by Lino Arci
on Thursday, August 1st, 2019 at 4:24pm.
Are you gearing up to purchase a home? If you're like most buyers, you'll need to obtain a mortgage first. Unfortunately, this step can be stressful, time-confusing, and a little bit confusing. Many buyers find themselves wondering what lenders are looking for—and how they can secure a loan that will truly meet their needs.
The good news is, there are a few things you can do to help ensure that the path to homeownership is smooth. If you're preparing to apply for a mortgage, here are five tips for increasing your chances of success...
1) Whip your credit into shape
Credit is one of the first things lenders look at, so it's important to get yours looking as good as possible. Start by getting a copy of your credit report. If it contains any errors, dispute them. You should also make any outstanding payments you have as soon as possible. Next up, think about your utilization rate (which looks at the amount of credit available to you vs. that which you're using). You may be able to bump this rate up by raising your credit limit or opening a new account—which could provide a quick boost to your overall score. A financial expert can help you determine whether these steps are worth taking in your situation. Based on their advice, you may want to wait a few months to establish a better pattern of debt repayment before applying for a mortgage.
2) Know your options
Working with your bank is probably the most obvious way to get a mortgage, and there are potential advantages to going this route. That said, you should know that you have other options. For example, many Canadian borrowers are turning to private lenders. Unlike banks, they don't have to adhere to the stress test—a set of rules that have made qualifying for a mortgage in Canada more difficult over the past couple of years. On the flip side, private lenders tend to charge higher interest rates. If a great rate is one of your biggest priorities, you might want to consider using a mortgage broker. A broker will shop around to help you find the best possible deal (something banks can't do). The point is, you have options—and being familiar with them can help you get a loan that truly suits your needs.
3) Get pre-approved
Before you start the home-hunting process, it's a good idea to obtain mortgage pre-approval. While many buyers skip it, this step offers some major advantages. First off, pre-approval will tell you the maximum amount you can receive in mortgage financing—and help you estimate your monthly payments. Obtaining pre-approval will also make you look good in the eyes of sellers. It shows you're serious about making a purchase, and that you have the income and good borrowing habits to complete one. Sellers can be skittish, so demonstrating you dependability can go a long way when they're deciding whether to accept your offer.
4) Create your home-buying budget
Many buyers rely too heavily on the amount they've been pre-approved for. If you've gone through the pre-approval process, there are a couple of things you should keep in mind. First off, it isn't an absolute guarantee of what you'll get when (and if) you obtain a mortgage. Second, lenders often pre-approve buyers for more than they can comfortably afford. For this reason, it's important to create your own home-hunting budget. You know your expenses better than anyone, and you should think carefully about them before setting a price range. While this may seem like an unnecessary step, it could help you avoid looking at properties you can't afford—which will save you a lot of time in the long run.
5) Avoid major changes
If you're well-positioned to obtain a mortgage, make sure you stay that way. Having a predictable income is one of the keys to getting approved, so this isn't the time to go out and find a new job. You should also hold off on making any big purchases or applying for new credit after you've submitted your documentation. Any major changes to your financial situation that occur between the time you apply and the day you close could throw a wrench in your plans. Put simply, lenders like stability. Keep this in mind to avoid causing problems for yourself after you apply.
Preparing to buy a home? From starting your search to making a highly-appealing offer, we can help at every step. Get in touch to learn more about the process! Learn everything there is to know about buying a home in ontario by visiting our buyers guide!