Ever wonder how a lender looks at your mortgage application?
Lenders are in business to make money (not lose money). Consequently, when a lender approves a mortgage application it wants to ensure that it will be paid back within the terms of the mortgage contract.
Most lenders look at the 5 “C”s of credit each time it makes a loan:
Character
This is the general impression you make on the potential lender. The lender will form a subjective opinion as to whether or not you are sufficiently trustworthy to repay the loan. Your educational back ground and experience in business will be reviewed. The length of time at your current employment and your current residence are considered. The longer you have been at both, the higher you will score on the character sale.
Collateral
This is additional security you can provide the lender. In real estate transactions this generally means the property. If for some reason you cannot repay the mortgage, the bank wants to know that the real estate the mortgage was taken out for is good and marketable real estate. A real estate appraisal will determine the value of the property being financed and any discrepancies that may affect the ability to re-sell the property in case of default. Generally, a property that is located in a Winnipeg subdivision is considered a better risk than a farm in rural Manitoba. Simply, there are more buyers for the home in the city than for the rural farm and therefore is easier to re-sell.
Capital
This is the money you personally have invested in the property, otherwise known as your down payment. The more of your own money you invest as a down payment, the more likely that you will do all you can to maintain your payment obligations. Capital is also reflected by your ability and willingness to save money and accumulate assets. The higher your net worth, the more you have a cushion for repayment in the event you run into a financial set-back.
Credit
This is the evaluation of your habits in performing credit obligations. The information about your credit history is stored at both Equifax and TransUnion Credit Agencies and indicates how well you have paid your bills over the last 6 years. All major credit cards, auto loans, leases, etc. are reported to the credit bureau. A lender will evaluate your ability to maintain your obligations and try to determine how well you live within your means. Some individuals make the mistake of not paying the minimum monthly obligations on loans and credit cards with the expectation of making a larger payment the following month. These missed payments appear on their credit report branding them as “late payers” for the next six years.
Capacity
The ability to repay the loan is probably the most critical of the five factors. The lender will want to know exactly how you intend to repay the loan. The lender considers your income and existing expenses including the new loan payment. If you have the capacity to make the new additional payment (the monthly carrying costs of the loan represent less than or equal to 32% of your total monthly income), than the probability of you successfully repaying the loan is fairly high.
I CAN HELP
I will take a look at your “5-C’s” and are experts at matching your application with the right lender. I can also offer advice about how to improve your desirability as a borrower in the eyes of the lender. Don’t hesitate to call. If you’d like to find out now about qualifying for a mortgage, just click “Apply Online” in the right hand column of our web pages. Upon receiving your information, I will contact you to follow-up.
