It is important to understand how mortgage eligibility is decided. To determine this mortgage companies examine your income, collateral, credit history, debt amount, and employment history.
This examination can be better defined by your ability to answer the Four C’s of Credit. The Four C’s are outlined as follows:
Collateral
The home you are looking to buy must appraise for enough worth to cover the loan value.
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 current and in the past.
Capital
You must be able to provide a down payment along with settlement cost, and show proof that you have enough cash reserves to cover any issues that may arise after you have taken possession of the home.
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.
In addition to the Four C’s the 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 must 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 wish to feel secure that they are loaning money to a safe risk. Take your time and be knowledgeable before going into such an important commitment.
