What are the 4 Cs in residential lending that lenders assess?

In residential lending, lenders assess the four Cs to evaluate a borrower's ability to repay a loan, which helps them determine the risk associated with lending money. The correct concept focuses on Credit Worthiness, Capacity, Cash, and Collateral.

Credit Worthiness refers to the borrower’s credit history and credit score, indicating how reliably they have managed their debts in the past. Capacity assesses the borrower’s ability to repay the loan based on their income, employment stability, and existing debt. Cash pertains to the borrower's available financial resources, including savings for a down payment and reserves, which indicate their financial health and prepare them for unforeseen expenses during the loan term. Collateral represents the property itself, which secures the loan; if the borrower defaults, the lender can take possession of the collateral to recover their loan amount.

Understanding these factors is vital for lenders to make informed decisions regarding loan approval and terms.