April 12, 2013

Preparing for a Mortgage

Before taking on a mortgage, there is sometimes some financial ‘house keeping’ to be done. If you are a first-time homebuyer or are considering making some changes to your current mortgage, here are some tips to help you navigate this (sometimes overwhelming) process.

1. Find a good mortgage broker

A good mortgage broker should not only deliver a wealth of industry knowledge, but will also provide many other advantages relative to your traditional bank’s mortgage specialist. Mortgage brokers work with multiple lending institutions, which means that they can shop around for you to find the best products and rates out there.

When you work with a mortgage broker, only one credit check is performed, saving you multiple hits that you would bear if you did the shopping around yourself. The more hits (checks) you have on your credit, the lower your credit score becomes.

In 95% of cases, there is no fee associated with using a mortgage broker. The lender pays the broker a finder’s fee for their services. In short, using a mortgage broker saves you time and money!

2. Make sure your taxes are up-to-date

Most reputable lenders are not going to lend you money if your taxes are in disorder. Lenders want to see what you are declaring for your income as well as confirm that you have your taxes paid up to date

3. Credit

You want to keep your credit in good standing. The most important factor regarding credit is your ability to make payments on time. Whether it is monthly payments on your credit card, car loan or line of credit, you want to make sure that you are paying these balances on time.

You want to be careful not to get too close to the maximum limit on your credit cards and credit lines. When you start to borrow over 75% of what is available to you, your credit score gets lowered. It is OK to reach these limits from time to time, but make sure your balance doesn’t stay there for too long and that you never go over your limit.

One of the biggest mistakes new homebuyers make is taking on more credit once they have been approved for a mortgage, but before the closing of their new home. The banks may review your application right before your closing date and if you have just taken on a debt such as a car lease or a furniture lay-away, this will change what are called your debt-servicing ratios, which will impact your ability to purchase your home.

4. Down Payment

Depending on your situation, a 5% or 10% down payment will be the minimum requirement for the purchase of a new home. Keep in mind that the banks will need to see 90 day history of this money in your account. If a portion of your down payment is a gift, a Gift Letter must be signed by all parties involved and the gift must come from an immediate family member. Depending on the bank, they may want to see account history of the gifted money as well.

5. Pre-Approvals

Pre-approvals are a great way to gain an understanding of what you can afford when you are buying your home. In addition to giving you an idea of what purchase values you can be looking for, they also give you what is called an “interest rate-hold.” You can hold an interest rate for up to 120 days while you are looking for your home. These rate-holds can be renewed in the event that your house search takes longer, and should lower rates come on to the market during this period, your mortgage broker can access those rates for you as well.

All this information can sometimes be overwhelming, but I am always here to guide you through the process, and simplify it as much as possible! If you have any questions or would like to chat, please feel free to contact me at kelly@safebridgefinancial.com.

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