Getting a mortgage can be one of the most stressful things you will go through. Think about it for a moment. A mortgage is a loan which you take to purchase the home you will live in and create memories for yourself and your loved ones for as long as you live there. Add to this the fact that the government seems to be making changes on a regular basis which may affect you. Also add the fact that not all mortgages are created equal and you want to make sure you are accepting the best one with the best possible rate for you. It is no wonder that the whole thing can seem exhausting. This week let’s take a look at what you can do to lessen your stress.
1. Establish your credit well before you hope to purchase. The magic number for credit is 2. The mortgage lenders want to see 2 types of credit established for 2 years before giving you a mortgage. Make all your payments on time and do not exceed 50% of the available limit. Be aware the every $400 of payment that you have monthly reduces your purchasing power by $100,000.
2. Save the down payment and closing costs. You must have 5% to put down on the home as well as an additional 1.5% of the purchase price available to you for the costs to close the mortgage. On a $300,000 home that amount is $19,500 altogether. Ideally you will have a bit extra to show the banks you have a fallback position in case of a job loss or other life event.
3. Avoid changing jobs if you hope to purchase a new home in the near future. Probation, different pay structures, employee versus contractor are all examples of things which may inadvertently put your home ownership dreams on hold.
4. Get a solid pre-approval before you set foot in the first property. Take the time to meet, at least over the phone, with a qualified mortgage professional who can explain the process to you step by step. Ask as many questions as you need.
5. Gather the paperwork you will need to complete the transaction. You are going to be asked for a lot of different things and it may feel like it borders on the ridiculous. If you stop for a moment and think about things from the mortgage lender’s point of view you’ll understand. If I was going to lend someone $300,000 then you can bet I sure as heck would want to make sure that they can pay it back. The mortgage lenders have to answer to the mortgage default insurers and to their investors as to what happened if you default. You will be asked for:
• Letter of employment and a recent paystub- Your employer will be called for a verbal verification so make sure the person writing the letter is not heading out of the country the next day.
• Last 2 years of T4’s, Notice of Assessments, T1 Generals, and Business financials.
• 90 Day history of all accounts you are using for the down payment with full explanation for deposits over $500
• Bankruptcy Documents
• Separation agreement
Of course each situation is unique and you may be asked for additional items depending on your situation.
Having good credit, down payment, a solid pre-approval and a full slate of paperwork will take away extra stress and allow you to focus on the important decisions you are about to make.