Your 101 Guide To Getting a Mortgage!
Unless you have a large sum of money sitting around, you are probably going to need a mortgage if you want to buy a home. Here's how to qualify for and choose a mortgage, and what to expect throughout the process!
You can go to as many showings and as many open houses as you want, but you are not going to be able to buy one without a mortgage. So before going out there and looking at houses, get the ball rolling and get a pre-approval first! It's never good to fall in love with a property only to realize that you cannot qualify for it at that particular price point. The pre-approval process should not take more than a day or two with a lending professional. A pre-approval is generally valid for 90 days.
You can also get pre-qualified by a lender. This is essentially a loose estimate of what you could afford based on financial information that you provide and a soft credit check. Pre-qualification is a simpler and quicker process since you do not need to submit documentation of your finances. But for that same reason, it is also largely menaningless, and does not mean pre-approval for financing. It's simply a way to estimate how big a mortgage you might qualify for.
ARE YOU READY:
In order to qualify for the lowest mortgage rates, credit scores should be in the 700s, and the borrowers debt-to-income ratio should be around 36%. This means that your monthly debt obligations- including student loan payments, car loans, credit card minimums, and the mortgage you're trying to get- shouldn't exceed 36% of you're pre-tax monthly income.
For those who have credit scores lower than 700, there are many lenders that finance for scores down to the low 600s. However, those individuals are looking at paying higher interest rates. The higher the interest rate, the higher the mortgage payment.
If you're looking for fast ways to increase your credit score, paying down credit balances is one of the most immediate credit boosters considering that a third of a creditors score is determined by credit utilization. Paying down balances can also get your debt-to-income ratio down to an acceptable level.
FIND A LENDER
There are many types of mortgage lender out there, from your neighbourhood bank or credit union to online banks to non bank lenders. While your own bank may offer mortgages, make sure to compare rates and terms at other levders as well, since consumer banks may not be as competitive, especially for first time buyers. For a first time home buyer, it can often be a struggle to come up with a conventional 20% down payment. Luckily, there are programs offered for first time home buyers.
Once you're ready to apply for a mortgage, you'll need to gather an immense anount of financial paperwork. In addition to filling out the loan application, you'll need to also provide:
- Your last 2 tax returns
- Proof of income
- Balances and monthly payments owed on student loans, auto loans, and other debts.
- Credit card balances and minimum payments
- Current bank account statements
- Investment account balances
FIXED RATE VS ADJUSTABLE RATE MORTGAGE (ARM):
Most first time home buyer loans involve a standard, 25-30 year fixed rate mortgage. It is the lowest- risk option since your monthly payment won't change.
An adjustable rate mortgage on the other hand, is where interest rate can change. This type of mortgage is a bit riskier. However, it does have an advantage- mainly, the initial rate will be lower than a fixed-rate mortgage.
A downpayment is not the only up front money you will need to get a mortgage. Make sure you factor in closing costs. These costs can include bank fees, surveyor fees, points, title insurance, appraiser and attorney fees, and other charges. You may also need to prepay a years worth of homeowners indurance and property taxes in order to close!
Have Questions regarding Real Estate? The Iris and Evelyn team are here to help! With their countless years of buying and selling Real Estate Properties, their experience and knowledge can help you make the right choice!
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