There are four things that any financial institution will review in determining if you qualify for a loan. These are often referred to as the four “C’s” of lending.
- Capacity – This is your ability to repay a loan. Your Debt to Income Ratio (DTI) will be used to determine how much the lender feels you can afford to pay toward a mortgage each month and still meet your other financial obligations. Click Here to Review detailed information about DTI.
- Character - Your likelihood to repay a loan. Your Credit rating and history will be used to determine the lenders risk in loaning you the money for the home. There are three separate credit bureaus that rate your credit, all three will be taken into consideration. Please review the credit information detailed below.
- Capital – How much money do you have in Savings. Do you have enough money for a down payment and closing costs? Do you have additional money in reserve for emergencies? In many cases the higher the down payment, the lower the interest rate will be on the loan.
- Collateral – The final decision on the loan is the property itself. Is the property worth the amount of money they are loaning? In the event of buyer default on the loan, can they recover their money… ultimately, is it a good investment for them. This will also be impacted by the down payment, as the more money down, the lower the loan amount.
Getting Pre-Qualified vs Pre-Approved
This is the next step in getting a loan.
This is an estimate based on an informal discussion. This is not an exact amount and there is no obligation or commitment from either party. No information is verified at this stage.
This is a commitment of conditional approval from a lender for a pre-determined amount. This is based on verified information.
Credit - Contact Information for the Three Credit Bureaus
Please note - there are multiple online services available that can provide you your current credit scores; some are free, some are not. Use caution when selecting a service to provide your scores as there are two ways to pull your credit: Hard and Soft inquiry.
*CreditKarma has a good explanation of what the hard and soft credit inquiries are and how they work.
Click Here to view their explanation
CSRealtEstateTX has no affiliation with CreditKarma; it is just referenced as a source of information.