What is the process of evaluating the risks involved in issuing a new real estate mortgage commonly called?

• A. Appraisal
• B. Loan underwriting
• C. Credit analysis
• D. Pre-approval

Answer: (B)

Loan underwriting is the process lenders use to assess the risk of a new mortgage. It brings together the borrower’s ability to repay—through income, employment verification, and assets—with the property’s value as collateral. The underwriter reviews credit history, debt-to-income ratio, savings, and other factors, orders an appraisal to confirm the property's value, and checks for any title or condition issues. Based on all of this, they determine whether the loan meets the lender’s guidelines and what terms to offer, or whether to deny or place conditions on the loan.

An appraisal, by contrast, determines how much the property is worth, not how risky the loan is. Credit analysis can be part of underwriting, but underwriting is the overall risk evaluation that leads to approval, denial, or conditional approval. Pre-approval is a preliminary step before underwriting is completed.