Qualifying For A Mortgage: The Four C's
Are you renting and considering taking the leap to home ownership? Maybe you own a home already, but are outgrowing the space. No matter your position, the first step in determining if a new home purchase is right for you is to make sure you qualify for a mortgage. To do so, there are four main factors your lender will consider in determining your qualifying ability.
This is your current and future ability to repay the loan. This is primarily determined by examining your income, employment history and stability, and monthly debts. This information is used to then calculate your “Debt-to-Income Ratio” to determine your likeliness of being able to hold that mortgage payment.
This would be your assets including checking, savings, investments including retirement accounts, other properties, and any other items you can sell for cash if needed. Your capital is used both for knowing how large of a down payment you are able to make, along with how much you will have in reserves after you close on your new home.
This is the value of the home that you are purchasing which is being secured by your new mortgage.
This is your FICO credit score and report. Credit scores are used as a way of predicting future behavior. For example, higher credit scores imply a greater likelihood of you repaying your mortgage on time. Your credit score will help us determine which loan programs you are eligible for along with the associated pricing. The credit report is also used for determining your monthly debts as discussed above under “capacity”.
Now that you know what goes into a mortgage qualification, you may be wondering how much you personally can qualify for. This is where the pre-qualification process comes into play. I will go through each of these items so that we can determine what price point to narrow your search to.
Interested in how we calculate your purchasing power? Read more here!