Residential Mortgage: How Do Financial Institutions Assess Borrowers?

Rejected Mortgage Application Form

Before any bank or financial institution approves a residential mortgage loan, it looks at various factors first to assess a borrower’s creditworthiness. Primary Residential Mortgage, Inc. discusses these factors, also known as the 5 Cs.


Character is the person’s credit history. It’s important to establish the borrower’s reputation when it comes to repaying loans. The credit report that details the credit score and what such a score entails is the most important document to present. If you had availed credit before and defaulted, it would be difficult to obtain the loan that you want. Fix your credit score first before attending to apply for a residential mortgage loan.


Capital refers to the valuable assets that you can use to pay the monthly amortizations. Aside from your income, the banks want to know how you will shoulder the costs of home ownership from down payment to title transfer. Banks do this for loan security. Personal property like savings and investments can thus help you in securing the mortgage loan.


Given the above, the capacity to pay refers to the continuity of the repayment. It may also mean that you can continue earning the salary you have now and paying for all the things you need to pay. Income streams are critical on this aspect as well as any legal obligations such as child support that may interfere with timely repayments.


While not all financial institutions may require this, collateral helps in securing the mortgage loan. If in case, the borrower defaults on the loan, the bank may impound the collateral.


Conditions are loan-related. Again, all banks are keen on offering a financial instrument based on the stated purpose of the borrower, i.e. residential loan or home improvement loan. The amount of principal and interest rate, while considering all the above factors mentioned, will be discussed with the borrower. Banks need to ensure that the borrower can still live comfortably despite the credit.

Now that you know how financial institutions evaluate a borrower’s creditworthiness, the next best thing is to improve on the aspects that you lack. Work on them before you apply for a residential loan. This will increase your chance of getting approved.

About Eleanor Sharp
Eleanor Sharp is the author of AGSE Law. As a paralegal, she has worked with attorneys in many fields to ensure their clients get the best advice and representation. She is passionate about helping people understand the complexities of the legal system so they can make better decisions for themselves. Eleanor loves reading, travel, and spending time with her family. She hopes her articles will help others navigate life’s legal intricacies with confidence.