Friday Jul 01, 2022

The 4 Cs of Qualification for a Mortgage

Qualifying for a mortgage is difficult, regardless of whether you’re a first-time buyer or a re-entrant to the housing market. You’ll feel more confident when you learn what lenders consider when deciding whether to approve your mortgage application.

Although standards may vary from lender to lender, the core component of a lender’s decision-making process is evaluating four key elements — the four Cs — which they consider when deciding whether they will approve a loan. They will be evaluating credit, capacity, collateral, capital and collateral.

The ability to repay the loan

Lenders will assess your income, work history, savings, monthly debt payments, and other obligations to ensure you can afford a mortgage.

Lenders can verify your income by looking at several years of federal income tax returns and W2s, and your current pay stubs. Your income is evaluated based on:

  • Source and type of income (e.g. salaried, commission, or self-employed)
  • What length of time you have been receiving income, and if it has been stable
  • What is the likelihood that this income will continue?

Lenders may also consider your monthly recurring debts and liabilities.

  • Car payments
  • Student loans
  • Payments by credit card
  • Personal
  • Support for children
  • Alimony
  • You may also be liable for other debts.


Lenders will consider your cash reserves, savings, investments, properties, and any other assets you might have that could be accessed quickly to pay for cash.

Cash reserves are money you have saved or invested that you can convert into cash. This is a sign that you can manage your finances well and have the funds to pay your mortgage. These cash reserves could include:

  • Save!
  • Money market funds
  • Other cash-able investments include Individual Retirement Accounts, Certificates of Deposit, stocks, bonds, and 401(k), which can all be converted into cash.

Other acceptable sources of capital, in addition to cash reserves, might include:

  • Family members can give gifts
  • Programs for closing cost assistance or down payment
  • Grants and matching funds programs
  • Sweat equity

The lender might ask you to verify where large deposits are coming from when applying for a mortgage. This means that the money was legally obtained and not borrowed from you.

To assess how much capital you have, lenders may look at statements from your investment, checking, savings, and money market accounts for the past two months.


Lenders will consider the collateral you pledge to them, including the property’s value.

The collateral in a mortgage is the property you are buying. The foreclosure is where the mortgage company can take over your home if you fail to pay your mortgage.

Your lender will request an appraisal of your property to determine its fair market value. This compares it with similar properties in the area.


Lenders will review your credit history and credit score to evaluate your track record of paying your bills on time.

Minimum credit scores are required for many mortgages. Your credit score can also influence the interest rate you receive and the amount of a downpayment that you will need.

Even if your situation is one of the renter’s or a buyer’s intent, it’s important to learn about credit to maintain good credit.


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