Mortgage 101
March 14, 2023

The 4 C's of Credit

Estimated reading time: 2 minutes

One of the most important steps in the homebuying process is qualifying for a mortgage. Understanding what lenders look for to determine your mortgage eligibility can help set yourself up for success! While different lenders or loan programs may have their own specifications, we’re taking a deep dive into the four main factors that are analyzed and reviewed. They’re often referred to as the four c’s of credit.

1. Capacity

Your capacity is defined as your ability to repay your mortgage loan. This is determined by assessing your debt-to-income ratio. Lenders will examine your income, savings, employment status and history, and other financial obligations such as revolving debt, student, or car loans to ensure you can pay your mortgage.

2. Capital

Lenders want to see that you possess funds beyond your gross monthly income for things like your mortgage payment, down payment, and closing costs. A lender will examine the funds being used in the transaction, such as how much money you have in savings. Down payment assistance programs, grants, and gift funds will also count toward your capital.

3. Collateral

Collateral refers to the assets that can be used as security against the loan. When applying for a mortgage, the collateral is the house that is being purchased. Before receiving financing through a lender or bank, the home appraisal is used to determine the value of the home.

4. Credit

Mortgage lenders analyze your credit history and score to analyze your record of paying bills. By viewing your credit history, a lender can see how you manage your other debts and monthly payments.

For many loans, there is often a minimum credit score requirements for a mortgage. Your credit score may determine the type of loan you’re qualified for and your interest rate. When you’re planning on applying for a mortgage loan, it’s important to get an early start on consolidating debts and improving your score. Be sure to talk with a Loan Originator before consolidating to ensure it doesn’t adversely affect your credit.

Education, Every Step of the Way

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When you receive financing with McGlone Mortgage, our Licensed Loan Originators will walk you through every step of the way. Although we’re not credit repair specialists, our Loan Originators can offer credit and debt management assistance for our borrowers from a Fannie Mae approved platform. Contact us today to get started.

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