Capital, and Collateral. Together, they form the framework for every lending decision.
Credit Assessment
The underwriter reviews the borrower's credit report from all three bureaus (Equifax, Experian, TransUnion) and uses the middle FICO score for qualification. Key items reviewed:
- Payment history — Any 30/60/90-day lates in the past 24 months are scrutinized; recent lates have greater impact than older ones.
- Collections and charge-offs — May need to be paid off at closing depending on lender policy and loan type.
- Mortgage lates — Especially damaging; prior mortgage lates within 12 months can disqualify an application entirely.
- Bankruptcy / foreclosure — Waiting periods: 2–7 years depending on loan type and type of derogatory event.
| Loan Type | Minimum Score | Best Rate Score | Notes |
|---|---|---|---|
| Conventional | 620 | 740+ | PMI required <20% down |
| FHA | 580 | 640+ | 3.5% down; lifetime MIP |
| VA | 620* | 680+ | No down payment required |
| Jumbo | 700 | 760+ | Lender-specific, stricter |
Income & DTI Analysis
The debt-to-income ratio compares monthly debt obligations to gross monthly income. Two ratios are calculated:
Property Appraisal & Collateral
An independent appraisal is required on every purchase and refinance. The appraiser determines fair market value using the sales comparison approach (comparing recent nearby sales), the income approach (for investment properties), and the cost approach (rarely used for existing homes).
What Happens If the Appraisal Comes In Low?
If the appraisal is below the purchase price, the lender will only lend against the appraised value. The buyer must either renegotiate the price, pay the difference in cash, or cancel the contract (if an appraisal contingency was included). Low appraisals are one of the most common deal-killers in rising markets.
