Just as diamonds have the four Cs (Cut, Color, Clarity, and Carat weight), lenders have their own set of "Cs" which they use as a basic measure of you and your loan. These are known as the three Cs of lending. In lending, the 3 Cs stand for Credit, Capacity, and Collateral.

The first C, Credit, is pretty self explanatory. It is your everall credit worthiness based on not only your FICO score, but also on the timeliness of your mortgage and consumer payments.

The second C, Capacity, is also known as ability to pay. Lenders want to know that you make enough money so that youll be able to repay your mortgage.

The final C, Collateral, is based on the property you are buying. One reason that lenders usually require an appraisal on a home loan is to review the condition of the property. They want to make sure that their collateral is going to be sufficient for them to loan against. If a borrower were to default on their loan, the lender may end up having to foreclose on the property and take it back from the borrower.

While lenders take the 3 C's into account in approving you for a loan, they do not expect everyone to have perfect credit history, have a large down payment saved up, and have thousands left in the bank each month. There are many different types of programs available to people who had problems with one, or all of the 3 C's

 

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