Buying a home can be stressful, especially if you are a first-time buyer. It will drain you mentally and physically, and, well, your wallet also. It is the most significant step you could take as an individual, and a mortgage is a long-term commitment that you need to have your focus on. As a first-time home buyer, learning about the Dos and Don’ts when you apply for a mortgage should be your priority.
Many mortgage lenders in Canada may help you with your mortgage.
Dos when buying a mortgage:
Do: Get pre-approved.
Getting pre-approval will estimate what you can afford in a mortgage. It also locks interest rates for several days until you find your new home. With a pre-approval letter, you can make a more substantial offer to your lender since the lender has already verified your assets and income to ensure you can afford and make monthly payments.
Even though getting pre-approved doesn’t guarantee your mortgage approval, knowing what you can afford is essential before you shop for houses.
Do: Check and Improve Credit Score.
Check your credit report with credit bureaus to see how you can improve your credit score. You can start disputing incorrect information on your credit repair first to improve your credit score. Improving your credit score before applying for a mortgage is essential to have lower interest rates and get the best mortgage deals.
Do: Lower your Debt-To-Income Ratio.
Debt-to-income ratio or DTI is the percentage of your gross monthly income that goes to paying your monthly debt payments. It is used by lenders to determine your borrowing risk.
Lenders in Canada like to see DTI ratios lower than 39%, with no lower than 28% of debt going towards your mortgage payments.
You can lower your DTI by reducing debts or increasing your income. If the latter is impossible for you, make sure you stop spending on things you don’t need to reduce your debts, or payments on existing debts may also help.
You can increase income by getting a part-time job or getting more hours on your job. Though neither is hard to achieve, you can always keep these options open.
Do: Make savings plan.
Make sure you have enough savings for the down payment, closing costs, and other costs when applying for a mortgage. There are more fees to pay than your down payment. So make sure you have enough to cover all the fees you must pay. Now is not the time to make big purchases; it may affect your credit score.
Getting pre-approval can help you estimate your payments during the mortgage process.
Do: Live within your means.
If you have a habit of maxing out your credit card limit and paying for minimum payments, you must stop this. It will ruin your credit score and make it harder for you to get approved for a mortgage. Live a life you can afford, save as much money as possible, and make sure you have saved on your account. Not only can it help you get a mortgage, but this practice will maintain your financial stability.
After the Dos, Don’ts next.
Don’t: Change employers.
Your mortgage lender will check your income stability and how long you have worked for the same employer. The longer you are in the same employer, the higher your chances of getting approved for a loan. Lenders usually want to see if you have a consistent income for at least two years. If you change your employer while shopping for a mortgage, it can doubt your ability to pay the mortgage.
Don’t: Take another long-term debt.
Long-term debts like car loans while shopping for a mortgage can affect your credit score. Additional long-term mortgages can also add up to your debt-to-income ratio. If you have a higher DTI, it’s harder to get your mortgage approved.
Don’t: Fall behind on payments.
Make sure you are paying your bills on time and not missing any of them. Paying your bills on time has the most significant impact on increasing your credit score. And credit score is essential when you’re applying for a mortgage.
Don’t: Open new lines of credit.
Including credit cards opening new lines of credit will require hard inquiries, and hard inquiries take a toll on your credit score. Increasing your credit score is a top priority when applying for a mortgage. It will give you a lot of benefits.
Don’t: Change financial institutions.
If you want to show your stable banking history, you may want to stick to your current bank and not deposit a considerable amount; your down payment should be on your account for at least two months.
These dos and don’ts help you with your mortgage application.
Conclusion about Mortgage Dos and Don’ts
Neat preparation should be observed if you plan on taking out a mortgage loan for your dream house. You have to be prepared even for the smallest detail. If it’s your first time, have other individuals’ opinions who have already gone through the mortgage process. these dos and don’ts help you prepare for a mortgage.
Do not hesitate to ask. To your friends, family members, or even to your lender. There’s nothing wrong with asking for terms you’re not familiar with.
Searching for a Canadian mortgage company is now easier with the help of the internet. You must be patient to find what mortgage company you can meet halfway.