The 5 Cs of Credit That Every First-Time Homebuyer Should Know

It’s easy to get lost in the weeds when applying for a home loan for the first time. The chances are that you’ll get bogged down with the many technical difficulties, before eventually giving up.

This is why it’s recommended that you start with the basics. If you want to qualify as a deserving candidate, you’ll have to convince the lender of your creditworthiness. 

These 5 Cs will teach you the characteristics that will prepare you for your new financial freedom.

1. Character

Your credit score is a measure of your character in this scenario. In order to rank high for these metrics, you need to ensure that your credit reports are in excellent shape. 

A lender will inspect these reports, which contain information about your credit accounts and transactions. 

These accounts can be credit cards, auto loans, student loans, etc. Your credit score will reflect your performance in these reports. In order to have a good standing in these accounts, you need to be a punctual payer who appears trustworthy to a lender. 

This 3-digit number can make or break your plans for a new home!

2. Capacity 

 

Your capacity to pay back a loan is calculated in terms of your income and employment prospects. Your lenders will require your bank statements, pay stubs, and federal tax return report to assess your capacity. 

Lenders are also interested in knowing how stable you’ve been professionally. This refers to the duration for which you’ve held a job and whether or not you have a stable income that’s consistent. 

Your debt to income ratio may also be evaluated to gauge your credit risk. With all these things combined, your lenders will get an idea about your capacity.

3. Capital

Capital refers to the savings, investments, or assets you’ll have left after you buy a new estate. What comes into consideration here are wealth options that can be liquidated on short notice.

 

It’s generally a bad idea to empty your bank account as soon as you buy a home. This poses uncertainty about your future as a homeowner since you won’t have enough to sustain or afford repairs.

4. Collateral

You need to show a valuable asset at the time of getting a loan. This is the collateral. For instance, when you get a mortgage, your house is collateral itself. The collateral serves as a risk cushion in the event that the borrower can’t repay the loan amount. 

This is why lenders might want to inspect your collateral before approving your loan, to be sure that it’s worth the loan you’re requesting.

5. Conditions

Market conditions also have a role to play in home loan attainment. While the first 4 Cs were individual-centric, this factor brings in the macro perspective.

From interest rates, to mortgage rates and housing inventory, conditions cover all economic activity that’s happening in the real estate market. 

Once all these Cs are in your favor, you shouldn’t have any problem getting a home loan. 

For further information and loan services, get in touch with Tyndall Federal Credit Union. They offer mortgage loans and other loan services in Panama City, Florida.