3 C’s of Credit in mortgage lending

When I did car loans, I would often hear, “why is it so hard for a car loan when I just bought a home?”   Simply put, that’s because home lending has a distinct advantage.


A house is number one collateral.  Usually there is a significant investment is made by the homeowner in the form of a down payment or repairs.  And unlike a vehicle or recreational vehicle, it generally with care and maintenance holds its value or appreciates rather than depreciates in value over the years.   Add to that a government guarantee (VA, FHA, USDA) or a conventional guarantee (affectionately known as Fannie and Freddie, etc.), and a home is pretty secure collateral.


This could be 10 blogs in and of itself.  But given that a credit history is like the reputation of paying bills, a lender is looking for how likely a borrower is to default in the future.  Each loan has its minimum score or minimum requirements.  It is too easy to spit out a score when there are so many factors that go into it.  But what is true is that if the credit is not good, then another factor must be outstanding (such as a very large down payment and the lender will charge a higher interest rate since the loan is at greater risk of default).


This is ATR (ability to repay) thanks to modern terms.  It means you can prove you make the money necessary to pay your bills, all of them, including your new mortgage payment.  There are a myriad of loan options, including 50% debt to income, a rather standard 40 (or more) percent and a host of other options that vary based on how they account for your income.

Bad collateral = Great capacity and great credit (unsecured loan is an example)

Bad capacity = Great credit and collateral such as a large down payment (and there are a few alternative ways to calculate income)

Bad credit = Great capacity and collateral (such as more money down and more money in reserves and there are a few alternative forms of credit)

I would be happy to consult on your unique situation. Corey Vandenberg

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