Your Financial Health - Your Credit and What You Can Afford
Is now the right time financially for you to buy a home? Would you rate your financial picture as healthy? Is your credit good? While you can always find a lender to lend you money, solid lenders are more skeptical if your credit history is not good. Generally, a couple of minor blemishes on a credit report will not unduly affect your good credit rating and could qualify you for the lowest interest rates. If you have more than a couple of blemishes on your report, lenders may still provide you with a mortgage, but you may have to pay a higher interest rate and fees. To determine how much home you can afford, the first step is to call a mortgage broker. A mortgage broker will work with you to determine your borrowing capability and find you the best mortgage at the best rates. Check out my Tips and Resources page for mortgage brokers I recommend. Some say that you should refrain from borrowing as much as you qualify for so you don't stretch your financial boundaries. The other school of thought says you should stretch to buy as much home as you can afford, because with regular pay raises and increased earning potential, the big payment today will seem like less of a payment tomorrow. This is a decision only you can make. Are you in a position where you expect to make more money soon? Would you rather be conservative and fairly certain that you can make your payment without stretching financially? Make sure that whatever you do, it's within your comfort zone.
Your Mortgage - Get Approved (not just pre-approved) Before You Buy
An approval means that a lender has reviewed your credit history, verified your assets and employment, and has approved your loan before you have found a home to purchase. As long as the home appraises for at least the purchase price, the mortgage should close and the sale complete. While getting pre-qualified may sound official, it is really just getting an idea of what you can afford. It’s having a person plug in a few numbers that you give them - your monthly income and your monthly debt - and getting an approximate payment calculated. From the payment, the calculator can approximate the house price range that you can afford. No information is verified. Because your assets, income or credit is not verified, a pre-qualification has little value when purchasing a home. Getting approved for a mortgage gives you an advantage over other buyers. Your firm approval makes it easier for you to negotiate on the price of a home, and easier for you to close the sale than a person who is not approved or is just pre-qualified.
Closing and Other Expenses
Typically homebuyers will need some cash for a deposit on their offer, for a down payment on their purchase and for closing costs. Closing costs will typically run to approximately $1,200.00 and includes conveyancing fees (transferring title), legal fees, home inspection, and other miscellaneous costs. You will also need a deposit at the time you make your offer. This is typically between $5,000 and $20,000, depending on the value of the property. Your real estate professional will suggest a deposit, based on the funds you have available. The balance of the funds will come from the mortgage arranged through your mortgage broker.
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