The 4 C’s of Mortgages

Whether you’re getting ready to buy your first home, looking to relocate, or remodeling to create your dream home, one of the first hurdles in purchasing a home is to get approved for a mortgage loan.

So, what do lenders look at when deciding to approve or deny an application? Lenders consider four criteria, also known as the 4 C’s: Capacity, Capital, Credit, and Collateral.

What is your ability to pay back your mortgage? Factors that play into your Capacity include current income, employment history, and liabilities, such as other loans and financial obligations.

Helpful Tip: Check out our free calculator to help you learn how much you can afford. 

How much money do you have on hand or in reserve? Lenders not only look at the money you have saved in your checking and savings accounts but also your investments, such as 401k and property assets. With this information, the lender can decide whether you can manage your finances and take on a mortgage payment.

Helpful Tip: You may qualify for down payment assistance. This assistance program includes grants, second mortgages loan, or tax credits. Read more and learn if you are eligible for this assistance program.

What is your credit score and history? Many institutions have a minimum credit score requirement, and it can determine your mortgage interest rate and down payment amount. Your credit score and history are important to lenders because they show your track record for paying bills and loans on time.

Helpful Tip: Even if you are not looking to buy now, keep an eye on your credit score. Your score can impact many aspects of your life, such as the ability to rent an apartment, purchase a car, or qualify for a credit card. A few ways to check your score are through Credit Karma or TransUnion.

Can you offer something as a pledge of security on loan? For lenders, collateral is the guarantee that they will receive their money back if you stop paying your mortgage. When it comes to a mortgage, your collateral will be the home or property you are buying. Your home or property will need to be appraised to analyze its market value during the purchasing process.

Helpful tip: If your home inspector finds any issues during the appraisal, you have a few options: negotiate sales price to accommodate any repairs you will have to do, require the seller to make the repairs, or back out of the purchase.

The 4 C’s are just a glimpse into one part of the mortgage process. It might seem intimidating, but we are here to help. Visit our mortgage page, contact our team, or check out the resources below for more information. We cannot wait to help you with your home.

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