Things to Consider Before Getting a Mortgage

Are you planning to get a mortgage soon? Whether you’re renewing your current mortgage or looking to purchase a new home, there are important considerations that can make the mortgage process smoother and be better prepared. Here are some key steps to keep in mind:

Plan Ahead

If you're considering getting a mortgage soon or within the next few months, planning ahead is crucial. Reach out to us sooner than you might think, and together, we can formulate an appropriate game plan. This is especially valuable for first-time homebuyers. By taking proactive steps, we can address and correct issues during this review that are fixable now. This proactive approach has the potential to save you from higher interest rates or processing delays down the road.

Manage Your Debts

Avoid taking on new major debts and liabilities before applying for a mortgage. This can significantly impact your qualification. For example, high car payments could reduce your qualification amount by a substantial margin. A recent example I came across, a couple had $1,400/month car payments ($16,800/year) and this reduced their qualification by over $119,000! It’s advisable to wait until after the mortgage is funded if you need to take on new debt.

Maintain a Healthy Credit Score

Take care of your credit score by treating your credit card like a debit card. Pay it off in full each month and try not to use more than 30% of the limit. Accept any credit limit increases and keep old credit lines. Making small purchases and promptly paying them off can help demonstrate a long history of responsible credit use.

Consider Job Changes Carefully

Depending on your situation, accepting a new position especially in a new industry right before the application may or may not make sense. Ideally, you’d want to pass the probation period before applying.

Gather Required Documents

Start collecting documents needed for the application, including the last two years of NOA’s, T1 generals, T4’s, recent mortgage statements, etc. It’s important to know where to find them.

Provide Employment Verification

If you’re a salaried employee, you’ll likely need a job letter from your employer and your last two pay stubs. These need to be recent, within the past 30 days. It might be a good idea to inform your company that you'll be requesting these documents soon and to know who to contact for this.

For Business Owners

If you own your own company, be prepared with essential documents like your business license, business financials, and articles of incorporation, as these may be requested.

Stability in Funds

Minimize moving around any funds that will be used towards the down payment. A 90-day history of the funds will be required, so be mindful of any transfers between accounts. For example, if you move down payment funds from from one account to another we would need a 90-day history of both accounts.

Budget Wisely

Ensure you have enough funds to cover closing costs in addition to the down payment. Generally, having 2-4% of the purchase price set aside is a good rule of thumb.

The Bank Renewal Letter

If your mortgage is approaching its renewal date, it's likely that your current lender will send a renewal letter, which may not offer the best rate. Typically, these letters propose a 5-year fixed term, and often lack proper guidance or a meaningful conversation with the lender. When you receive such a letter, don't hesitate to reach out to me. I can evaluate whether it's a competitive offer, explore potentially better options, or even assist in negotiating a more favorable rate with your current lender. Ultimately, our goal is to secure a mortgage that is not only suitable for your situation but also offers the lowest cost possible.

Set Realistic Expectations

Manage your expectations and be realistic about what you can afford. Consider getting pre-qualified to get a starting point on how much you may qualify for. Remember, this is not definitive and the actual amount could be more or less than the estimate.

By taking care of these steps in advance, you can streamline the mortgage process. Keep in mind that each situation is unique, so feel free to reach out if you have any questions or would like to start a mortgage application.