5 C’s of Credit

May 4th, 2011

Or what do I need to get a mortgage?

Let’s list the 5 and then look at each one individually.

Character, capacity, capital, collateral and conditions.

Character – at times many people tell me I’m a real character, but what we’re really talking about here is the borrowers integrity. Simply stated are they trying to get a mortgage for the purposes of purchasing a house OR are they trying to figure out some way to cheat the system and obtain a mortgage under false pretences (i.e. fraud).

Capacity – not in terms of how much water you can drink at any one sitting, but what is your income or cashflow in order to be able to service the debt you are about to take on. If you are earning $30K/year, don’t be looking for a mortgage of $400K. Your limit is typically set to 32% of your gross income. My rule of thumb for a 25 year amortization at 5% is roughly 3.5 times your gross income is the size of mortgage you can qualify for.

Capital – Yes, I live in the nations capital. Actually they would like to see if you have some ability to save money or have some kind of networth before lending you money. If you can save, then it’s fairly likely that you can manage your finances and good chance you’ll pay the mortgage.

Collateral – not a football passing term. Do you have something of value against which the loan/mortgage can be secured? In the case of a mortgage, hopefully there is a house against which the mortgage will be registered.

Conditions – partly cloudy with a chance of rain. This one can be rather all encompassing ranging from you the borrower… are you of sound mind and able to meet the contractual obligations?… to what is going on in the city, province, country in terms of economy or environment. Did the local factory just shut down? Are we in the middle of a major recession? Did they just discover a nuclear waste site just next door to your new home?

That’s the magic 5. Got ’em all? Give me a call! 🙂

One response to “5 C’s of Credit”

  1. walshsurvey says:

    Nice explanations. lol. You need to be a real character to get a mortgage.