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The 5 Cs For Qualifying A Borrower For A Home Loan
The 5 C's for qualifying a Borrower for a home loan.
1. Credit: Lenders look at how the borrower has paid their debt in the past, which will indicate how the borrower will likely pay in the future. Risk factor
2. Capability: The borrower's ability to repay back the loan. Debt to Income ratio (DTI), the higher the DTI the higher the risk.
3. Collateral: First, Equity in the property, the more Equity the lower risk. Second, what is the borrower's loan to value (LTV)? The Higher the LTV the more risky the borrower will go into default. The lower LTV the lower monthly payment and more equity the borrower will have.
4. Cash to Close: How much money is the borrower putting in for the Down payment? The more down payment the less risk.
5. Compensating Factors/Character of the loan: Borrower is reaching the top thresholds of the guidelines. "low credit score, little down payment, high LTV, past foreclosures, short sales or bankruptcies, missed payments, collections, how long on current job, stability, retirement accounts, money in savings and checking accounts". The lender will factor the 5Cs and the higher risk will result in a higher Interest Rate or not being approved for a loan.
Here are some tips to get approved for a loan and get a lower interest rate. When planning on purchasing a home and getting loan, a borrower should review their credit or hire a credit restoration company and remove derogatory items off credit, pay down some high limit credit cards or if no credit cards, then get a Secure Credit card.
Save money for a down payment. If you can put 20% down, then you don't have to pay Private Mortgage Insurance (PMI).
Don't buy a car or get any other loans, if you do it will raise your Debt to Income ratio (DTI)
Don't charge any high cost items on your credit card.
Don't close a credit card.
Don't Co-Sign for anyone.
Don't change jobs, unless you are getting a raise or promotion.
Follow these suggestion, and then contact me to get pre-approved for a home loan and I'll help you get the lowest rate possible.
Happy home and loan shopping, Frank Gotaas, MLO 916-410-1731