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Monday, June 29, 2009

HOW THE 3 C'S OF CREDIT CAN GET YOU AN A+ MORTGAGE LOAN

What are the three C's of Credit: Capacity, Character, and Collateral.

Capacity: A creditor will view capacity as to how you are going to repay the loan. They want to know what your monthly income is compared to what your expenses are. One of the most important features about capacity is the DTI or debt-to-income ratio. The DTI ratio is calculated by totaling your consumer debt (credit cards and installment loans) plus housing debt (proposed mortgage payment, property taxes and insurance premium) which is then divided by your income. The acceptable ratio is dependent upon the other two C’s of Credit. The better your credit profile and the more equity you have, the higher the allowable ratio.

Character or Credit History: To determine your character, a creditor will look at your credit history and previous paying habits from the information they get through a credit-reporting agency Your FICO credit score then determines whether your loan can be approved and if so, at what rate of interest and available terms.

Collateral: A creditor also wants to know what collateral or assets you have other than your income. This would include your available down payment which establishes your LTV or loan-to-value; and available reserves to include a savings account, investments, or other property. By having assets, the creditor feels more secure because they can be liquidated if you fall into financial difficulties.

Credit grantors look at many factors to determine whether or not they will grant an approval. Some of theses factors include, length of employment, previous credit, length of residency, open credit accounts and if you have a established history of savings. If all the factors are favorable you should be approved. If not, your application may be denied. There are several reasons an application could be denied, a negative credit report, excessive inquiries, overextension, insufficient income for the amount requested, or too short a period of employment.

Purchasing a home should be a happy occasion and CAN BE if your allow enough time to get pre-qualified AND pre-approved before you start shopping. For more information on the home loan process CLICK HERE or call my office 562-728-9971 … I would be happy to crunch the numbers for you.