Our real estate agents can be a big help with your questions about the home buying process. But before you start excitedly start house hunting, you'll want to take a look at your credit. Unless you're planning on paying cash, you'll need a mortgage. And knowing what lenders are looking for and where you may need to make improvements will help you get that perfect new home. Lenders use a formula referred to as the 5C's to help them determine if you meet their criteria for a mortgage. Here's what they'll want to know.

1. Character. Your mortgage is a big loan, and the bank wants to make sure you're trustworthy enough to handle that kind of financial obligation. To determine this, they'll look at how you've managed your other financial obligations like monthly and medical bills, other loans and credit card debt. They'll look at your credit report, score, and credit history to help determine this.
   
   
2. Capacity. Your ability to pay back the loan is understandably important to lenders. To help determine this, lenders will review your income, expenses, employment history and your debt to income ratio. Your debt to income ratio is your total monthly debt payments divided by your monthly before-tax income. Typically, lenders look to keep this number below 43%.
   
   
3. Capital. You'll need money for the down payment, but you'll also need to have money left over. Banks want the down payment because they want you to have some financial interest in the property, so you're less likely to default. They also want to make sure you have savings or retirement accounts, investments, other property, or a cash reserve to draw from to pay your mortgage if you ever need it.
   
   
4. Collateral. Mortgages are secured loans, so they require collateral. In this case, that collateral is the property you're purchasing. In the event you default, the bank will want to recover some of that debt, and they will sell the property to do so. This is why an appraisal is required. It confirms the home is worth what you and the seller says it is. If the home appraises for less than what you've agreed to pay, some adjustments will have to be made.
   
   
5. Conditions. This can refer to a bunch of other factors that affect your ability to get a loan--the general economic climate, interest rates, the local real estate market. These kinds of things all come into play to some degree in the decision to lend you money. Although you don't have control over many of these things, you can be prepared and shop smartly.

It's important to remember these are general guidelines and each lender will have their own formula for determining your eligibility for a mortgage. They will likely have some requirements that are more flexible than others. So shopping around for a lender that fits your situation and can offer you the kind of interest rate you're looking for is usually a good idea.

When you're ready to start looking for your new home, our agentscan help you find the one you and your family will love for years to come. Contact us at The Masiello Groupto make that new home you've been dreaming of a reality.