The 5 C's of borrowing for a home

There’s a lot of information out there that can help walk you through the process of buying a home. And there’s little doubt that taking the time to read up and talk to friends and real estate agents can help shed light on how to get from dreaming about a house to living in a house.

But because buying a home is so different from buying anything else, it’s easy to get quickly confused. It’s also easy to simply forget.

Especially on the financial side of things.

To make this a little easier — both to remember and understand — the next few weeks we'll focus on one of the five C’s of credit: Capacity, Capital, Collateral, Conditions and Character.

This blog series will dive into each of these concepts in a clear, easy-to-grasp manner that will make you more confident and secure in your financial dealings. Ultimately, the hope is this will make the entire process of buying a home more enjoyable and less stressful. The blogs in this series will include:

  1. Capacity. What size mortgage can you comfortably take out, and will you be able to successfully make loan payments? We’ll discuss how lenders determine this and consider some tools you can use to decide what size loan you can comfortably manage.
  2. Capital. How much capital you have on hand or money you have in savings will largely determine the size of the down payment you can make. It can also factor into the size of the loan you qualify for.
  3. Collateral. In some cases, a lender may use collateral to serve as insurance in case you cannot repay the loan. We’ll look at the kind of collateral lenders might ask for, and the various kinds of private mortgage insurance (PMI) some lenders require you to take out.  
  4. Conditions. When you take out a home loan, can you spend it on home repair or improvements? What about paying off some of that credit card debt? Different loans have different stipulations. We’ll look at why some might be better for you than others, depending on your situation.
  5. Character. Though taking out a loan might seem like a highly methodical and objective process, lenders will make subjective decisions about whether you are sufficiently trustworthy. Part of this includes investigating your payment history, reviewing a credit report, your educational background, work experience ... even how you dress.  

We hope this blog series will be helpful and informative. If at any time you have a question, reach out to a Coldwell Banker Hedges Realtor®. They know the real estate business well and are eager to help!

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