The Return of the Three C’s

Forget the three R’s or even the ABC’s; these will not help you in getting a mortgage. Today there are three C’s that need to be followed in order to qualify. They are Credit, Capacity and Collateral.  Believe it or not, this used to be the standard practice for getting a mortgage. Somehow, in the past decade, lenders decided that it wasn’t important to have a job, a credit history, or even provide paperwork. Thankfully, we are getting back to the basics.

• Credit – You need to have a credit score of at least 760 in order to get the best interest rate. Anything less and you will struggle to find someone to loan you money.
• Capacity – You need to prove that you can repay your loan and this will require sufficient documentation. You will also need to have a low debt-to-income ratio.
• Collateral – You will need to put at least 20% down on your next home. It might even be a bit higher in markets that are continuing to fall. This is a challenge for many whose equity in their departure home has taken a hit.

Some people also add a fourth C for character. Character looks at your employment history, marital status and dependents. In addition, you will also see that the HELOC (home equity lines of credit) have gone by the wayside, even those with excellent credit may be denied if they are in a struggling market. You should also plan on spending no more that 30% of your monthly take home pay.

All of this may seem a bit difficult to swallow, but something had to be done to right the wrongs of the past. These three C’s always worked in the past, and they will do the same again.