Underwriting is the process of determining what?

• A. The interest rate
• B. The risk to the lender of lending money to a borrower to finance a property
• C. The process of evaluating the borrower's income and ability to repay
• D. The appraisal value of the property

Answer: (C)

Underwriting is about measuring the risk the lender would take on a loan by examining the borrower’s finances to decide if the loan should be approved and what terms to offer. The central focus is the borrower’s ability to repay: is there enough steady income, what are current debts, what assets exist, and how does credit history look? Lenders verify income and employment, calculate debt-to-income ratios, review credit, and assess reserves to determine whether the borrower can reasonably make mortgage payments over time. The interest rate and loan terms are influenced by risk, and value of the property is determined separately through an appraisal, but the act of underwriting itself centers on the borrower's income and repayment ability.