Your past financial history is very important because it indicates your willingness and ability to handle the increased financial responsibility of repaying your home loan.

In general, all lenders use the same four basic standards to approve applicants for a mortgage. Different mortgage products have varying guidelines within those standards. The lender looks at what is referred to as the “the four C’s”:

  • Capacity
  • Character
  • Capital and
  • Collateral

Income (Capacity)

Do you have steady and sufficient income to make the monthly payments? This income can come from a primary, second, or part-time job(s), overtime and bonuses, commissions, self-employment, retirement benefits, pensions and annuities, public assistance, child support, alimony or maintenance payments, veterans benefits, disability payments or rental property income. In most cases, you need to provide documentation regarding your income. Lenders also offer no documentation mortgage loans for borrowers who qualify based on other criteria. Alimony and child support need not be noted unless you want to have them included as the basis for repayment of the debt.

Credit History (Character)

Have you paid back money you borrowed in the past? Have you been late in making your payments? Have you filed for bankruptcy? Do you have a record of judgments and collection accounts filed? Some lenders, do offer special products for homebuyers with past credit problems. If you have a limited or no credit history, a “nontraditional” credit history will be considered. You may need to show paid receipts and canceled checks for rent and utility payments that document a pattern of paying your monthly obligations on time.

Savings (Capital)

Have you saved any money that can be used toward the purchase of your home? The savings can be money in a savings account, certificate of deposit, retirement [401(k)] account, or a gift from a relative or friend. A lender wants to see that you have the capital to fulfill your current obligations as well as your new mortgage. Ideally, you should have enough savings to act as a source of funds for your down payment and several months of reserve funds to cover your anticipated monthly mortgage payments should anything happen to you or your job.

Property (Collateral)

Your lender will require an appraisal on your home to determine its market value in comparison to similar houses that sold recently in the neighborhood. Your lender will also look at the type of the property and whether there are additional fees such as homeowner’s association dues. If you’d like to be pre-approved for a mortgage loan, you do not need to have a property in mind. Before you being working with a real estate agent or builder, ask your mortgage professional about getting pre-approved. It is a smart move for serious homebuyers because it shows sellers that you come to the negotiating table ready to complete the transaction.

Your lender will require an appraisal on your home to determine its market value in comparison to similar houses that sold recently in the neighborhood. Your lender will also look at the type of the property and whether there are additional fees such as homeowner’s association dues. If you’d like to be pre-approved for a mortgage loan, you do not need to have a property in mind. Before you being working with a real estate agent or builder, ask your mortgage professional about getting pre-approved. It is a smart move for serious homebuyers because it shows sellers that you come to the negotiating table ready to complete the transaction. Property (Collateral) 

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