It’s important to know the four C’s of credit, your history, and your finances in order to buy a home or refinance. Here’s what you need to know about the four C’s of credit and why it’s important.
#1. Credit history.
This involves going back through the history of all credit card applications, loans, debts, and liabilities over the last 7 to 10 years and potentially longer depending on how much credit history you have acquired. If the lender can only find one credit inquiry in the last 10 years, they may go back further but most people have at least 1 to 4 situations on their credit history that can make lenders determine how risky of a borrower you are. Your credit history will show if you have paid fees and payments on time, if you have a lot of outstanding credit, if you have a high credit balance, and how likely you are to repay your debts. This also talks about credit score. For the absolute best in interest rates, credit scores over 780 typically get the best rates and terms. Anything under 580 may need special financing.
#2. Capacity to repay the loan.
Just like looking over your credit history, lenders will determine how reliable you are to repay any loan you do take out. This includes credit card debt, student loans, mortgage payments, rental payments, and even child support.
#3. Cash assets.
Lenders want to know how much money you have on reserve just in case of an emergency. If you have zero money in savings, zero dollars in checking, and you have no retirement or investments, lenders may see you as high risk. What happens if something major goes wrong in the house and you don’t have the funds to repair or replace it. Remember, and tell you have paid off the loan in full, the house technically belongs to the bank and they want to make sure you have the reserve funds to maintain it.
Lenders, underwriters, and banks want to make sure that you have something to back up the loan. For instance, if you finance a car the car is the collateral. They can come and take it back should you not pay. The same with real estate. Your house is the collateral and they want to make sure you have enough skin in the game to make it worth their while to loan you the money.
For more information on buying a home, your credit history, and how to apply for a home loan for any Gulf Coast property please contact our office today.