Understanding the 4c’s the basics of qualifying for a home loan by Tom Mackrola
In the latest ebook from Tom Mackrola he sheds light on the 4c’s of mortgage underwriting. The 4C’s are a recurring theme first time homebuyers encounter when starting the home buying process. These concepts are explained thoroughly in the new ebook Understanding the 4c’s the basics of qualifying for a home loan by Tom Mackrola. The 4c’s are a generalization about the underwriting criteria that home loan approval is based upon. An understanding of the 4C’s prior to applying for a loan can be a significant competitive advantage over other homebuyers interested in the same properties as you.
The 4c’s are Credit Capacity Cash Collateral
In order to qualify for a home loan the borrower must have a credit score. There are three major credit bureaus experian, equifax, and transunion. Each of these has a unique score that is based upon the borrower’s credit history. Out of the 3 scores, there is a high score , a low score, and a middle score. The home loan is based upon the middle of the 3 scores. While the credit score is the main thing mentioned in most credit conversations, however, the contents of the credit score are equally important. Some items on your credit report including foreclosures, short sales, bankruptcy, etc. It is advised to consult with your lender about current agency guidelines in regards to the delays created by these red flags.
Capacity is basically your ability to repay the loan. The primary equation used to determine your capacity is your Debt to income ratio, also known as “DTI”. There are two numbers within your DTI. your front end ratio and your back end ratio. the front end ratio is your total monthly income divided by your housing payment for the loan you are applying. Your back end ratio is your total monthly debt obligation plus the proposed housing payment for the loan,
There are two things being considered here in relation to “Cash’ also referred to as assets. 1. Cash the borrower can bring to the closing. 2. cash the borrower has available to be used as reserves. It can be in a bank account or in another type of account that is easily liquifiable like a stock trading account, life insurance ,401k/retirement account. This can also be in the form of Gift Funds from a close friend or family member. It is advised to consult with your lender about current agency guidelines for the proper procedure of documenting gift funds.
Collateral refers to the subject property that the loan is for. During the underwriting process of closing a home loan, the property will need to have an appraisal done. The appraisal is an inspection of the property where the value is assessed in relation to other similar homes in the area. The rule of thumb for collateral is that the property has to be in a condition suitable for the loan program. Another very important factor about collateral appraisal is that the value expressed in the appraisal is equal to or higher to the purchase price. If the value is below the purchase price the buyer either hs to bring the difference in cash to the closing, or there has to be a negotiation to drop the price to at or below the appraised price.
These concepts are elaborated on in the Ebook, “Understanding the 4C’s The Basics of Qualifying for a Home Loan” by Tom Mackrola. Available for download on tommybagaloans.com