Five c's of credit

Ever wondered how the financial institution or mortgage broker determines if you qualify for a mortgage? There are five key elements that most lenders use. These are often called the five c’s of credit to make it easier to remember.

Here are the five different factors that are examined before you get an approval for the mortgage on the home you would like to buy. They are listed in the order generally verified by the lender.


This is a look at the borrower to determine if they are of good character. The lender looks at thing such as assets and  liabilities which will show the borrower’s ability to save money, and whether they rely too heavily on credit. 

Length of employment is used to determine whether the applicant is able to hold a job for a reasonable period of time and stability. 

Time at residence will show stability, and the current rent will also be a factor in affordability.


This involves looking at the sources of income and nature of the borrower’s payments to determine their debt servicing. There are two ratios that the lender calculates. 

Gross Debt Service (GDS) looks at monthly mortgage payment + property taxes + heating costs divided by the monthly income. This ratio is generally less than 32%. 

The second ratio is Total Debt Service (TDS) which adds to the GDS and total monthly payments of the borrower. This should be close to 40%. Rent is looked at to determine if the mortgage payment is reasonable in comparison to the rent the applicant is accustomed to paying.


Does the borrower have enough money for a downpayment? The ability to show that a mortgagor can save over the required 5% minimum downpayment will greatly strengthen the deal. Sometimes First Time Buyers will get a gift from family for the downpayment, and this will only work if the other c’s are good to excellent.


The lender or mortgage broker will often pull a credit bureau report from either Transunion or, more commonly in BC, Equifax.  

The credit bureau gives a snapshot in time of the borrower’s ability to handle credit. It will show the outstanding balances, limits, payments, and the past repayment record of the borrower. The credit report will also show whether the applicant has ever had any collections or bills they refused to pay. 

Many factors are used by the credit bureau to give the applicant a credit score. Many lenders use a minimum score of 620-650 for mortgages.


The collateral is usually the last to be confirmed. This refers to the property. In general, the lender wants to lend on a property that is in good condition, in a good location, and something that would appeal to other buyers should the lender ever have to foreclose and sell the property to recover the mortgage.

The application process is like a puzzle that the lender or broker tries to fit together to approve the loan. If one area of the client's application is weak, than it is important to point out and emphasize the strengths so that they compensate for the weaknesses. For example, if the borrower has no downpayment and it will come in the form of a gift, their strengths may be longevity in their employment (capacity) and very few loans (credit).

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About the Author

Tracy Head and Laurie Baird help busy families find mortgage solutions. Together they have more than 45 years of experience in the mortgage industry.

With today’s increasingly complicated mortgage rules, Tracy and Laurie spend time getting to know the people they work with and help them to better understand the mortgage process. They support their clients before, during, and after their mortgage is in place.

Tracy and Laurie work closely with their clients, offering advice and options. With access to more than 40 different lenders, Tracy and Laurie are able to assist with residential, commercial, and reverse mortgages in order to match the needs of their clients with the right mortgage package.

They work closely with their clients to find the right fit, and are around to provide support for years down the road!

Contact them at 250-862-1806 or visit http://www.okanaganmortgages.com

Visit their blog at https://www.okanaganmortgages.com/blog


The views expressed are strictly those of the author and not necessarily those of Castanet. Castanet does not warrant the contents.

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