Palm State Mortgage Company brings Floridians good lenders! For generations, bankers, brokers and realtors have known about the 5 “C”s of Credit.  This week, Palm State Mortgage Company brings you Part One of our Back-to-Basics Series Articles, concerning home mortgages.  We begin with a little review of each of the 5 “C”s of Credit, which are the ways lenders decide if you are creditworthy–that is, worthy of the lender’s risk involved in a home loan.

Creditworthy:  A New Measuring Stick?

But, wait!  There is a brand new 21st century way lenders are investigating the you behind your loan request!  Lenders have discovered that Facebook, Twitter, and other social media networks are valuable sources of information about you when you apply for a loan.

Money Talks and CNN recently reported, “If you are seeking credit, be mindful of what you post in social media.  As we reported recently, some lenders are mining Facebook, Twitter and other social media outlets to reach conclusions about creditworthiness.  You should be aware that the social network factor “could be especially weighty for applicants who have little or no credit history, according to CNN.”

Experts are warning, “So, if you’ve considered going on a rant about your former employer because you were laid off, hold that thought.”

Likewise, Palm State Mortgage Company cautions you to keep your finances off of Facebook.  For example, it’s not the place to express distrust or disgust about the financial industry, or even your own local bank.

By the same token, you might not want to reveal your latest partying technique which could be seen by people who might lend you money.

No, lenders won’t reject your loan outright, but they might give you a less appealing interest rate, based on your social media “persona.”

The bottom line is, if you’re searching for a mortgage loan, be aware of how you are presenting yourself to the public eye.

You want to characterize positive aspects about your life, like your trustworthiness, dependability, and common sense.  Thus, although Social Media does not begin with a “C,” let’s count it in with the five “C”s of Credit. (By the way, this does not mean you should make up heroic half-truths and sterling lies about yourself for your profile; that would not look very creditworthy.)

Creditworthy:  What do Lenders Want?

Palm State Mortgage Company wants you to know that your loan application will be evaluated on a number of factors when we help you submit it to lenders.

We have mentioned these in previous blogs, but a little review never hurts:

  •  Credit/Payment History,
  •  Income,
  •  Overall financial situation.

The classic five “C”s of Credit are the details within these factors, details that we will have to back up with documentation for your lender.

The First Creditworthy “C” is for Character:

It is interesting how the new standard mentioned above, fits into the idea of character.  Financially, much of your character, in the eyes of potential lenders, resides in your credit history and your FICO score.  Do you know what it is in your credit history?

Do you realize it is more than just your credit score?  It is also a “detailed list of your credit history, consisting of information provided by lenders that have extended credit to you.  Information might vary from one credit reporting agency to another, the credit reports includes the same types of information.

Lenders will peruse the report to see the names of other lenders that have extended credit to you, types of credit you have, your payment history, and more.”

Added to the report, your credit score reflects your creditworthiness on a metric of 300-850.

Lenders know, “The higher the score, the lower the risk.”

The Second Creditworthy “C” is for Capacity:Get Palm State Mortgage Company, and get your home!

This refers to your capacity for debt.  Put simply, potential lenders need to know you can manage your payments. Your past income and employment history are excellent measuring sticks of your ability to handle your debts.  Are you creditworthy?

Can trust be put into numbers?  Lenders try to do just that with your DTI. (Debt to Income Ratio) Trust in your ability to make payments is measured in your ratio of current Income compared to your before-tax amount of income. (Your DTI status)

Keep in mind also that your stability and type of income might be investigated.

So, if you are creditworthy, your numbers will help to prove that you will be able manage mortgage payments on your new home due to your character and your capacity.

The Third, Fourth and Fifth “C”s are for Collateral, Capital and Conditions, but they will have to wait for Part II of our coverage of this vital topic in next week’s Palm State Mortgage Company Blog.  Meanwhile, if you are considering a home mortgage, we invite you to match the first two “C”s we have given you with your budget.

Taken together, the five “C”s will prove you are creditworthy, and they will need to be documented for potential lenders.

Yes, this is why many people consider a home mortgage to be a paperwork storm, but Palm State Mortgage Company specializes in guiding you through it one step–and one “C” –at a time!