Loan Qualifying Factors

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In attempting to approve home buyers for the type and amount of mortgage they want, mortgage companies basically look at several key elements. These are sometimes known as the 4 C's of Qualifying.

  • Credit history
  • Capacity to repay
  • Cash to Close
  • Collateral


Your credit history involves what you've borrowed in the past, and how well you've paid it back. Capacity refers to your income and your ability to handle the monthly housing payments. Cash to close refers to money for the down payment and closing costs. Collateral refers to the home you're buying.


But there are two key factors that stand out and make the most difference in qualifying: the borrower's Capacity/ability to repay and Credit - willingness to repay the loan. Ability to repay the mortgage is verified by your current employment and total income. Generally speaking, mortgage companies prefer for you to have been employed at the same place for at least two years, or at least be in the same line of work for a few years.


The borrower's willingness to repay is determined by examining how the property will be used. For instance, will you be living there or just renting it out? Willingness is also closely related to how you have fulfilled previous financial commitments, thus the emphasis on the credit report or rent and utility bills.


To qualify, all these items are captured by your loan officer in a mortgage application, called a 1003. Then, your credit report is pulled and the application is run through an automated Underwriting System. This reviews all the factors and issues an approval based on your strengths and weaknesses.


It is important to remember that there are no rules carved in stone. Each applicant is handled on a case-by-case basis. So even if you come up a little short in one area, perhaps one of your stronger points will make up for the weak one. Everyone involved in real estate is in the business of selling homes, in one way or another. Therefore, if the loan makes sense, mortgage companies and insurers will do their best to see that you qualify.


By its very nature, mortgage insurance is an aid to affordability, because it allows families to purchase homes with less cash on hand. The industry plays a central role in helping low- and moderate-income families become homeowners.


More and more borrowers are taking advantage of low down payment mortgages and becoming homeowners with as little as 5 percent down. For more information on how you can take advantage of the benefits of a low down payment home loan with mortgage insurance, contact your local mortgage professional or real estate agent.