What are the “Five Cs” of Credit?

While you are in the process of getting a mortgage many lenders will look closely at your application before agreeing to give the approval for financing.

Following are five items that lenders consider before approving a loan, they are often referred to the ‘5 Cs of Credit’ – Character, Collateral, Capital, Credit and Capacity:

Character – This is a subjective opinion of your trustworthiness to repay the loan. For this, your educational background, professional experience, length at your current employer and current residence will be considered.

Collateral – The lender will be looking for assurance that if the borrower was unable to repay the mortgage, the property that is mortgaged can be resold. This is why lenders require an appraisal for the home they will be approving a loan for.

Capital – The higher the down payment, the more likely it is that you will keep up with the mortgage payments.

Credit – A lender will contact a credit agency that has information regarding payments on major credit cards, auto loans, leases, etc. for the last six years and calculate a person’s credit score.

Capacity – Lenders will review your income level and financial obligations. Many lenders will follow the rule that a mortgage should not be given if it is more than 32 percent of your gross income.

For more information on living in a progressive city like Hoboken, where they’re always coming up with new ways of making the city a better place to live, contact Eddie Perez, Broker-REALTOR, CDPE. Eddie’s market includes Hoboken, Jersey City, Weehawken and Union City. Eddie can also be reached by phone at 201-344-2886.