Date Posted: May 18, 2021
If you hare planning on buying a home, you will likely require a mortgage. With the right preparation, getting a mortgage approval can be a relatively easy process.
1. Check and work to improve your credit score
Your credit score will be between 300 and 900. According to their latest report, the average credit score of Canadians in 2019 was 648, up 4 points from the previous year. However, 648 falls into the category of a ‘low’ credit score. A large part of increasing your credit score is understanding how to maintain it. If you make a late payment, apply for credit or default on a loan, credit agencies will report on this and lower your credit score. To learn more about maintaining your credit score; click here.
2. Pay down any existing debts
Lenders will review your debt-to-income ratio when making the decision on whether to lend to you. They want to ensure that your income can cover your mortgage payments along with any existing debt you may have. Debts that would affect your mortgage but are not limited to include car loans, student loans, credit cards, and any other line of credit with monthly payments. By paying off or down any of these debts, you can increase your income-to-debt ration when applying for a mortgage.
3. Save money for a larger down payment
Having a larger down payment means that you need to borrow less and take out a smaller mortgage. A smaller attracts less interest over time, saving you money. With a larger down payment, your monthly mortgage payments would be less, allowing for a bit more ease in monthly budgeting.
4. Know what you can afford
Before even beginning to look for a home, it is important to have a set, realistic budget to save time and avoid any disappointments. After saving for your down payment and minimizing your debts, you must calculate how much you can afford. While doing this you must also include any additional fees that with be included in your closing costs. This includes:
- Legal fees
- Home inspection and appraisal costs
- Land transfer taxes
- Title insurance
- Provincial sales tax on mortgage insurance (if your down payment is less than twenty percent)
5. Get a mortgage approval
Once you have everything financially in order, you are ready to begin looking for you home. The first thing you should be doing is getting a mortgage pre-approval. A mortgage pre-approval will show the mortgage amount a lender is willing to loan you and the mortgage rate they are willing to hold for you. This allows for certainty on what you can afford, allowing you to make an offer on the house you would like quickly.
Contact one of our Mortgage Brokers today to ensure you are provided with a solid strategy.
For the full Huff Post article, click here.