Hazen Steeves

 

If you are planning to buy a home this year in Canada, there is a simple test to find out how the potential lender is going to look at your mortgage application. It is the five-C's test. The lender must consider the five-C's each time a loan is made aand you should too.

 

 

It is the general impression you make on the potential lender. The lender will form an opinipn as to whether or not you are sufficiently trustworthy to repay the loan. The length of time at your current employment and your current residence will be considered. The longer you have been at both, the higher you will score on the character scale.

 

 

It is additional security you can provide the lender. In real estate transactions this generally means the property. If for some reason you cannot repay the mortgage, the bank wants to know that the home the loan was taken out for is solid, marketable real estate. An appraisal will determine the value of the property in today's market. The appraisal will also indicate to the lender the type of property being financed and any deficiencies that may affect the ability to resell in case of default. Generally, a property in Winnipeg's Island Lake neighbourhood is considered a better risk than a farm in The Pas, there are more buyers for the home in the city than for a rural farm, and therefore it is easier to sell.

 

 

It is the money you personally have invested in the purchase, otherwise known as your down payment. The more of your own money you invest as a down payment, the more likely it is that you will do all you can to maintain your payment obligations. Capital is also reflected by your ability to save money and accumulate assets. The higher your net worth, the more you have as a cushion for repayment in the event you run into a financial setback.

 

 

It is the evaluation of your habits in performing credit obligations. The information about your credit history is stored at the "credit bureau" and indicates how well yoou paid your bills over the last six years. All major credit cards, auto loans , leases, etc., are reported to the credit bureau. A lender will evaluate your ability to maintain your obligations and try and determine how well you live within your means. Some individuals make the mistake of not paying the minimum monthly obligations on loans and credit cards with the expectation of making a larger payment the following month. These missed payments appear on their credit report branding them as chronic "late-payers" for the next six years.

 

 

The ability to repay the loan is probably the mos critical of the five factors. the lender will want to know exactly how you intend to repay the loan. The lender will consider your income as it relates to the loan you are applying for. Do the monthly costs of the loan represent less than or equal to 32 percent of your total monthly income? If it is, the probability of  you successfully repaying the loan is fairly high. Prospective lenders will also want to know about any other sources of income you may have to repay the loan if you steady income stream is interrupted.

 

--Inman News Features