Applying for your first Calgary mortgage can be intimidating and confusing for the first time home buyer. The best approach is to prepare well before you even begin hunting for your first house so you can avoid being disappointed and getting frustrated during the mortgage process when you do apply. You need to be very clear on what information the banks and other mortgage lenders are looking for when they review a first mortgage application. The following will help you prepare before you finally get that dream home you have always wanted.
Is your Credit Healthy?
One of the first things you want to do is to find out what your credit rating is like, so you will want to get yourself a credit report. Contact a Canadian credit bureau. You can either get this free through the mail or online with a small fee. If there are any errors in the credit report, you must correct those immediately as this could adversely affect your mortgage application.
What is your Monthly Budget?
Mortgage menders will want to know everything about your current monthly expenses and the total income that you presently earning and bringing into the household. You will need to provide proof of your earnings so you will need to gather up your paystubs and tax returns as proof of your earnings. Likewise, you will have to show how much you spend per month on all your expenses. This includes your current rent, all loan payments and monthly credit card payments, and what you spend for your utilities. Many mortgage sites provide calculators that you can use to figure out what comprises your monthly expenses.
What is a Mortgage Budget?
Before you even begin house hunting, you have to figure what price range you can afford for a house. A rough rule of thumb is that the amount you will need to budget for your mortgage payment should be somewhere between 28 – 35 % of your total gross income before taxes. This percentage would be used not only for the mortgage payment but should include what you will have to pay for property taxes, insurance and any fees. One overlooked expense is the closing costs so make sure they are factored in your budget along with the other costs.
Another key thing to consider is your amortization period (life of the mortgage before your home is paid off) which will directly affect how much your monthly mortgage will cost. A shorter amortization will cost more per month but will save you more on interest. Of course, the reverse is true that a longer amortization will be mean a lower mortgage monthly payment but will cost more in interest over the life of the mortgage.
How much will you have for a Down Payment?
Many lenders prefer that you have at least 20% that you can use for a down payment for a home. You might be approved for less such as even as low as 5% but be aware of the consequences as it could mean a huge difference in whether you get a standard mortgage or a high ratio mortgage.
If the process seems too daunting after you have amassed all your paperwork, expenses, and budgets, then you might be well advised to seek the assistance of a mortgage broker to help you with the process. There is no cost to you use one.
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