Here's how to underwrite mortgage requests in three easy steps:
Step 1 - Review the Appraisal Report
When reviewing the appraisal report, there are several things to look out for:
Price adjustments made to subject property
Condition of the property – how well is it maintained?
Appraiser’s designation – CRA or AACI
Extraordinary assumptions and comments made by the appraiser
Step 2 – Review Borrower's Request & Credit Bureau
An applicant's credit shows prior and current credit repayment behaviour. Collections and late payments need to be explained.
The application shows both income and assets (liquid, other real estate, etc) as well as the credit request.
Now you should have a better understanding of the deal itself, and how the funds will be used.
Step 3 – Determine the Exit Strategy
The questions that need to be answered at the end of the loan can be as critical as the ones at the beginning.
How will the loan be paid back at maturity?
What steps will the applicant(s) take to repay the loan?
Does the exit strategy make logical sense to you?