The Five Cs of Credit

five Cs of credit

The mortgage process can sometimes be a little confusing or overwhelming. In addition to your personal finances, mortgage rules and lender guidelines are always changing.  However, focusing on the five Cs of credit can help. There are five key areas that are reviewed with a credit application and they have become known as the five Cs of credit.

 

Five Cs of Credit

 

Character

This focuses on you personally and if you are able to manage the loan. It takes into account the other four Cs of credit in relation to you. Lenders look at stability, such as how long you lived at your previous residencies, how strong you are at saving money, how you manage your current debts, are you able to stay with one employer for a longer duration of time and so on.

 

Capital

Capital is the next of the five Cs of credit. This will be mainly your savings and more so the savings you have for the down payment and closing costs. Most lenders will want to see that you have saved, your down payment, closing costs, emergency money, etc.

Learn more: Down Payment on a House Ottawa
Learn more: Closing Costs to Consider When Purchasing a Home

 

Credit

Looking to your past will help the lender know what to expect in the future. Are you able to pay your bills on time? Have you had late payments, disputes in the past with creditors, etc.?

Learn more: How to Build Your Credit Score
Learn more: Equifax.ca

 

Capacity

Capacity is the best of the five Cs of credit. This is about income and debt servicing. Do you have enough income to cover the mortgage payment and other real estate items such as heat, property taxes, etc.? A mortgage broker in Ottawa will review your debt to income ratios with you when completing a mortgage application.

Learn more: Mortgage Brokers in Ottawa

 

Collateral

This is the property. The lender is looking to see the quality of the property that will be used as the security of the loan and if it meets their standards and guidelines.

The goal of an approval is to have all the five Cs meet the lender’s criteria.  Knowing more about what a lender is looking for when reviewing an application is a great start in getting on the right track for owning a home.

Learn more: Mortgage Pre Approval Ottawa