The Four C’s of Home Loans

The rules that govern home loans have come back full circle. The days of mortgage lenders going off on crazed tangents to qualify someone who should not be, has cycled back to a more traditional foundation.
The Four C’s are considered the basis of loan assessment. Each of these criteria depicts a borrower’s suitability:

• CAPACITY
• CHARACTER
• CAPITAL
• COLLATERAL

Their definitions are pretty straightforward. Capacity is the ability of a borrower to repay the loan based on employment and debt history. Character is the willingness to repay and is determined from one’s reputation and credit history. Capital comprises the total assets and net worth. Collateral is pretty much anything of value that the borrower agrees to forfeit if in event of a loan default.

As a Tampa mortgage broker, I use my left brain all day long. And let’s face it, the doctrines governing home loans are very specific and fall into the bean counter realm. But in today’s market, lenders need to bring their whole brain to the party to get borrowers to the closing table.

There is a good deal of creativity and looking beyond the facts to determine someone’s eligibility. And I don’t mean creativity in the sense of fudging numbers and waiving the need for solid documentation. I mean creativity in the sense of a true analysis of the clients’ goals and how this new financial burden is going to impact their life and what mortgage product suits them best.

What I am trying to say is that there is a lot more than what meets the eye in a lender who is working in your best interests. So let’s just add the 5th “C” of loan assessment to include creativity and call it a day!

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