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Module 3
Preparing for Home Ownership
Affording Your Dream
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ASK THE EXPERT: What a Lender Looks For edge

Dear H.O.M.E. Expert,

I’ve heard that lenders look at the Four C’s when they consider providing a loan. Can you explain what these are and why they matter?

Signed,
Loan Worthy in Lawrenceville

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Dear Loan Worthy,

When considering you for a loan, the lender’s primary concern is that you will be able to repay the loan in the agreed upon terms. The way you have handled paying your debts in the past is usually the best indication of how you will act in the future. Other factors, known together as the Four C’s, are also important:

The 4 C’s

What It Is

Why It Is Important

Capital The amount of cash and other liquid assets you have Can be used for down payment and closing costs
Capacity Your present income and anticipated future increases Helps to determine if you can afford to make payments
Credit Your credit history obtained from credit reporting agencies Shows your attitude towards paying your debts – this is very important to the lender
Collateral The property you are buying Becomes the lender’s property in case you default on the loan

Remember — a good credit history can result in a lower interest rate for you!

Signed,
Your H.O.M.E. Expert

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Pre-Qualification or Pre-Approval?

The Difference Between Pre-Qualification and Pre-Approval
These two terms are often confused. A borrower is often told that he or she is “pre-qualified” and thinks that means a guarantee of obtaining a home loan. Pre-qualifying occurs when a lender takes a quick look at the information regarding income and debts of a potential borrower and says that it appears that he or she will qualify for a particular loan. But this is not a guarantee. A pre-approval, gives you a better idea of what you will qualify for from that lender. A pre-approval is a conditional loan approval granted when a credit report has been obtained and reviewed. Pre-approval is typically subject to certain conditions, such as: no change in your financial situation; not taking on more debt; and that the property passes title and appraisal review; and possibly other guidelines.

The Benefits of Pre-ApprovalIt is extremely beneficial for a potential homeowner to obtain pre-approval prior to submitting an offer to purchase a home. A seller is always impressed to see that pre-approval has been obtained so there should be no problems in getting the contract to closing. But be sure to check with your potential lenders, as some charge a fee for pre-approval.

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