The Three C’s of Mortgage Lending
If you have been through the mortgage process lately you already know that you are required to provide a great deal of paperwork to your lender. This is required by law by all mortgage lenders which is used to determine your ability to repay the mortgage loan. Three major areas of your finances that lenders will be reviewing include credit, capacity, and collateral.
Your credit history will be reviewed to make sure you have a good credit score, pay bills on time and are not carrying too much debt. The higher your credit score, the greater your chances are of qualifying for the lowest mortgage rates.
Capacity covers your income, savings, investments, etc. Lenders need to see that you have the money in the bank to be able to afford monthly mortgage payments. Typically your monthly mortgage payment should not exceed 28% of your gross income.
Your collateral includes your down payment. While 20% down will get you lower rates, there are loan programs available with down payments as low as 0-5%.