Consider 4 Cs of qualifying for loan | Business


Why was my loan denied? Why is my interest rate higher than another’s when we both bought at the same time? Why is the interest rate I saw on TV different than the one I received when I signed the loan documents?

These are the questions for which I’d like to provide clarity.

I am not a loan officer, however, as a Realtor, I do spend time collaborating with clients and loan officers on helping people get approved. The thing I have learned is that four aspects are evaluated when approving a loan.

If you will think of a box and each side is a guide. If your results fall inside the box, you get the loan. Where you fall in the box is why rates may change. The advertised rate is normally the person who fits right in the middle of the box, the ideal person.

So, what are the four guidelines:

First, and the one we hear the most, is credit. Most loans have a required minimum credit score. If your score is below that number, you will not be approved for the loan.

That does not mean you should quit or get discouraged. It meansyou need to repair your scores. There are options for you and most loan officers can point you in the right direction. Credit scores are not difficult to fix, but it does not occur by accident and diligence is required.

Second is capacity. That is the perceived ability to pay back the loan. We often think of this as income. Yet, it is not just income, it also considers your debts.

The loan officer is making sure that you can afford not only the home but also the current debts. This calculation is the debt-to-income ratio. The higher the debt the higher the risk and thus the interest rate may be higher.

Third is collateral. Therefore, the bank/mortgage company requires an appraisal. An appraisal is a third party (someone who is not in the transaction, thus perceived as unbiased) who establishes or verifies that the home is worth the price asked for, and that the home qualifies for the loan. These are important things to protect you, us, the consumers.

Fourth is character. My friend Richard Flint says, “the best predicter of future behavior is past behavior.” This is where your budget comes in, your “cash character” how you deal with money, your view of money, all this shows up in your bank accounts.

My friend once told me show me your checkbook and I will show you your priorities. (For those who are less than 40 years old, our parents carried a checkbook to pay for things like groceries, bills etc. prior to auto draft.) Therefore, the loan officer may want you to a certain amount of money in reserves, in the bank.

These 4 Cs are why interest rates may vary between people. But remember the biggest key to buying a home is your budget.

Be sure you surround yourself with people who will help you stay within your budget and help you get the best rate possible. Quality professionals want the best for you.

Charles Hinckley, a local Realtor, is immediate past president of the Kentucky Realtors organization and was named 2019 Realtor of the Year by the Heart of Kentucky Association of Realtors.

Charles Hinckley, a local Realtor, is immediate past president of the Kentucky Realtors organization and was named 2019 Realtor of the Year by the Heart of Kentucky Association of Realtors.

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