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Financial Ed 101 – 5th class: “The 5 C’s Of Borrowing”

We don’t mean of diamonds, it’s the 5 C’s of Borrowing!

Almost 10 years ago I completed my “credit training” … essentially they should have called the course: “How to judge a person in 5 steps”

Thousands of mortgages later and we’re still always perfecting this technique and feel as a consumer YOU should know how each bank and broker is judging YOUR application and criteria.

(to see an example of the information requested on application is here)

Have taken excerpts from a financial post article and added some further information to assist in seeing yourself as banks do.

The 5 C’s of borrowing

Mortgage lenders look for certain characteristics in potential borrowers. Generally, they’re attracted by five key criteria:

  • Capacity — whether your income is sufficient to repay the mortgage once all your other debts are factored in. The rule is 40-44% of your gross income to cover mortgage payment, debts, Heat and property Taxes.
  • Capital — whether the size of your down payment indicates a serious commitment to the property on your part, and sufficient minimization of risk on the part of the lender. BUT: it should be noted, Gifted and Borrowed down payments are acceptable.  Further can still purchase with $0 down !
  • Collateral — whether the property is of sufficient value and marketability to cover the amount borrowed.
  • Character — your reputation and reliability, usually based on factors such as your education, employment history and residence.
  • Credit — your history of meeting credit obligations, which is based on credit-bureau records for the past six years. Although being late on a credit card that is only $500 seems like nothing, it is indicative of how you will treat a $200G mortgage, just ensure to make the minimum payment and you’re fine!

If your qualifications are less than stellar in any of these areas, a traditional lender may not accept you. But that doesn’t necessarily mean you can’t get a mortgage. Like we said before, it is possible! You just need to find the right match.

As for mortgages, 3 parts are:  credit  ~ Employment ~ down payment … if all 3 good, you’re AAA

If you are weak on 1 part, then we take you to a AA lender, if your credit was weak for example.

If you are weak credit and can’t show income, then we’ll review the A lenders and make a plan of action to get you to a AAA lender in 1-3 years.

Bringing your best qualities to light

Many lenders may be perfectly willing to accept you as long as they view you as a reasonable credit risk overall. For example, if you are new to Canada, lenders may consider you based on the steady nature of your employment or the size of your down payment.

Likewise, if you are newly self-employed and can’t prove a regular income, the lender may instead look at your debt load, credit history and business plan. If these are all very positive, the fact that you don’t have an earnings history may not be so important.

And if your financial reputation is marred by a poor credit history, but you have taken discernible steps to improve your rating and your debts are under control, your current income and down payment may be enough compensation.

Finding your perfect mortgage match

Each mortgage lender has its own particular requirements. Professional advice can go a long way in helping you find the right one. The right lender will be a good match for your situation, so that the mortgage you get meets your needs.

A financial professional can also help you put the steps in place so that you can make the most out of your best qualities and help you overcome mortgage hurdles — whether they’re real or perceived. Remember that you are most often your own worst critic. Let others see the good

Yours in matching your lender to your needs,

About the author...

Here to help inform, educate and represent you in the home financing process.

View all posts by James Loewen

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Burlington, ON
L7L 0B4


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