5 tips for getting approved for a mortgage
If you’re thinking about purchasing your first home, there are several things you can do to help ensure you’ll qualify for a mortgage. From having a stable income to understanding the costs of homeownership, doing your homework in advance of purchasing property will put you on the path towards financial prosperity in the long run. Here are the top five tips for getting approved for a mortgage.
1. Check your credit score
A credit score is how lenders determine how likely it is a person will repay their credit card balance or loan. This figure is a critical part of anyone’s lending profile and overall financial well-being. The higher your score, the more likely you are to qualify for financial products, such as credit cards, lines of credit, and mortgages, as well as favourable interest rates. If your current credit score is lagging, now’s the time to take action. Improving your credit can be a slow process but there are concrete steps that can be taken to expedite its improvement. Start by obtaining a report from a consumer credit reporting agency, such as Equifax or TransUnion, to know where you stand.
2. Have stable income and employment
The economic fallout from COVID-19 has resulted in many furloughs and layoffs, as well as reduced hours and general employment uncertainty for many. While much of this is out of the buyers’ control, employment is essential for mortgage approval. Lenders like consistency, so having an employment record with gaps or substantial movement may make them nervous, and impact your ability to qualify.
In addition to COVID-19, this point is particularly relevant today as the gig economy continues to grow. Having a side job or secondary source of income is never a bad thing, but whenever possible, it’s important to maintain full-time, stable income and employment in the years leading up to your mortgage application.
3. Pay down debt
Debt is often an unavoidable part of life. Whether it’s due to car loans, student debt, or credit cards, having too much debt on your personal balance sheet can be a substantial negative when it comes to obtaining mortgage approval. In the years leading up to home ownership, take stock of your debts and begin paying them down as quickly and responsibly as possible. If need be, debt repayment plans can be developed with help of a financial advisor. Paying down debt will not only improve your chances of being approved for a mortgage, it will also save you money in interests, which can translate into more savings down the road.
4. Save for a down payment
One of the most important factors in purchasing a home is being able to put together enough money for the down payment. While 5% of the purchase price is the minimum requirement, there are advantages to putting more money down. The larger the down payment is, the less you’ll need to borrow, which saves money in interest payments over the long term. With a larger down payment, specifically 20% or more, buyers may also qualify to save on mortgage insurance premiums, which can mean thousands in additional savings. There are many benefits to having a large down payment when buying a home, and the best way to achieve that is to start saving.
5. Have a realistic budget
It’s essential to understand what you can safely afford when considering homeownership. Speaking to a mortgage broker is key in this process, as they can help you formulate your budget. Being able to afford a home means a lot more than just having enough for the down payment and monthly mortgage payments. A mortgage broker can help you understand the true costs of homeownership and take your lifestyle into account to ensure your home purchase won’t leave you unable to maintain your hobbies and favorite pastimes.
Bonus: The best way to know if you’ll qualify for a mortgage is to essentially take a practice run by obtaining a mortgage preapproval. Having proof of preapproval has many advantages. It shows sellers that you’re a serious buyer and that financing won’t be an issue, and it ensures you’re shopping within your budget. Orbis brokers can help you get preapproved in a matter of hours. Call us today to get started!
