Credit Understanding

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Author: Jerry Sanders..

Article source: http://www.articledeshboard.com/. Used with author's permission.

When a lender looks at an applicant's loan request, they normally look at three characteristics known as the Three C's of Credit. The three C's are character, capacity and collateral.

A Mortgage Lender will look at your credit history and paying habits to determine your character. They obtain this information from three credit-reporting agencies such as TransUnion, Equifax or Experian. Paying on time, no derogative issues, and not too much credit equals good character in a general manner of speaking.

Credit agencies use credit scoring modules that reflect a three digit numerical score that is based on your borrowing habits: how well you pay your creditors and how often you apply or open credit. If your credit score is high the creditor considers you to be of better character or risk than someone with a low score.

Collateral: This includes everything you own even if it is not paid off yet. A borrower with more "stuff" (equity) has a better chance of getting a loan than someone with less. When completing a loan application, you should list all assets including household goods, jewlery, automobiles, power equipment, special tools, or anything considered to have value.

Capacity: Capacity means simply your ability to repay a loan. Lenders calculate a debt ratio to see how likely you will repay the loan. In mortgage underwriting the underwriter will look at two ratios known as your front and back ratio.

Front ratio refers to your total housing expense which includes Principle and Interest, Taxes, and Mortgage Insurance as a percent of your gross monthly income. If your monthly gross income is $4000 and your Housing expense is $1102; your front ratio is 27.55%.

Back ratio is your housing expense plus all other revolving and Installment debt divided by your gross income. Applicants with lower debt ratios have a better chance of being approved and in some cases may receive a better rate.

All three C's play an important part in granting credit. Applicants with higher credit scores/ better character are more likely to obtain a loan with good terms. Borrowers with more assets will be more likely to get financing with better terms than someone with fewer assets. Lastly, clients with low debt to income ratios are looked on more favorably.

Jerry Sanders can get you out of that ARM and into a fixed rate mortgage loan. The rates have never been lower. Apply on line at Peach State Mortgage or call 800 533 0728 for a personal consultation. Operating in Florida, Georgia, and Tennessee.