5 C’s of Credit & just what They Mean for a Loan

You’ve researched the community and spent hours scouring listings online. You are aware of the best zip codes and school zones and therefore are ready for the next step in the home purchasing process – getting pre-approval from your mortgage company for the loan to purchase your new home. .

5 C’s of Credit & just what They Mean for a Loan

There’s a lot that goes into determining if you are eligible for a mortgage, but many traditional lenders will think about these five categories:

Character

Your credit score will inform lenders about your character and your history of credit. Do you pay your bills in a timely manner? Are your accounts in good standing? In the event your credit score is poor, you need to concentrate on improving it before you apply for a mortgage.

Capacity

This category measures your ability to repay your loan. Your earnings, along with your job stability, will come into play here, as well your debt-to-income (DTI) ratio. Your DTI is calculated by dividing total recurring monthly debt by gross monthly income. A ratio over 36% could mean you’ll pay more interest or that you’ll be denied a mortgage. Whenever your DTI is above 36%, you should concentrate on lowering it by paying down your current debt, not taking on more debt and avoiding big purchases, say for example a car, on credit before you purchase a home.

Capital

Capital describes the money you have, or will have, to purchase your new home. Buyers with a down payment will have a better possibility of receiving a loan however a down payment isn’t a necessity. There are several loan programs that don’t have to have a down payment.

Collateral

When it comes to home loans, collateral is the home itself. In the event you default on the mortgage, the bank will seize the home – this is the reason a home appraisal is almost always required before receiving a loan.

Conditions

Is it a buyer’s or seller’s market where you live? What is the current rate of interest? These are conditions that could affect home prices where you live along with your chance to get into a home.

Ready to find your new home here in the Tampa Bay and Surrounding Areas? Nick, Cindy & Nicholas Davis with RE/MAX Premier Group are here to assist you with all your Real Estate Needs. We are always available at 813-300-7116 to answer your questions or you can simply click here and we will be in touch with you shortly.

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