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Your credit - it's more than just a number

You have spent countless hours looking, scouring ideal neighbourhoods with your Realtor and you have finally found your dream home. Your offer has been accepted, so the hard part is done, right? Not necessarily – some may argue that the hard part has only just begun! Securing a mortgage loan can sometimes be daunting – there are many factors that help to determine whether your loan will be approved. It can be broken down into what is known as the 5 C’s of Credit.

1. Character - This is a borrower’s trustworthiness to repay a loan. The length of time you have been in your current job, and the ability to both save and use credit responsibly are all factors that help to establish character.

2. Capacity - This is the ability to repay a loan. Lenders will look at the borrower’s debt service ratios (Total Debt Service and Gross Debt Service) as well as repayment history in order to assess your ability to repay a loan. You may want to repay your debtors, but are you able to?

3. Capital - The is the amount of money that has already been invested in a property. This is also known as a down payment - lenders want to see how invested you are before making a final decision. They also want to be sure that you can cover this, as well as closing costs when all is said and done.

4. Credit – This shows the lender a snapshot of what the repayment history has been like over a selected period. This is how a lender can best predict your ability to make future payments. Your credit score is the primary measurement.

5. Collateral – This can be thought of as additional security for the lender. The value of the subject property, it’s location and characteristics can be thought of as security.

These are some of the things that helps a lender decide if a borrower is credit worthy. It may seem that you are jumping through hoops, but who can blame a lender for exercising caution? Buying a home, after all, is one of the biggest investments of your life! Make sure your credit is ready - staying on top of these factors will increase the likelihood that you can afford your dream home when the time comes!

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