Buying a house can be a tremendous and overwhelming step for many people. As much as it can be significant and overwhelming, you need to know what comes with the mortgage process to deal with being a homeowner.
We decided to make things easy for you by answering the possible questions you might have concerning the mortgage. This is to prepare you for what to expect when applying for a mortgage on your first attempt.
What Should Your Credit Score Be To Qualify For A Mortgage?
The acceptable credit score usually depends on the lender. But you would need a credit score of 660 on the minimum to be eligible for a mortgage. A lower score doesn’t mean you cannot get a mortgage; it just means that you will get a higher interest rate. However, having considerably high savings or minimal debt may work in your favor; lenders sometimes make exceptions for this case.
Where Should You Start From?
You are probably wondering where to start with your mortgage plans. Then it would help if you spoke with a lender; it could be a bank or a mortgage broker. The mortgage process involves these two steps that are often used interchangeably by customers. We will talk about them now to shine more light on these steps to point out their differences.
Pre-qualification
This is the first step to take to get a mortgage. A buyer would have to provide helpful information that would be analyzed in the pre-qualification stage. You do not do any verification, nor do you incur any cost at this point. There are credit checks during the pre-qualification, so it does not affect or lower your score.
The lender will only educate you on available mortgage options and also recommend the best options to you. They will give a disqualified loan amount after considering the figures you gave. Although it does not guarantee approval for your mortgage, the letter may eventually serve as a minimum requirement when your mortgage offers are being made.
Pre-approval
This is a step deeper into the mortgage journey from the pre-qualification stage. You will do a formal application, credit check, plus verification of your financial history. This is to determine the creditworthiness of a buyer and the buyer’s ability to pay the loan back. This process requires you to make some payment amounting to a few hundred dollars, and you will need to submit several required documents. The buyer and lender enter a written conditional agreement to determine the specific loan amount and lock in the interest rate.
Most lenders prefer pre-approval to pre-qualification for making mortgage offers.
What Can You Afford?
This is simply about how much mortgage you can afford. The pre-approved loan amount you get does not have to be the value for the house you buy. Consider the monthly mortgage payment, and see that it does not take more than one-fourth of your monthly income. What you consider as your monthly mortgage payment should include the applicable fees and taxes.
To avoid mistakes, use an online mortgage calculator or, better still, ask your lender to compile the monthly mortgage payment for you.
How Much Down Payment Should You Make?
Your lender will demand you make a down payment. The down payment serves as proof of your dedication to the mortgage offer. Making a more significant down payment than minimally required will give you a reduced and more favorable interest rate. It also helps take away any need for you to pay for private mortgage insurance, which translates to a reduced monthly payment on your mortgage.
Consider A 15-year Mortgage Plan.
This depends on how much mortgage payment you can afford and if you would instead acquire a cheaper home. A 15-year mortgage can ease up on your interest rates to save you several thousand dollars. It will even allow you to own your home much quicker than a 30-year mortgage.
The combination of a lower interest rate and shorter amortization time will do you so much good in your home shopping and mortgaging journey.
Which Should You Go For, Adjustable Or Fixed Loan Rates?
Many homeowners like to opt for a fixed mortgage rate. This is not a good or bad option whether you agree on a fixed or adjustable rate. It is instead a matter of how long you plan to live in the home you are buying to decide the suitable rate option for you. If you are buying a home so may live in it for only a few years, then an adjustable loan rate is the better choice for you.
For example, let’s say you plan on living in the house you are buying for only four years; an adjustable-rate would be a smart choice. In this case, an adjustable mortgage rate that has a five-year initial rate can save you a lot of money in interest.
Do Not Use Your Credit After Applying Until You Get The Keys
Another thing you should know when applying for a mortgage is that you shouldn’t use your credit even after applying for the mortgage. Please don’t use it for anything big, wait till you have the keys to the house.
Lenders usually pull your credit when you apply for a mortgage and just before the mortgage process is closed. So, please avoid using your credit for anything big during this period, as it may lead to delays with your mortgage or even disqualify you. If the lender notices a significantly higher debt from what you had initially, sadly, it may disrupt your mortgage process.
Have You Heard About Mortgage Maestro?
Mortgage Maestro is a team of dedicated experts in issues relating to mortgages. They provide fair and honest advice to cater to people’s mortgaging needs. The company has over 50 years of experience offering the best mortgaging services to millions of Canadians.
At Mortgage Maestro, customers get access to over 200 trusted lenders to get a perfect mortgage rate to meet their short and long-term financial needs.
So as you start your house shopping journey, make sure you consult with a reliable and trusted brokerage to get the best broker solutions.
These tips will help you prepare ahead for when you go house hunting. Sort out any existing credit issues that you may have before you begin your mortgage application process.
Also, remember that you need to keep emergency funds for handling all the maintenance costs that you have to deal with when you become a homeowner.