5 C’s of Credit and What They Mean for Your home Loan

    One of the first steps in your home buying process is to choose a mortgage lender and get pre-approved for a loan. There is a lot that goes into determining if you qualify for a home loan, but most lenders will look at these 5 categories.

    1. Character– your credit score will tell lenders about your character and credit history. Do you pay bills on time? Are you accounts in good standing? If you have a low credit score, you may have to work on improving it before applying for a loan.
    2. Capacity– this measures your ability to pay back the loan. Your income and job stability (they will verify your employment) will come into play, as well as your debt-to income (DTI) ratio. This is calculated by dividing total recurring monthly debt by your gross monthly income. A ratio over 36% could mean a higher interest rate, or even denial for a loan. If your DTI is over 36%, you can lower it by paying down current debt, not taking on more debt, and avoid big purchases (like a car) before you buy a home.
    3. Capital– this refers to the money you have, or will have, to purchase your new home. Buyers with a down payment will have a better chance of getting approved for a loan. However, there are various loan programs that do not require a down payment.
    4. Collateral- for home loans, collateral is the home itself. If you default on the mortgage, the bank (or lending company) will seize the home. This is why a home appraisal is done when getting a home loan.
    5. Conditions- is it a buyer’s or seller’s market in your area? What is the current interest rate? These are conditions that can impact home prices as well as your ability to get a home loan.


    Getting pre-approved for a home loan can be intimidated, but it doesn’t have to be. Make sure to seek the advice and guidance of experienced real estate agents and mortgage lenders in your local area.If you have questions or would like to sit down and chat more about your home search and/or getting pre-approved, call the Indy Scene Team anytime!

    -Christie Snapp, 317-902-298, csnapp@remax.net

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