The Five “C”s of Credit
If you’re a newcomer to Canada, self-employed, working on commission, or have a poor credit history, you may think your chances of qualifying for a mortgage are slim. Think again! The trick is to see yourself through the eyes of a mortgage lender.
The 5 C’s of Borrowing
Mortgage lenders look for certain characteristics in potential borrowers. Generally, they’re attracted by five key criteria, which those of us in the housing world call “The Five C’s”.
Capacity: This looks at whether your income is sufficient to repay your mortgage once all your other debts are factored in. To prove your capacity to carry a mortgage, be prepared to show a lender that you can afford the payments. They’ll want to see proof of income from all sources and compare that with your monthly financial obligations.
Capital: This looks at whether the size of your down payment indicates a serious commitment to the property on your part. If it does, that minimizes risk on the part of the lender. A down payment is proof that you can save and accumulate assets, which goes a long way towards demonstrating that you can keep up with your mortgage payments.
Collateral: This refers to whether or not the property you’re looking at is of sufficient value and marketability to cover the amount of money you borrowed. Think of it as your mortgage lender’s peace of mind that your property is marketable and that they can easily resell it to recover their investment should you default.
Character: This is a loaded term! It encompasses everything from your reputation and your reliability, taking into consideration your education, your employment history, and even how long you’ve lived at your current residence. It assesses how trustworthy and reliable you are.
Credit: A credit score is a complex thing that can be summed up in just a few words. It’s your history of meeting credit obligations. Do you consistently pay your debts and pay them on time? A mathematical formula is used to generate a credit score which is based on your credit-bureau records for the past six years.
Sometimes, You Need The Services Of A “Matchmaker”
If your qualifications are less than stellar in any of the “5 C’s”, a traditional lender like a big bank may not accept your application. However, that doesn’t mean you can’t get a mortgage. It all comes down to finding the right fit and that’s exactly what I’m here to help you with. A mortgage broker provides professional advice and guidance. We act as a matchmaker of sorts to help you find the right lender for your situation.
Let’s Bring Your Best Qualities To Light
While you may be a bit weak in one or two of the “C’s”, many lenders may be willing to accept you so long as they view you as a reasonable credit risk overall. For example, if you are new to Canada and haven’t had much time to establish a credit history, lenders might overlook that in favour of your steady employment or your large down payment.
Similarly, if you’re a new entrepreneur and you can’t prove that you have a regular income, your lender might instead give more credence to your debt load, credit history, and business plan.
Even if you’re credit history is poor and your financial reputation has suffered as a result, take heart. If you’ve taken discernable steps to improve your rating and your debts are under control, your current income and down payment may just be enough compensation.
If there’s one thing I’ve noticed over the years, it’s that we are often are own worst critics. Try seeing yourself through a lender’s eyes. You might just like what you see! There’s a good chance that you have more options than you realize.
If this blog is as clear as mud, call me. I am here to clarity, educate, and support you throughout the process. You may only apply for a mortgage a few times in a lifetime; I process mortgages several times a day. Lean on me.