Know What Mortgage Companies Examine

It is important to understand how mortgage eligibility is decided. Mortgage companies determine your eligibility for a loan based on the following Four C’s.

Collateral

The home you are looking to buy must appraise for enough worth to cover the loan value. Do you own something of value that can be promised to the lender if you don't repay the loan? If you have less than perfect credit, collateral may improve your chances of a loan request.

Credit History

Mortgage companies determine if you are an acceptable risk to loan money to by evaluating the financial behavior that you have shown towards other creditors, past and present.  Is it likely that you will repay the loan? Are your payments on time and up-to-date? Are you financially stable and reliable?

Capital

You must be able to provide a down payment along with settlement costs, and show proof that you have enough cash reserves to cover any issues that may arise after you have taken possession of the home. Settlement costs vary from state to state but may include application, loan origination and appraisal fees, as well as private mortgage insurance (PMI), survey costs and escrow funds.

Capacity to Repay

To show that you have the ability to repay your debt, mortgage companies evaluate employment history, number of dependants, current expenses, and your financial obligations. Some important questions to ask yourself:

Are you able to repay the loan?

What is your level of personal debt?

Do you have enough earning power and net worth to repay a mortgage?

In addition to the Four C’s, mortgage companies ask that you meet other financial standards for qualification. These other financial standards start by the mortgage companies verifying that the mortgage and associated cost do not exceed 28% of your gross income. In addition, your combined mortgage and debt cost must not exceed 36% of your gross income. However, in some cases your good credit history can allow the mortgage companies to deviate from these limitations.

Remember that the mortgage companies want to feel secure that they are loaning money to a safe risk. Mortgage companies will evaluate your monthly income, occupation and length of time on the job, past credit history, homeownership status and history as well as past credit history. Take your time and be knowledgeable before going into such an important commitment.

It is important to understand all the factors that determine whether or not you have good or bad credit. It is never too early to begin building a good credit history.