Mortgages and credit problems usually don’t go together well. When you secure a mortgage, you’re getting a large sum of money from a lender who has confidence that you can pay back the money you borrowed. Unfortunately, if your history indicates that you’ve had trouble meeting your financial obligations, the lender might choose to do business with someone else. While getting another person to co-sign on the loan can help with some factors, it can’t always solve credit problems.
The Four C’s
When you apply for a mortgage loan, four key factors are considered: capacity, capital, collateral and credit worthiness. Your capacity to repay measures how much money you have coming in every month that you can use towards your mortgage payment, and how likely you are to keep getting that money. The capital factor looks at what you have available in savings, just in case an emergency arises. Lenders also consider the value of your collateral, which is the house that is being mortgaged. Your credit worthiness, which lenders review when they check your credit score, is also a factor. Lenders use a variety of other measures to evaluate your loan application but these four are important with nearly every mortgage application.
What Co-signers Bring
Co-signers can bring three of the four Cs into a deal. A co-signer can bring credit, capacity and capital. When you apply with a co-signer, the factors your co-signer might provide will be added to the mortgage approval process. If their credit worthiness, capacity and capitol are enough to win over the lenders, it could help you secure a mortgage loan with certain lenders. Since collateral is based on the appraised value of your home, you should search for homes you can reasonably afford without your co-signer’s assistance to strengthen your potential for paying back your mortgage loan all on your own.
Providing Possible Solutions to Fair Credit Problems
Some mortgage programs, including federally backed mortgages, have eligibility requirements that help those with less than stellar credit habits or limited credit history. They do, however, have unique requirements so check with your mortgage broker to see if that’s a home-buying option for you to consider.
Each lender will have its own criteria for approving a home loan. Those with expertise in the field of first-time home buyers or those that faced trouble as a homeowner in the past might be able to provide the assistance needed.
About the Author
Solomon Poretsky has been a writer since 1996, with experience in the fields of financial services, real estate and technology. Poretsky holds a Bachelor of Arts in political science from Columbia University.
This article is provided for general guidance and information. It is not intended as, nor should it be construed to be, legal, financial or other professional advice. Please consult with your attorney or financial advisor to discuss any legal or financial issues involved with credit decisions.
Published by permission from ConsumerInfo.com, Inc. © 2014 ConsumerInfo.com, Inc. All rights reserved.