How
much can I afford? That is usually the first question that
every homebuyer asks. How do lenders decide how much of a home
that you qualify for? Lenders usually base their decision on
four factors:
Character
(or credit)—Character shows a person’s willingness to
repay a debt. To determine character, a lender will examine
your credit history.
Capacity
—A person’s capacity deals with their ability to
repay. To determine capacity, a lender will look at your
employment history and capacity for future earnings.
Capital
—An individual’s capital is the amount of money that
they have available for down payment and reserves. A lender
will examine your bank statements or other investments to
determine capital.
Collateral
—This refers to the asset that is being lent against
(usually a home). A lender will examine the collateral
through a residential appraisal report.
