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Of Prime Interest: Learn the 5 ‘Cs’ of lending

When you apply for a loan or mortgage application, there are several factors the lender will consider to determine if you qualify.

We call these the five ‘Cs’ of credit.

As mortgage lending is simply determining risk assessment, listed below are the most common elements that a lender will pay attention to in making that determination:

Credit

This is a huge one. The lender will be looking at your credit score and credit history to determine your previous repayment habits.

How you pay your credit card balances helps the potential mortgage lender judge the likelihood that you will pay your mortgage on time.

If you have great credit you won’t have any issues.

If you have some bruised credit in the past, be sure you have some good credit history to mitigate your bruised credit from the past.

Not only is how you have paid your credit important, the length you have had it and how much you owe in relation to available limits factors in as well.

Collateral

The potential lender will want all the details on the property they will be financing. What kind of shape the property is in, the location and whether it’s a property that is appealing to a large portion of the population.

That doesn’t mean it is a minimum requirement for approval.   What is does mean, however, is the lender will be looking a little more closely at the other strengths of your application if the location and home are less than optimal.

Capacity

Along with a mortgage approval inevitably comes a mortgage payment.

It’s no surprise that lenders would like to confirm how you will afford your mortgage payments.

Depending on your employment type, the documentation requirements will vary.

Most lenders are pretty common sense and are just looking to gain a comfort level with your income to ensure your mortgage payments are manageable for you.

Capital

Capital is your down payment amount and whether your net worth is positive or negative. The larger the down payment you have, the better it looks.

Your net worth which is your assets minus your liabilities is also considered. If you have a positive net worth, it shows you have a bit of a cushion in the event of a cash-flow emergency.

This looks more favourable than if you don’t have access to extra resources to make your mortgage payments in the event of an emergency.

Character

Character is the overall determining factor in whether the mortgage application is approved or declined.

A mortgage professional will explain to the lender what kind of person you are and whether you are a reasonable risk. If you have any issues such as bruised credit, let us know the reason.

The more we know and understand you and your situation will result in us explaining to the lender what kind of a borrower you are.

How your whole application is structured with of course the above considerations impacts the likelihood of approval.

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