Nothing has changed in mortgage qualification. It’s still about the FOUR C’s.
With a 5th C making an appearance, Character.
A potential homebuyer walked into our office and said, “I have a 798 credit score. What are you going to do for me?”
While this is an excellent starting point, we let the client know that we need to verify income, the ability to make a down payment and review the property they wish to purchase.
The mortgage process essentially has not changed. We look at the same things today that we did decades ago and that is the four C’s of mortgage lending!
Capacity: Is the client able to make the payment on the proposed transaction? We will review income, W2 forms, tax returns, pay stubs, current housing payments and debts to determine the buyer’s loan payment capacity.
Capital: Does the client have a down payment? We review bank statements to verify the borrower’s ability to make the down payment and demonstrate their ability to save. Even with low to no down payment programs or transactions, or if the buyer is receiving gift funds for the down payment, we will look at their saving and spending history to determine if they can manage the new payment.
Collateral: The lender will need an appraisal on the purchase property to determine if the collateral will support the mortgage loan. The market value and condition of the property are determined with the appraisal report.
Credit: Great credit and high credit scores have an impact on many transactions. This can include obtaining insurance, employment, and all financial transactions. Good credit comes with better rates and terms for consumers in most financial transactions. For mortgage lending, the best rates usually come with credit scores over 740. It can be challenging to obtain a mortgage with a credit score below 620, but credit isn’t the only component of the mortgage lending decision.
Character: When reviewing a mortgage application package, underwriters are looking at the consumer as a whole, not just at the individual four C’s. With a new approach to credit review called “Trending Credit,” underwriters are not just looking at a credit score, but a borrower’s approach to credit and debt management. Underwriters are looking at job stability, professional growth and money management. Although the “Four C’s” have been the base line for lending for decades, with the advent of the Internet, lenders have the ability to learn a lot about consumers, the properties they are buying and the nature of the transaction.