Humber/Ontario Real Estate Course 4 Exam Practice

What is typically performed when a residential mortgage application is reviewed?

1. A background check

2. An appraisal

3. A credit check

4. Building valuation

The correct answer is: A credit check

When reviewing a residential mortgage application, a credit check is typically performed to assess the borrower's creditworthiness. This process entails examining the individual’s credit history, including their payment behaviors, outstanding debts, and overall credit score. The goal of the credit check is to determine how reliably the applicant has managed their financial obligations in the past and to evaluate the risk involved in lending them money. A good credit score generally indicates that the borrower is likely to repay the loan responsibly, while a poor credit score may raise red flags for lenders. Thus, the credit check serves as a critical tool for lenders to make informed decisions regarding approval and the terms of the loan. In contrast, while options like a background check and an appraisal may be part of the broader mortgage approval process, they do not have the same direct focus on the borrower's credit risk. A background check might be used to assess the individual's financial history beyond credit, and an appraisal is meant to assess the property's value, rather than the borrower's ability to repay the loan. Hence, the emphasis on the credit check directly aligns with the lender's need to gauge the financial reliability of the applicant.