The Three “C’s”
A conventional mortgage lender goes more by the book,
making a decision on whether to lend or not based on
your numerical FICO score and a policy that is set in
stone. Remember the banker played by Jimmy Stewart in
“It’s A Wonderful Life?” He made loans
to people that didn’t meet the guidelines because
he trusted them and had reason to believe that they
would be a good risk, despite the fact that they didn’t
fit into a narrow set of guidelines.
You’ll probably never find a banker as kind-hearted
as he in real life, but subprime lenders are much more
able to make individual judgment calls like that. Instead
of going strictly by the numbers, they will go by the
time-tested “three “C’s”: capacity,
capital, and character.
Of course, your credit score will still figure highly
into the mix, but there are other things that can put
you over the top if you wouldn’t otherwise fit
“Capacity” is your ability to earn income
and pay back your loans. If you’ve held a steady
job for several years, and are not burdened with a high
level of debt already, you are said to have better capacity.
Someone who has switched jobs every few months, and
has gone through periods of unemployment, lacks capacity,
even if that person happens to have a great job at the
moment he or she applies for the loan. Having held a
great job for three months is not nearly as good as
having held a mediocre job for two years.
That’s not to say you shouldn’t take advantage
of opportunities for advancement, career counselors
will tell you to always be on the lookout for advancement.
But wait until you’ve held your new job for a
year before applying for that mortgage.
“Capital” is the total amount of real value
you can put your hands on. It reassures the banker that
if you fall on hard times, you’ll have something
to sell or mortgage so you will be able to continue
making payments. This includes equity in your home,
as well as stocks, bonds, automobiles, life insurance,
vested retirement plans, or anything else that can be
converted to cash.
The last element, “character,” is the big
judgment call. Do you take your obligations seriously?
Pay your bills on time? Volunteer at the local soup
kitchen? There are certain questions a banker is not
allowed to ask, and with good reason, but if the banker
happens to know that you are a deacon in his church,
it certainly can’t hurt.
This is also where those elements that are intangible
come in, for instance, how do you come across during
your meeting? Small things, like dressing professionally,
being polite and courteous, and being upfront and honest
about your financial situation will leave your banker
with a good impression that just may put you over the
line if you’re a marginal case.