The 4-C’s -  4 Key elements to qualify for a mortgage

There are four key elements to qualifying for a mortgage.

Collateral / Property

• Property must be sufficient security for the mortgage – it must sustain the value of the mortgage for the life of the loan.

• Property conditions must be acceptable.  The appraiser determines this.

• Loan amount is based on sales price or appraisal value, whichever is lower.  The equity in a property is expressed as LTV (loan to value).

Capacity / Income

• Borrower shall have 2 years job history (exceptions considered on case-by-case basis).

• Breaks in employment must have a very good reason and explanation. 

• Overtime income is averaged over 2 full years.

• Self-employed income and commissions are averaged over 2 full years, tax returns, and YTD profit & loss statements.

• Most recent 2 years W2 or 1099 forms.

• Most recent 30 day’s pay stubs.

Credit

• Minimum credit score for Conventional is 620; FHA is 580 (FHA allows scores below 620 but will require a price adjustment).  All scores below 740 will be subject to price adjustments.

• Overall credit history should be good.

• No past due or collection accounts in the last 12 months.

• Late payments must be explained in writing.

• Bankruptcies must have re-established credit for 2 years and provide acceptable explanation of circumstances that led to bankruptcy.

• Late payments on any mortgage loan in the last 12 to 24 months may be unacceptable.

Cash Source of funds for closing and down payment (MUST BE VERIFIED)

• Down Payment

• Closing Costs

• Pre-paids

• Cash Reserves

• Last 60 days bank statements

• Gift letters must be accompanied by the donor’s bank statements to prove the donor’s ability to give.

• Certified funds at closing