The Three C's

The Three C’s: What Lenders Look at When Approving Your Mortgage

Buying a home is exciting, but it’s just as important to be financially ready as it is to find the perfect house. Lenders evaluate a buyer’s financial health using what’s often called the Three C’s: Credit, Cash, and Collateral. Understanding these can help you prepare and avoid surprises during the loan process.

1. Credit
Your credit score shows lenders how responsible you are with borrowing and repaying money. They look at things like:

• Do you pay your bills on time?
  

• How much of your available credit are you using?
  

• What types of credit accounts do you have?

Most conventional loans require a minimum score of around 620, though some programs allow scores as low as 500. A higher score usually means better rates and terms. Before you apply, check your credit report, fix any errors, and avoid taking on new debt.

2. Cash
Lenders want to see that you have the money to cover your down payment and monthly bills. This includes:

• Savings: Proof of funds for a down payment and some extra for emergencies. Down payments can range from as low as 3% up to 20% or more. Some programs like FHA, VA, and USDA allow smaller down payments, while 20% can help you avoid private mortgage insurance (PMI).
  

• Income & Stability: Most lenders like to see at least two years of steady employment and income. Sudden gaps or changes may slow the process.
  

• Debt-to-Income (DTI) Ratio: This compares your monthly debt payments to your income. Lower DTI means more room in your budget for a mortgage.

3. Collateral
The home itself is the third factor. Lenders use a professional appraisal to make sure the property is worth the loan amount. This protects them — and ensures you’re making a smart purchase.

Final Thought
By knowing the Three C’s, you can prepare ahead of time and make the mortgage process smoother. Check your credit, have your finances in order, and know what to expect — it can save you time, stress, and surprises along the way.