Securing your mortgage
Obtaining a mortgage is one THE first thing buyers should do when planning to purchase real estate.
The mortgage application and qualification is a daunting task that requires several steps to be completed properly. Mortgage lending is governed by strict rules and regulations, and lenders are concerned with protecting their interests first and foremost. Obtaining the assistance of a mortgage professional, namely an independent mortgage broker, is highly advised. The mortgage broker will not only serve YOUR best interests, but guarantee that you are receiving the best financing interest rate available. Here is are some tips on things to do and information to gather to supplement the assistance from your mortgage professional:
1. Organize Your Documents
In order to obtain a mortgage, your lender will require certain documentation from you to make sure that you will have the ability to repay the loan you take out. Such documentation includes proof of employment, credit history, tax returns, pay stubs, bank statements, divorce and child support statements if applicable, and any other information that the lending company feels might be necessary.
Before you apply for a loan, getting qualified will help you establish how much you can borrow. When purchasing a home, there are two options you may choose from to qualify for a loan. The first option, pre-qualification, is a quick process that usually happens in a matter of minutes. While pre-qualification is helpful, your other option – pre-approval – is more beneficial and gives you better leverage when negotiating with the seller. Getting pre-approved also lets you focus on homes within your price range instead of wasting time looking at homes that you won’t be able to afford. Finally, when it comes time to close, the process will go rather quickly since your loan has already been approved.
3. Find the Right Loan Program
While searching for the right loan program, there are many things to take into consideration. For example, you might want to think about how long you plan on keeping the loan. The length of your residence will determine the type of loan you want to get (i.e. adjustable or fixed). To figure out which loan program is the best, you will need to compare different programs and everything that each one involves such as rates, fees and points. The whole process can be tedious and difficult at times, which is why a qualified loan officer can help you make the right decision.
4. Obtain Loan Approval
The process of obtaining loan approval involves the following steps:
- Review of loan application (be sure to fill it out completely).
- Verification of credit history, employment history, assets such as bank accounts and mutual funds, property value and any additional information that the lender might require.
There are also a few things that you can do to improve your chances of getting the loan approved.
- For any requests of additional documents and information, respond promptly.
- Do not make any major purchases such as a car or new furniture until the loan is closed. Increasing your debt can have the opposite affect on your application.
- Make sure you will be in town for the closing date. If you cannot be there for the closing of the loan, you can carry out a power of attorney to authorize someone to sign on your behalf.
5. Close the Loan
Once the loan is approved, your next step will be to sign the final loan documents, which usually takes place in the presence of a notary public. Be sure to verify the information within the document, especially the interest rate and loan terms. Also check to see if your name and address are correct. Finally, don’t forget to bring a cashier’s check for your down-payment and closing costs.
Here is a list of things to gather and topics to keep in mind when preparing to apply for a mortgage:
- Credit report: Gather copies of your credit reports from major credit bureaus and review the reports. Usually all of the credit bureaus let you get a customized credit report for yourself for free. Sometime some of the of credit reports contain errors. They may give you hard time sometime. Have any errors or problems reviewed and corrected. To do a credit check on yourself visit – www.equifax.ca and www.transunion.ca
- Income and assets: As usual, the most important question – How much do you make? Is it consistent ? You will have to produce satisfactory evidence of steady sources of income, so don’t pickup a fight with your boss right before applying for a mortgage. Changing job right before applying a mortgage is not a very wise decision as well. Also your assets also counts.
- Down payment: How much money would you put forward to buy a property? That would influence the Loan To Value ratio (LTV) and the requirement of mortgage default insurance.
- Interest rates: Interest rates will help determine how much you will have to pay each month. Gross Debt Service ratio (GDS) and Total Debt Service ratio calculator will help you that. Sometimes there is long wait between getting mortgage preapproval and the actual purchase. Therefore, in case of interest rates fluctuation your preapproval may be designed to ensure that you get the better rate.
- Funds in hand and closing costs: In addition to a down payment, you will need to have money available for closing costs. Avoid making expensive purchases and risk eating-up your available funds just before closing a mortgage.
- Cost of the property: You can’t buy a home you can’t afford pay. Figure out your GDS and TDS ratio to get an idea of how much you can afford to pay on a monthly basis. The Banks usually take GDS as 32% and TDS as 40%.For people with good credit scores, GDS requirements are often waived and the TDS adjusted to a higher percentage point.
- History of the property: Based upon the past of the property many lender may deny to approve a mortgage as they may not be very comfortable with the collateral.
- Credit Balance: Before you apply, try to pay off or pay down all credit cards and outstanding bills. If in case you can not pay all of them off then make sure that they carry very low balances, less than 50% usually.
- Credit card applications: If you are going to apply for a mortgage soon, don’t apply for new cards or close current accounts.
- Lender: Every lender is different. Everyone has their own set qualification requirement for mortgage approval.
- Mortgage Default Insurance: Although it is not very important to get a mortgage but it ensures that lenders charge a very good interest rate on high LTV (usually over 85%) loans.
- Openness and honest discloser: An honest and complete discloser saves you from a lot of headache in future.
For more information on mortgage financing or to apply for mortgage financing, please click here to send a message to our sister finance company, Auva Financial Corp.
Alternatively, please visit www.auvafinancial.com or click on the logo below.