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  • The Five Cís of Credit: Mortgage Qualification Criteria

    Author: Karli Shih Date: January 1, 2016

    The five "CísĒ of credit govern a lenderís decision making process in evaluating mortgage applications.  They include: Character, Capacity, Conditions, Capital and Collateral.  Weíll look at each one more closely below. Breitling Replica



    Relaying a clientís character and integrity is very subjective,replica watchesand can be difficult to quantify but a credit score can help.  Lenders use credit reports to determine the likelihood youíll make your mortgage payments on time if they grant you a mortgage.  Late payments, too many credit inquiries and even unpaid parking tickets can lower your score.  A good mortgage broker can help explain the background story of a poor score to help applicants qualify despite lower scores.  Proper representation of a clientís credit score can sometimes turn a declined application into a commitment for financing. 

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    Capacity speaks to cash flow and your ability to make your mortgage payments.  Lenders have varying debt-to-income ratio requirements, and many treat various types of income differently.  Whether youíre self-employed, retired, employed part-time or full-time, if you have commission or bonus income, rental or investment income, each type can be treated in different ways.  Lenders may also not always allow the full amount to be used on an application.  You may need to speak with a mortgage broker to help you navigate the requirements of each lender to see if you can qualify based on your income type.  Knowing how lenders look at your other debts on your application, or how a guarantorís income would be viewed, can also help you increase your likelihood of an approval if your debt levels push the boundaries relative to your income. 



    Economic factors influence how readily lenders will grant mortgages to all clients at a particular time.  Lenders may tighten and relax mortgage rules across the board, and at other times just region by region depending on the economic climate in each one.  Conditions such as the purpose of the loan also influence how a lender will view an applicant.  Typically a refinance to fund investments or renovations can be positive in a lenderís view.  Refinancing to consolidate higher interest debt is also very common.  A lender will look favourably on a refinance which contributes to a solid financial plan.



    Capital refers to the equity in your property.  Equity is the difference in value between your mortgage and the value of your property.  The more equity you have in your property, the less risk a lender takes on by lending on that property.  With a higher down payment, or with more equity in your home after a refinance, mortgage rules are less stringent and this makes qualifying easier.



    The final C is Collateral, which refers to the property being financed.  Lenders have varying rules regarding properties they will finance, which can include minimum size requirements, location, leasehold properties vs. freehold, remaining number of years for use of the building as determined by an appraiser, and value to name a few.  Many other factors come into play, too many to cite here.  An experienced mortgage broker can help determine whether a lender will finance a specific type of property.  Appraisals are often required to cover the vast amount of detail which lenders review in determining whether theyíd extend a mortgage on a particular property.  The propertyís value is just a starting point.  If the value of the property matches the purchase price, thatís a good start, but some lenders have rules regarding the method of the valuation, and others require specific appraisers to provide the report.  When values are too low, the lower value becomes the amount from which equity is calculated and can affect the maximum mortgage amount on a particular property. 


    Given the vast array of issues that can impact a mortgage application, working with an experienced broker can help you both maximize your savings regarding rates, and ensure your best chance of an approval for the mortgage you want.  Please feel free to contact me should you have any questions, I would be happy to help. 

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Author : Karli Shih
I provide guidance to my valued clients on mortgages and managing their Real Estate Investments at DLC Commercial Capital Inc. My goal is to help my clients make the most of their investments in a home or in other real estate purchases. I make my clients comfortable with the process of securing financing by clearly explaining how they can grow their personal wealth and still maintain their lifestyle today.