5 Factors to Consider Before Getting Approved for a Mortgage
Applying for a mortgage is not a one-step process. Aside from checking the applicant’s credit score, the mortgage lending company will also consider other factors that may affect the decision. Therefore, borrowers should know which factors to consider and take care of to get the loan they need. Here are some ideas.
Existing Debts
People with outstanding debts such as car loans and credit card debts are more likely to get rejected by all mortgage lenders. If a person has a lot of debts, they have a higher chance of defaulting on the loan. Therefore, the lending company will be less likely to approve the loan.
While it is true that having a lot of debt can make it more challenging to get approved for a loan, there are still many mortgage lenders who are willing to work with people in this situation. Finding a lender willing to consider your financial situation and work to find the ideal loan is critical.
Pre-Approval
Some people apply for loans without getting pre-approved first. It is a mistake that can result in a mortgage denial when you have a live offer accepted.
If you are not pre-approved, and you ask for more money than what the lender can provide given today's interest rates and stress test, you may be in for an unpleasant surprise.
Even with a pre-approval, make sure to check in with your mortgage broker if given the current rates, the pre-approval is still accurate.
Getting pre-approved for a loan is a simple process. The lender will then pull your credit report and score to see if you qualify for the loan. If you do, they will give you a pre-approval letter that states the amount of money you are approved to borrow.
Getting the Best Mortgage Product
Lower interest rates are not always something you will be eligible for if you have over 20% down payment, use a 30-year amortization, or the home is over $1,000,000 in value. You need to make tradeoffs between these factors and sometimes the cheapest rate applies with under 20% down payment (which means higher monthly payments), 25-year amortization (again, higher monthly payments), and a property value under $1,000,000 which means you don't have the space you want for a growing family and rental income.
Applicants will only qualify for a lower interest rate if they have a good credit score. When looking for a loan, it's essential to remember that the lowest interest rate isn't always the best deal.
Financial Capacity
When you want to go for a loan, you must have the ability to repay the loan. If you are going for a long-term loan, you must have the financial capacity to pay the loan. Therefore, most lending companies would do a financial check on their applicants for security.
When you apply for a loan, the lender will request your bank statements, tax returns and other financial records. The lender will evaluate your financial capacity and determine whether you can afford to repay the loan.
Down Payment
Your down payment can be the deal breaker with any lender. If for example, you have a credit score under 600, a part-time job you haven't done for more than two years, or simply too much debt for what the lender is comfortable with, having over 20% down payment opens up more doors.
THE BOTTOM LINE
Getting approved for a mortgage is a tricky task. However, some factors applicants can consider to secure their deals and get the financial assistance they need. But before applying for a loan, it's best to look at these factors and see if they fit your capacity to handle a significant loan and pay it off in time.
Level Up Mortgages is a mortgage lending company in Canada. We aim to try various mortgage strategies to help clients whether new buyers, real estate investors, and even the self-employed can afford their dream homes with the requirements they can provide. Aside from checking the credit scores, we also believe there are other means to get the eligibility they need for the loan. Inquire on our website and apply for a mortgage loan today.