Question 1

In underwriting, what does the 'capacity' C primarily refer to?

Accepted Answer

Capacity refers to the borrower's ability to repay, commonly evaluated through income, employment, and debt ratios. It is one of the classic 5 Cs of credit.

Question 2

Which of the 5 Cs is most closely tied to the borrower's credit history and willingness to repay?

Accepted Answer

Character focuses on the borrower's credit profile, payment history, and general reliability in meeting obligations. Credit reports and score patterns often speak to this C.

Question 3

The appraised value and marketability of the property are most closely tied to which C?

Accepted Answer

Collateral refers to the value and suitability of the property securing the loan. Appraisal results, property condition, and marketability are core collateral considerations.

Question 4

A borrower has substantial cash reserves available after closing. Which of the 5 Cs does this most directly support?

Accepted Answer

Capital refers to the borrower's own assets, reserves, and financial strength. Strong post-closing reserves can help offset other risks in underwriting.

Question 5

Which of the 5 Cs includes factors such as the economy, property type, and market environment?

Accepted Answer

Conditions address the broader context of the loan, such as economic trends, loan purpose, occupancy, and property type. Underwriters consider more than just the borrower in isolation.

Question 6

A borrower has a strong credit score but unstable income and high debts. Which C is the main weakness?

Accepted Answer

Even if character appears strong through credit history, unstable income and high debts point to weakness in capacity. The borrower may not demonstrate sufficient repayment ability.

Question 7

A self-employed borrower shows fluctuating income from year to year. What is the underwriting concern?

Accepted Answer

For self-employed borrowers, underwriters pay close attention to the stability and continuity of income over time. Variable or declining income may reduce qualifying income.

Question 8

A borrower changes from salaried employment to commission-only income one week before closing. What is the underwriting concern?

Accepted Answer

A major pre-closing employment change can materially affect the stability and continuity of income used to qualify the borrower. The lender may need to re-evaluate the file before closing.

Question 9

Which statement best summarizes sound underwriting?

Accepted Answer

Sound underwriting considers the borrower, the collateral, and the transaction context together. No single factor automatically substitutes for the others in a prudent lending decision.

Question 10

A file shows strong borrower credit but an unresolved title defect. What is the best underwriting conclusion?

Accepted Answer

Even with strong borrower credit, unresolved title issues can affect the lender's ability to secure a valid lien. Sound underwriting requires both acceptable borrower risk and acceptable collateral/legal status.

Underwriting Fundamentals Practice Questions

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