Six Tips To Ensure Your Mortgage Application Is Approved The First Time
Financially, buying a home may be a lengthy process, and waiting to hear if your mortgage application has been accepted can be a large part of that.
While submitting your application may only take a few hours at most, the lender is the only one who can determine the amount you’re entitled to borrow and your ability to repay it.
Having said that, being prepared and understanding what is expected during a mortgage application will help you get a loan granted.
So to arm you with the right information, Mortgages with Gary has outlined six tips to ensure your mortgage application is approved the first time.
Tip #1: Understanding the importance of a mortgage pre-approval
Any good mortgage professional will tell you that your house hunt should not start with a call to your realtor; it should start with a call to a mortgage professional who will work with you to obtain a mortgage pre-approval. After all, how can you shop for a property when you do not know how much money a lender will loan you for your mortgage?
A mortgage pre-approval is the process of determining whether a borrower meets a particular lender’s guidelines for a home loan. It should not be confused with a mortgage pre-qualification, which is a much more cursory look at your financial picture. A mortgage pre-approval gives you the confidence that you are a qualified borrower in the eyes of a lender. This is beneficial because the last thing you want when going through the home buying process is to have done your own calculations and figure out what you think you can afford using a mortgage calculator and the available interest rates, then apply for a mortgage with a lender and receive an entirely different qualification based on your overall strength as a borrower. To avoid any nasty surprises, it is best to get pre-approved before doing anything else.
Tip #2: Get pre-approved
The pre-approval process can start anywhere up to a hundred and twenty days before you want to buy a home, depending on how long the lender’s pre-approval is guaranteed. It is the first step to getting a mortgage, and although it typically does not take that long to complete, another benefit to doing it early in the process is that you are not simultaneously dealing with offer negotiations, when every moment can be crucial.
For a mortgage pre-approval, you will have to provide supplemental documentation proving your income, the source of your down payment, your assets, and your liabilities. The lender will also look at your credit report to determine your creditworthiness.
Tip #3: Avoid lavish purchases and employment changes
While going through the mortgage pre-approval process, do not make large financial commitments such as purchasing or leasing a vehicle or large purchases on your credit cards until after buying your house. This will impact the amount of mortgage you will qualify for your home purchase.
Also, be careful to take into consideration the impact of changing your employment. Lenders look for job stability and will want to see some tenure with their current role.
Tip #4: Keep your income stable
While applying for a mortgage, it is important to keep your day job. Mortgage providers will not approve your mortgage without proof that you can make your payments. A full-time job is the best way to prove that as it guarantees your long-term income. Having been with an employer for a long time will also help your application, though it is not the only thing that matters. If you are applying for a mortgage with your partner, it is ideal if both of you have full-time jobs.
If you are employed on a casual basis, it might be worth looking for a permanent role for the duration of your mortgage application, even if it is just part-time. Getting a great mortgage with a low rate can save you tens of thousands of dollars, so it could be worth finding some more stable employment while you finish your application.
If you are self-employed, you will be required to provide details on your business and income for several years, proving that you will be able to stay profitable long term to meet your mortgage payments. The best thing you can do to get approved for a mortgage if you are self-employed is to get in touch with a licensed mortgage agent. Mortgage agents have the knowledge and access to help you prepare the best possible application.
Tip #5: Pay down existing debt
Taking on a mortgage means taking on some long-term debt, so you will want to minimize your existing debt. Once you get your mortgage, paying it will be much easier if you do not have other debts to service. Existing debt will also make it more difficult to be approved for a mortgage, as lenders will look at your debt-to-income ratio when finalizing the amount to lend to you.
Your balances across your credit cards, lines of credit, or student loans do not necessarily have to be at a zero balance. However, your existing debt will impact how much you will be able to borrow and at what rate. Keeping debt levels low is also good for your credit score in general.
Tip #6: Get final mortgage approval
Once you have a mortgage pre-approval, you will have to watch out for anything that may affect your cash flow prior to closing. If all remains the same from the time you received your mortgage pre-approval to the time you have made an offer on a property, then you are halfway to your loan.
Once you make an offer on a property, your lender will ask you to provide the Agreement of Purchase and Sale and the MLS listing with the mortgage loan application. They will arrange for an appraiser to conduct a home appraisal on the property you wish to purchase to ensure that you didn’t overpay for the home or, more accurately, that they are not lending you more money than the fair market value for the home. Suppose you have less than 20% for a down payment and require mortgage insurance. In that case, the property also must meet approval from the mortgage insurer, be it Sagen, Canada Guaranty, or Canada Mortgage and Housing Corporation (CMHC).
Your lender will update any of your financial information that may have changed, add the specific property details to the equation, re-verify your credit score, income, and debt.
Once the property and the client have been approved, you receive final mortgage approval, and congratulations are in order as you are on your way to closing!
If you are looking for a mortgage agent based in London and Windsor, Ontario, then reach out to me at Mortgages with Gary. I have significant years of professional experience in the financial services industry, working with clients helping families achieve the dream of homeownership and financial independence. I have a reputation for building strong relationships centering on integrity, transparency, and delivering client service excellence. I provide a wide array of solutions for clients, from working with first-time homebuyers to experienced clients looking to refinance, purchase a second home, or investment property.
My services are available to clients across Windsor, LaSalle, Amherstburg, Kingsville, Leamington, Tecumseh, Essex, Lakeshore, Chatham-Kent, London, St.Thomas, Strathroy, Sarnia, Woodstock, Brantford, Stratford, Kitchener, Waterloo, Cambridge, and all over Ontario.