As a Mortgage Consultant for 8 years I had one thing pounded into my head as it pertains to getting a loan approved. You must have the three C’s; Credit, Collateral and Capacity.

Credit

A good credit rating is very important. Businesses inspect your credit history when they evaluate your applications for credit, insurance, employment, and even leases. They can use it when they choose to give or deny you credit or insurance, provided you receive fair and equal treatment. Sometimes, things happen that can cause credit problems: a temporary loss of income, an illness, even a computer error. Solving credit problems may take time and patience, but it doesn’t have to be an ordeal.

The Federal Trade Commission (FTC) enforces the credit laws that protect your right to get, use and maintain credit. These laws do not guarantee that everyone will receive credit. Instead, the credit laws protect your rights by requiring businesses to give all consumers a fair and equal opportunity to get credit and to resolve disputes over credit errors.

Collateral

Is a borrowers pledge of a specific property to a lender to secure repayment of a loan. In doing so, the lender is reducing his or her risk of non repayment. If the borrower defaults, then the bank assumes the property. Now, the value of the property is determined by attaining an appraisal. The Appraiser will use comparables (other homes like yours) to determine the true value of the property. The lender will then base the amount of money they are lending you, not only on the value of the property, but the credit score and your ability to pay back the loan (Capacity). This is also where the term LTV ( Loan to Value) comes into play. We’ll explain this term in more detail in future blog posts.

Capacity

Is the ability to pay back the loan based on your current obligations reported on your credit report and your current gross and verifiable income. Lenders are looking to make sure you don’t over extend yourself with the new loan payment and the rest of your current monthly payments that are reported on your credit report. The lender will add your debt payments and the new projected housing expenses against your gross income. Most loan guidelines require that your new housing expenses plus your current monthly payments (payments only reported on your credit report) not total more than half of your gross income. Typically, that percentage can range anywhere from 25% to half of your gross income. This is known as your DTI (Debt to Income ratio).

For more information, please contact us at http://www.pegasuscreditrepair.com