The 5 C’s of credit and how they impact your buying decision.

You have scrimped and saved and with the help of your Realtor you have picked out your house. Now comes the fun part, getting you approved for your mortgage. With the help from a experienced mortgage broker, you will be able to put your best foot forward and get approved for your purchase.  This involves telling the facts about who you are and where you work and how much you make, but it also involves telling a story about why you deserve and are able to pay back this loan. The right broker will help you do this.

It is like the old tale of a group of blind men (or men in the dark) touching an elephant to learn what it is like. Each one feels a different part, but only one part, such as the trunk or the tail. None of them get the complete picture. The 5 C’s of credit is the way lenders use to get a complete picture. Individually they only tell one part of the story, but together they help paint the complete picture of your financial situation.

Character:

What determines strong character in the lender’s eyes are things like how long you have been at the same employer and at the same address. The longer you have been at the same places shows stability to the lender.

Credit;

The credit bureau stores your credit repayment history from the past 7 years. This shows how well or how poorly that you have paid your bills. Creditors that report to the credit agencies ( Equifax & Transunion in Canada) are auto loans, lines of credit, student loans, credit cards, mortgages and now mobility providers. Your repayment history shows how well live within your means and is a good predictor toward future repayment.

Capacity:

This is normally the 1st thing that the lender looks at, as it determines your ability to afford the payments. In other words this is all about debt service ratio. Lender are looking for the potential loan to be less than 40% of your total income. This would make the probability of you repaying the loan would be fairly high.

Collateral:

This has everything to do with the security being pledged for the loan. In this case the real estate, where it’s located, what it looks like and how much it’s worth. The important part here is the loan to value, or how much your are borrowing in relation to how much the property is worth. It’s important to note here that the most expensive home in an area surrounded by lesser quality homes will hurt the perceived value of your home in the lenders eyes.

Capital:

Is the money you have invested in the purchase also know as your downpayment.  The more of your own money invested in a property means that you are more likely to do all you can to maintain your payment obligations. Another side of capital is shown as your ability to save money and accumulate assets.  The higher net worth a person, the more of a cushion they have for repayment if they are hit with a financial set back.

So to sum this all up, as a  knowable broker I  tie these all together in the submission to get your financing approved. Your story is important, make sure the proper person is on your side to tell it for you. I look forward to hearing from you.

Sincerely,

Pat