Applying For Your First Mortgage
In 2008 and 2009, to get your first (or second, or third) mortgage you simply had to show up in a lender’s office. Such irresponsible lending led to foreclosure for many homeowners and left others owing more on their home than it was worth. Though the market has improved since, it is now essential that you are fully qualified when you apply or your application will likely be declined. Here are the basics of preparing to take out your first mortgage.
What You Need to Know Before You Apply
When you’re applying for a mortgage, the lender—usually a bank or credit union—wants to know that you will be able to repay the loan. Lenders will consider several factors to determine your eligibility or the size of the loan you are qualified for, including:
- Income: You’ll need your pay stubs for at least the previous two pay periods If you are paid by commission, your income fluctuates, or you are self-employed, this part of your approval may be more complex. You may be asked to provide one or two previous tax returns. The lender may then take the average as your annual income, or use the lower of the two amounts.
- Monthly Debts: Add together any loans that you make monthly payments on. This includes outstanding debts like student loans and monthly expenses like the minimum payment on your credit cards, insurance payment, and car payment.
- Credit Score: Get your credit score and credit history report. Make sure that all the information on the report is correct and dispute any erroneous charges. The recommended credit score range is from 680-700. If your score is lower, you may still be able to get a mortgage loan, but you will need a qualified co-signer on the loan or to take out an FHA loan in addition to the mortgage.
When to Apply
Decide how much of a payment you can afford and how much you are comfortable paying per month. Your house payment will likely be about 25% of your gross income and should not exceed more than 35%.
Create a separate savings account to begin putting money away for your down payment when you start looking for a house. Not only will this account give you a clear idea of what you can afford in closing costs, it makes it easier for you to provide your mortgage lender with a record of the deposits made. Any non-payroll cash deposits may require specific explanation (for example: your grandmother sent you money for your birthday that you decided to put toward the house). All deposits to the account should be made at least 60 days before you begin the home buying process, so start early and plan ahead. Problems with your down payment account may result in your loan being declined.
Some companies, like Performance Mortgage & Financial Services Ltd. which provides mortgages in Fort McMurray, help you improve your credit to become eligible for a loan. Other mortgage lenders are willing to work with you to get you approved even if you have bad credit or have previously been rejected for a mortgage loan.
However, it’s best to spend some time building your credit, decreasing your monthly debt expenses, and adding to your down payment account before applying. A stable financial situation increases the chances that your loan will be approved and means your interest rate will be more reasonable.
How to Apply
You can get pre-qualified for a mortgage by a licensed lender at any time. A pre-qualification is not a binding agreement, but it can help you get an idea of what to expect when you do apply. As you get closer to buying you home, you will definitely want to visit a lender for pre-approval. Many sellers will require that you show your pre-qualification when you make your offer on the house.
If your credit is in good shape and you have a stable income, lenders will likely offer their best rates when you first come in, but don’t be afraid to shop around. A small difference in your interest rate can drastically affect the amount you’ll pay over the life of the loan.
Buying a new house is an exciting investment, both financially and personally. Do a little preparation before applying to make the approval process for your first mortgage quick and painless.
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Category: Mortgage
