Loan Underwriting Criteria

Underwriting is the process of evaluating a loan application to determine the risk involved for the lender.

The Four C’s of Mortgage Loan Qualification

Lenders evaluate four key factors, often called the “Four C’s,” when deciding if you qualify for a loan:

1. Capacity (Your Income)
2. Cash (Your Down Payment)
3. Character (Your Credit)
4. Collateral (The Property)

While these factors guide the process, underwriting is not an exact science, and every situation is unique.

Key Focus Areas During Underwriting

When processing your loan application, two main aspects are evaluated:

1. Your financial situation and credit history to assess your ability and willingness to repay the loan.
2. The property you plan to buy as it serves as collateral for the loan.

The income of each borrower to be obligated for the mortgage debt must be analyzed to determine whether it can be expected to continue through the first three years of the mortgage loan.  Verifications of employment will be sent to all previous employers for the past two years.  There are provisions on it for the employer to indicate probability of continued work and to comment on the applicant’s qualities as an employee. Complete tax returns including W-2 forms, 1099 forms, etc. must be provided.

A credit report will be ordered at the time of application on each and every applicant, who will be responsible for the repayment of the mortgage debt.  Past credit performance is the most useful guide in determining the borrower’s attitude toward future credit obligations.  A borrower who has made payment on previous or current obligations in a timely manner represents reduced risk.  We look at how payments have been made on previous mortgage or rent accounts, as well as, payment history on all installment loans and revolving accounts.

Credit Criteria

• Late Payments: No late payments should appear on the credit report for one year prior to application.
• Bankruptcy: At least two years must have passed since bankruptcy discharge, with re-established good credit and demonstrated financial management.
• Collection Accounts: No outstanding collection accounts or past due obligations are allowed. A period of past financial difficulty does not necessarily disqualify if a good payment record has been maintained since.
• Judgments: Court-ordered judgments must be satisfied before loan approval.
• Delinquent Federal Debts/Liens: Any delinquent federal debts, such as taxes, student loans, and liens, must be resolved.
• Foreclosure of Previous Mortgage Loan: Borrowers who had a previous property foreclosed or have given a deed-in-lieu of foreclosure through the Minnesota Chippewa Tribe Finance Corporation are not eligible for another loan.

To determine your loan eligibility, two guidelines are used:

• Your proposed house payment should be no more than 27% of your gross monthly (pre-tax) income.
• Your new house payment, combined with other monthly long-term debts (over six months), should not exceed 40% of your gross monthly income.

Once you have selected a home to purchase, the lender will hire an appraisal at the borrowers expense of the home/property to determine its value and ensure that its meets the Minnesota Chippewa Tribe Finance Corporations’ minimum specification requirements.

Since the lenders security is the subject property, the value must meet or exceed the loan amount.