Your Credit, Capacity, Collateral and Character

Steps to getting the home you want

Different Types of Mortgages

Where to find lenders in North Carloina

Credit
Does your credit rating affect you ability to buy a home? Definitely! A mortgage specialist needs to determine your credit-worthiness by checking into your open and fully repaid debts. This history helps the lender to determine whether a potential borrower has a history of paying debts in a timely manner.

Even if your credit is not perfect however, you may still qualify for a mortgage. If you have had credit problems, you should discuss them with your mortgage professional. Credit problems may exist due to legitimate reasons and if they have been dealt with and your credit history has been satisfactory for 12 months or more, many mortgage professionals will qualify you for a mortgage.

Your credit history includes your income, debt payments (loans, credit card charges etc.) and bankruptcies. In addition to credit, your lender will also consider your capacity, collateral and character.

The most important step however, is the credit check as it gives a picture of your previous loans and any payment problems that may have arisen to affect your credit.

Capacity
Capacity is a calculation that determines your financial ability or capacity to repay the loan. This determines whether you have enough income to meet your monthly financial obligations including the mortgage payment and still have enough money left to live on.

Your proposed monthly payment comprised of your mortgage + property tax + insurance is added to your other monthly debts such as your credit cards, car loans, student loans, etc. and divides this sum by your gross monthly income.

As an example, if your proposed mortgage payment is $1,000 and you have $500 per month in other debts, your monthly debt load would therefore be $1,500 per month. With a gross monthly income of $4,500 your "Debt-to Income" (DTI) ratio would be 33%($1,500/$4,500 = .33).

The "Fannie Mae" guideline standard states that your DTI should not exceed 36%, but some lenders working with us will allow our agency to push that figure to 40% or greater if there are compensating factors such as a large down payment and a borrower's excellent credit history.

Collateral
The value of the property you are buying is what is known as collateral. An appraisal value is required by the lender to verify the value of your property as you are offering it as collateral against your loan. This is necessary because if you cannot make your mortgage payments, the lender will take possession of your property and sell it at a foreclosure auction to recoup his debt. If the home is worth less than what you paid for it, then the lender will incur the loss.

Character
Character is a subjective term, used by the underwriter that describes his or her subjective view of your over-all financial status. This takes into account your job stability, your continued employment and your proven record of saving money and handling credit responsibly and wisely.