Finance
In Hawaii, what is the purpose of 'underwriting' in the mortgage approval process?
AA. Writing the terms of the promissory note
BB. Evaluating the borrower's creditworthiness and the property's value to determine the risk of making the loan✓ Correct
CC. Reviewing the title search for defects
DD. Processing the loan application paperwork
Explanation
Underwriting is the lender's process of evaluating all aspects of a loan application—borrower creditworthiness, income, assets, and property value—to determine whether to approve the loan.
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Key Terms to Know
Promissory Note
A written promise to repay a loan under specified terms — the borrower's personal financial obligation in a real estate transaction.
Debt-to-Income Ratio (DTI)A lender's measure of a borrower's monthly debt obligations relative to their gross monthly income, used to evaluate loan eligibility.
Pre-ApprovalA lender's conditional commitment to loan a specific amount to a borrower, based on verified income, credit, and assets.
Loan-to-Value Ratio (LTV)The ratio of a mortgage loan amount to the appraised value or purchase price of a property, expressed as a percentage.
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