Question

Traditional home mortgage underwriting is said to rest on three elements, the "three C's." The housing expense ratio is one tool that lenders will use to address concerns associated with which of the "three C's"?

a) collateral
b) creditworthiness
c) capacity
d) capability

Answer 1

The three C's are Collateral, Creditworthiness, Capacity

Step-by-step explanation:

The underwriters take a risk to loan you for the mortgage for this purpose they need to verify your paperwork so as to determine your eligibility to get a mortgage, which is based on;

1. Creditworthiness: It is your credit score and your account and payment history. It also includes your previous loans and purchases.
2. Capacity: It is a check on your ability to repay the loan. It is basically a debt-to-income ratio. The lender goes through your salary, income, expenditure and debts to confirm that you can actually repay the loan.
3. Collateral: Literally it means an asset of the borrower kept by the lender as a security of safe return of the loan. in case of house mortgage collateral is mostly 20% down payment of the mortgage being received. If the borrower fails to repay the loan the lender seizes collateral to recover the loss.