What Lenders Are Looking for: The 4 C’s

Low mortgage rates are helping to bring home ownership within reach for some borrowers. But qualifying for a mortgage remains a big challenge for many, as tight underwriting standards persist in the wake of the financial crisis.  Christina Boyle, a senior vice president of single-family sales and relationship management for Freddie Mac, explains how your clients can be better prepared to qualify. Boyle writes at the mortgage giant’s website about the four C’s that lenders are evaluating when deciding whether to grant a borrower a loan.

The 4 C’s of successfully qualifying for a mortgage are:

Capacity:

“Your current and future ability to pay back the loan,” Boyle explains. “Lenders look at your income, employment history, savings, and monthly debt payments, such as credit card charges and other financial obligations, to make sure that you have the means to take on a mortgage comfortably.”

Collateral:

The value of the home that you intend to purchase.

Capital:

“The money and savings that you have on hand plus investments, properties, and other assets that could be sold fairly quickly for cash,” Boyle says. “Having these reserves proves that you can manage your money and have funds, in addition to your income, to help pay the debt.”

Credit:

How well you’ve done paying your bills and other debts on time.

The down payment is also an important piece that lenders consider, Boyle adds. In 2014, buyers put down an average of 14 percent on their home purchase, according to a report by RealtyTrac. Freddie Mac’s new Home Possible Advantages mortgage allows qualified borrowers to put down as little as 3 percent. But those who put down less than 20 percent should expect to pay a higher interest rate as well as pay mortgage insurance, Boyle says.