How Mortgage Lenders Evaluate Your Application: The Four Cs of Lending

If you’re thinking about buying a home but unsure whether you could qualify for a mortgage or have enough cash for a down payment, get the facts from a knowledgeable lender. Yes, credit standards are more stringent than they were a decade ago. In reality they are about the same as in the mid-1990s. Factor in today’s very low interest rates and current home prices and affordable mortgages are within reach for many qualified borrowers who may have been hesitant to enter the market.  Although owning a home isn’t for everyone keep in mind the following facts if you choose to pursue homeownership.

When deciding whether to make you a loan, lenders evaluate the four Cs:

•        Capacity – Your current and future ability to pay back the loan. Lenders look at your income, employment history, savings, and monthly debt payments, such as credit card charges and other financial obligations, to make sure that you have the means to take on a mortgage comfortably.

•        Capital – The money and savings that you have on hand plus investments, properties, and other assets that could be sold fairly quickly for cash. Having these reserves proves that you can manage your money and have funds, in addition to your income, to help pay the debt.

•        Collateral – The value of the home that you plan to buy.

•        Credit – Your record of paying bills and other debts on time. (Even if you don’t plan to buy a home now, it’s always a good idea to build and maintain strong credit. Landlords often check it to make sure that you can pay the rent; it’s also important if you want to apply for a mortgage or other credit line in the future, such as a student loan, car loan, or credit card.)

Another important consideration is the down payment – the percentage of the cost of the home that you put down in cash when you buy it. Although references often are made to a 20 percent down payment, mortgages can be had with less.

Paragon’s mortgage lenders are always here to help with any questions regarding the mortgage application process. Visit or call 901.322.0750.