Being informed is important when making big financial decisions, and there are few financial choices bigger than buying a home. It’s, therefore, important to take the time to educate yourself about what you are getting into before committing to buying any property.
Here are some tips on the first steps to consider before embarking on your journey towards homeownership:
Know your Credit Score
Your credit score is one of the biggest factors in what your loan terms will be. Know your score before you apply for a loan and take the time to repair it if it is lower than 600.
A good credit score that leads to a low-interest rate can save you tens of thousands of dollars over the loan’s life.
Also, while you might not put much thought into old information on your credit report, such as an old address or a late payment from a decade ago, lenders do.
Appearances matter on your credit report, and multiple addresses can give the impression that you’re financially unstable or coy. Delete old addresses from your report and contact the credit agencies about paid bills that are still showing on your report. Make sure all the information present is accurate, no matter how small.
Reduce your Debt
Before approving you for a mortgage, lenders want to feel assured that your current debts won’t be an impediment to making your monthly payments on your mortgage.
The first step is to measure your debt against your monthly gross income. If your debt-to-income ratio is close, to or higher than, 40 per cent, you may want to take steps to reduce it.
If possible, start by increasing your monthly debt payments. The additional payments will help to lower your overall debt quicker.
For example, if your gross monthly income is $150,000 and you have monthly debts (car loan, student loan and credit card) amounting to $60,000 already you are at 40 per cent. In this scenario, it would be wise to reduce one or two of these debts, to comfortably afford a mortgage.
You may want to avoid taking on additional debt.
Getting pre-approved for a mortgage is crucial, as it provides proof to real estate agents and sellers that the buyer is financially capable of securing a mortgage.
Real estate agents often prefer to work with a buyer who has received pre-approval from a recognised mortgage institution, as it demonstrates that they are well-qualified to receive financing and are serious about buying a house.
Pre-approval is a service that is offered, free of cost, at JN Bank. The process is quite simple, it entails providing your income details and outlining any existing debt you may have.
The bank will then determine how much you can afford to borrow and present you with a pre-approval letter, along with a checklist of documents which will be required for the loan application. With this letter, you will be ready to shop around for property; and find yourself in a better position to negotiate with your realtor or vendor.
A pre-approval letter is based on the documentation the borrower supplies at the time of application.