Home Mortgage • The 5 Cs Mortgage Lenders Look at

The 5 Cs Mortgage Lenders Look at


A mortgage is a form of loan which is especially given for buying properties such as houses and apartments. Mortgage lenders are in fact large credit providers and therefore they follow the famous five Cs of giving credit to the deserving borrowers. These five Cs represent important concepts and they allow lenders to obtain useful information about borrowers. Here, we discuss these important credit points in greater detail.

1.     Character

Character is the first C and represents an important concept about lending. It refers to the record of a borrower in terms of his previous attempts at repaying the loans on time. This simply means the credit history. Character is drawn from information about bankruptcies and loan judgments. Lenders often employ this information to find if a borrower is worthy of the credit he is asking for in terms of a mortgage. Sometimes, they offer a special deal to the borrower because of obtaining information that describes an excellent character.

Credit scoring for finding the character is often based on intuition. There is no blacklisting scenario in the UK, but many people can often feel that way that have bad loan histories. It is all but natural by banks to hesitate in giving a loan to a person who fails to pay it off in time.

2.     Capacity

Capacity refers to the returning ability of a borrower. It describes if a borrower is able to pay a certain amount of tax and loan instalment with his current income. Usually, lenders employ debt to income ratio which must be as small as possible. Mortgage lenders also look at the current job of a borrower as well as the chances of success in the present situation. This means that people with volatile jobs will find it difficult to obtain a mortgage loan.

3.     Capital

Capital is extremely important for credit providers. The buying of a property can also be termed as a potential investment. The down payment on the loan is considered as the capital here in the case of a mortgage loan. This means people who are willing to pay more money as a down payment have got more chance to receive a mortgage loan. There are many housing societies and banks which require a minimum down payment option when asking for a mortgage.

Larger down payments show that the borrower is serious about buying a particular house and willing to put all of the saving on the line. A borrower may also get a loan with a lower interest rate if he puts up a required down payment asked by a mortgage lender.

4.     Collateral

Collateral refers to any physical entity which secures a loan. All secured loans are given against collateral. This means that mortgage loans are simply secured loans which use the house being bought as the collateral security. The mortgage lender can always sell the house to get the money back in case the borrower fails to pay back the loan.

5.     Conditions

The last C represents conditions. They simply describe the finer details of a mortgage loan, such as the principal amount, as well as the applied rate of interest. The conditions also include the intent of the borrower. Lenders like to give loans where they are clear about their use. This means that it is easier to get a car loan or a mortgage loan when compared to a personal loan.

These are the five Cs that are important for credit providers such as mortgage lenders.

Author:Kevin Harris