Before you start shopping around for a mortgage, you’ll need to get approval from a bank for a home loan. To qualify, you’ll want to do a little legwork first and take the time to gather all of your key financial information. Not only will this help you get approved, it will keep you on track to make the very best decisions along the way. There’s nothing better than an informed consumer, so let’s get started!
Have your personal documentation ready
Your potential home loan lender will need some fairly detailed personal financial information about you. You can speed this process up considerably by having as much of this documentation ready as possible. First, obtain your proof of income; this can be recent pay statements, a letter from your employer confirming your salary and length of employment, or a proof of income statement you print out yourself from the Canada Revenue Agency. Your lender will also want proof of your assets, including bank and investment account statements, to make sure you have ample funds for the down payment, closing costs and some cash reserves. The payoff for all this diligence? You’ll soon know the exact amount you can afford to borrow, as well as the interest rate you’re likely to be charged.
Don’t make any sudden job moves during this process
A lender considering providing you with a home loan wants to see evidence of stability. Now is not the best time to make a career move because any changes to your income or employment status could delay, or even stop, the application process. Don’t quit your job, take a lower-paying job or decide to try striking out on your own right now; there is plenty of time to make changes later! If you can, stay with your current employer until you’ve seen the entire home buying process through.
Have your down payment ready
All that saving has finally paid off, congratulations! You now have a substantial nest egg to serve as your down payment. According to the Financial Consumer Agency of Canada, homes priced $500,000 or less require 5% of the purchase price as a down payment. For homes between $500,000 and $999,999, 5% of the first $500,000 and 10% of the purchase price above $500,000 is needed. For homes of $1 million or more, a full 20% down payment is required. Know this going in, so you can finance your dream!
Watch your debt
Keep a close eye on your debt and do whatever you can to present your current financial situation in the best light possible. This means not taking on any new debt right now and if you can pay down what you currently owe (as best you can), do. A lender who provides home loans wants to see that your debt levels are manageable, that your entire monthly debt payments (including your mortgage) ideally will not exceed more than 36% of your gross monthly income. It’s also a good idea to avoid making any major purchases until after you’ve closed on the loan, so hold off on buying new appliances or financing that new car for now.
Stick to your budget
If your home loan lender offers you more financing that you ever imagined, be prepared. You know what you can truly and comfortably afford to borrow (and repay!), so stick to your original plan and don’t be swayed. Lenders sometimes offer eye-popping sums that can really stretch your budget, so stay away from that max, high ceilinged offer and go with a figure that is more fiscally responsible. In the long run, you (and your bank statements) will be so glad you did!
Thanks for reading and don’t forget to follow along the Marina Homes blog for more great tips on home financing!