These days, one thing’s for sure: if you want to win your dream home quickly and become its owner, you need to apply for mortgage pre-approval. However, the details of what kind of mortgage you need to get, and what you can do to maximize your chances of being approved for it, are unclear. So let’s take a closer look at what you need to know before applying for a mortgage!
Try to maintain a good credit rating
Your credit rating is one of the most important concepts you need to understand before applying for a mortgage. In fact, your credit is evaluated on the basis of a “score” ranging from three to nine hundred. This score places you in one of five categories. In descending order, these categories are: excellent, very good, good, average and poor. In general, your credit rating is a direct reflection of your financial health. In other words, it serves to prove whether or not you can repay any loans you take out as you
A larger down payment is preferable
Let’s be clear: before applying for a mortgage, it’s always best to save as much money as possible for a down payment. However, there are some basic rules to follow if you’re unsure about how much you need to put down. If a house costs less than five hundred thousand dollars, you only need to put down five percent of its value. If the price is more than that, but less than one million dollars, ten percent is required. Above one million, you’ll need to put down at least twenty percent of the home’s value. However, the higher the down payment, the better the terms of the loan you’ll be able to obtain. Note that it’s a good idea to ask yourself whether a house is overvalued if you’re considering making a large down payment.
Types of mortgages available in Canada
Fixed-rate mortgage
A fixed-rate mortgage is one of the best deals you can get. Simply put, it’s a mortgage whose interest rates remain constant. They won’t change once you sign the loan contract. Every payment you make goes towards repaying your debt.
Variable-rate mortgage
A variable-rate mortgage, on the other hand, is extremely risky. In theory, your interest rate could fall, effectively reducing your debt and making it easier to repay. However, it’s just as likely, if not more so, to find yourself in a scenario where interest rates rise, exponentially increasing the amount of debt you have to repay.
Conventional mortgage
Conventional mortgages, on the other hand, are similar to fixed-rate mortgages. In both cases, the borrower doesn’t have to worry about a sudden increase in debt. However, the difference lies in the ease of obtaining the mortgage and the loan eligibility conditions. While the terms of a conventional mortgage are generally much more flexible, and you can obtain one more quickly, you must be able to put down a down payment of at least 20% of the asking price of the home. This means you’ll need to have a considerable amount of cash on hand.
High-ratio mortgage
The opposite of the conventional mortgage is the high-ratio mortgage. Again, this is a similar solution to the fixed-rate mortgage. But this time, the difference lies in the fact that it is often more readily approved for “at-risk” customers. It is, after all, a mortgage that is used when you need your loan to cover more than eighty percent of the property’s value.
Open mortgage
An open-end mortgage is the only type of mortgage that gives you freedom in how you repay it. This means that you are free to make additional payments as your financial situation allows, outside the mandatory monthly payments. Nor will this entail any additional charges or changes to your interest rate.
Fixed-term mortgage
The fixed-term mortgage, on the other hand, has the strictest mortgage payment schedule of all the mortgage types on our list. What’s more, it’s impossible to renegotiate its terms or refinance before maturity. You can only follow the terms and conditions set when you signed the loan, and only pay your mortgage on schedule.
Pay attention to some of these incentives
If you’re concerned about applying for a mortgage and how best to proceed, chances are you’re a first-time buyer. If so, you could potentially benefit from several government incentives: the Home Buyers’ Plan, the First-Time Home Buyers’ Incentive, the Home Buyers’ Amount and the New Home Rebate. These measures can help you obtain better mortgage terms, or offer you secondary benefits such as a tax credit or the ability to withdraw funds from your retirement savings plan. Although the benefits may not be enormous, since you’ll have to worry about paying movers and storage, the experts at Worldwide Moving Systems advise you to take advantage of them.
Keep an eye on your finances
Even if you are able to get a mortgage, the last thing you need to know before applying for one is that budgeting and managing your finances well is a valuable asset right from the start. As we said earlier, saving money and eliminating debt will increase your chances of getting a mortgage. What’s more, drawing up a budget will help you avoid overspending. It will even help you determine how much money you’ll have available for living expenses after you’ve bought your home. This information is invaluable when deciding whether to
The importance of upstream work
Now that you know what you need to know before applying for a mortgage, you should be able to maximize your chances of everything going smoothly for you. As long as you keep our advice in mind, we’re sure you’ll soon be living in your new home!