It doesn’t matter if you’re buying a new home or your first one, home buyers are always looking for the best deal! But it can be easy to focus on the rate before you even know if you’ll qualify. Online calculators never show the whole story. Even if you’ve been through the home buying process before, it can be challenging, but not when you have the right people on your side!
This is just a very basic, high-level overview of the home buying qualification process. The finer details can be addressed once you have submitted an application for pre-approval. But for now, here are the answers to some of the general questions you may have while working through your early preparations.
How creditworthy are you?
It’s crucial to have an established credit profile when applying for a mortgage. For your credit to be considered established, you need at least two trade lines with a $2500 minimum limit , including credit cards, personal loans, vehicles loans or lines of credit. These trade lines should be reporting without missed payments for a minimum period of two years. If you’re not quite there give us a call and we’ll take a closer look.
You need to make sure your payments are on time, as agreed. Lenders do not want to lend you money if you haven’t been timely in repaying your debt. Late payments will only find their way onto your credit report if you’re past due by 30 days or more.
How will you pay your mortgage?
Lenders trust you with a lot of money when they provide you a mortgage. They will want to know that you’ll be able to pay back that money, over an agreed period of time, with interest.
Your chances of qualifying for mortgage financing increases the more stable your employment. Typically, you will need to be employed in a permanent position or have your income averaged over a period of two years.
If you’re self-employed, lenders will ask for a bit more documentation typically so be sure you keep your business records up to date as well as your personal financial records.
What are you providing as a down payment from your own resources?
The best down payment comes from your own funds, supported by documents of a 90-day history on your bank account. Other down payment sources, such as a gift from a family member or profits from a real estate or investment sale are also acceptable.
As a rule of thumb, 5% is the minimum down payment on a purchase up to $500,000. On the amount over $500,000 up to $1,000,000 you will need to top the down payment up to 10%. You will need to be able to show minimum available funds of 1.5% to 2% of the purchase price for closing costs (legal services, taxes, etc). If you plan to renovate as soon as you take possession contact us and we can look at some better mortgage options.
How much property can you afford to carry?
There are often significant differences between what you can afford on paper and what you can afford in reality. Even if you think you can afford the proposed mortgage payments, you need to confirm your claim through appropriate documentation.
Aside from the basic hurdle of the mortgage stress-test rate qualification there are many financial factors to consider to determine how much you may borrow. We recommend seeing us as soon as possible in the process as many items may require some changes and some time to be reflected on your application.
it’s never too early to seek our help. Our services are free, and we are happy to help.
