First Time Home Buyer Mortgages
Before you begin looking for a home, you will want to know what your financial limits are. Obtaining a mortgage pre-approval lets you know exactly how much you can afford and allows you to shop with confidence.
How do lenders decide whether or not to approve your mortgage application? Here is what to expect with traditional mortgage applications:
You should be able to demonstrate consistent and sustainable income. Most lenders would like to see 2 years in the same job or employer. When you’re applying for loan, the lender will look at your gross income, that is, your income before taxes and deductions. Documents are required to confirm income and employment.
You should have good credit and your bills have been paid on time. Having no credit history will be detrimental to your application being approved. Lenders will order a credit report. I recommend you order your credit report before you apply. The credit report is a record of your credit repayment from credit cards, loans, lines of credits, utility bills, and other reported debts. The credit report will also provide a credit score. The higher the credit score, the greater chances of approval.
Lenders use your debt-to- income ratio, that is, how much you owe compared to how much you earn. The lower your ratio, the more confident lenders will be in your capacity to repay the mortgage. Lenders use a home expense ratio and a total debt plus home expense ratio. Home expenses include mortgage payments, taxes, and heating and condo fees, if applicable. Total debt is your credit obligations such as credit card payments, loans, child support, etc.
How much is your down payment? Do you have sufficient funds for closing costs; such as land transfer tax, legal fees and other disbursements? Lenders require a minimum down payment dependent on the purchase price or appraisal value. The source of down payment is very important. You are required to prove your down payment is from own sources or it can come from a gift or borrowed sources. You should prepare documents such as bank statements with at least 3 months history.
When you choose a home, the lender will want to know that the house is worth the price you offered. The mortgage amount will be based on the value of the property. A lender may request an appraisal be ordered as part of the mortgage conditions.