How Do I Prepare for Taking On a Mortgage?

January 22, 2021

One of your goals is to eventually become a homeowner. There’s a property that seems to have everything that you want and it won’t be on the market long. Are you in a position to take on a mortgage? Before answering that question, it pays to evaluate your current state and determine if the time is right. If so, get to a certified Toronto mortgage agent and start looking for the financing that you need.

Take a Good Look at Your Credit Score

One of the first steps to take is evaluating your current credit score. Expect the score to be slightly different with each major credit agency. That’s because not all creditors report to all of the agencies. All the way around, what you hope to find is that your score is more toward the higher end of the spectrum.

A higher score increases the odds of securing financing with a lower rate of interest. If your score is not the best right now, don’t assume all is lost. Some high-risk lenders will work with people that have less than ideal credit. Even with the higher interest rate, you may find the financing to be manageable.

Determine If You Have Enough Set Aside for a Reasonable Down Payment

How much do you have set aside for a down payment on the property? Keep in mind that more money for a down payment translates into less of a balance to finance. That’s helpful in any case, but especially so when you’re credit score is more in the fair range rather than the good.

Lenders will consider the amount you want to borrow versus the property’s value. When that value is considerably more than the amount you’re seeking, lenders view you as less of a risk. That’s because they know if you don’t honor the repayment terms, they can always take possession of the property and recoup their investment by selling it.

For your part, a considerable down payment often means lower mortgage payments over the life of the loan. It could also mean that you can finance the purchase for a shorter term. Both of those will be helpful in the future.

Think About How Much You’ll Need to Allocate for a Mortgage Payment

How much of a mortgage payment can you afford? A good place to start is the amount of rent you pay every month. If you have no problem keeping the rent up to date, that’s a good sign that you can afford a mortgage payment of the same amount.

Do consider other ways that you can reorganize the budget and free up additional funds. Once you have a figure, consider the maximum amount that you can put toward the mortgage payment. Ideally, you’ll be able to lock in financing that is more like 80% of that figure.

Take Into Consideration the Other Costs of Home Ownership

As a tenant, there are expenses that you never incur. For example, part of your utilities is included in the rent. Perhaps the landlord also takes care of the landscaping. If something needs repairs, all you do at present is call the landlord and sit back as the problem is resolved.

All that changes when you own your home. You’ll need to pay for all the utilities, take care of the lawn, and pay for any repairs that may be needed. Make sure you factor those expenses into your overall planning.

Whether you’re buying a first home or if you want to remortgage an existing loan, always look closely at your financial state. For purposes of determining what you can do, assume that your income will not increase any time soon. If you can comfortably shoulder the cost of a first mortgage or refinancing an existing one, go ahead. If not, identify what needs to change and work on those things. The day will come when you can proceed.

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