You don’t have to be a renter forever. If you’re tired of renting and you’re ready to become a homebuyer we understand how intimidating that can be. As a first-time buyer, just understanding today’s mortgage requirements can be an expensive learning curve. Properly educating yourself about how you can qualify for a first-time mortgage will help you to avoid unwanted expensive mistakes. Here are a few tips you should know before applying for a home loan.

Is a Down Payment Required?

Although it isn’t impossible to purchase a home without some type of down payment, you may prove to be more successful with lenders if you have one.

Your loan-to-value (LTV) ratio and your score are is two of the mortgage requirements that will determine your eligibility. You will become more qualified if you have a favorable LTV ratio (your property value : borrowing amount).

For instance, in a best-case scenario you’d want to keep your LTV below 80 percent or have a 20 percent down payment, this will help you to get a better interest rate. However, if you’re not able to keep your LTV under 80 percent, you may have to buy private mortgage insurance.

Although a 20 percent down payment is highly recommended, this is sometimes not possible for some potential buyers. So, if you can manage to come up with at least 10 to 15 percent, this will put you in a great position to close your home purchase.

How Much Can I Afford?

You never want to begin looking at properties for sale before you know for certain how much you can afford. You can use affordability calculators or have a mortgage broker help you with figuring out your debts, down payment and income during a pre-approval. This will give you a price range to work with and also get you pre-approval from multiple lenders.

Preapproval or Prequalification?

Once you’re ready to begin your home mortgage shopping, the terms pre-approval and pre-qualification will come up. It’s important that you understand the difference with these terms.

To pre-qualify you do not need to provide your SIN or access your credit history or score to complete a financial evaluation or to do a loan comparison. A pre-approval on the other hand, means that both your credit and finances will be accessed and evaluated. If you’re looking for the most accurate price range, then a pre-approval is what you need.

Considering your Debt-to-Income (DTI) Ratio

When you’re considering your debt-to-income ratio you should know that your monthly debts should be no more than 36 percent of your gross monthly income. This includes, but is not limited to debts such as:

• Car loans

• Credit cards

• Student loans

If your DTI ratio is too high then it may be a good idea to consider paying down some of your debts first, at least so that they are below your credit limit. When doing budget planning remember that your mortgage payment most likely includes property insurance and taxes, so you won’t have to include these costs separately.

What You Need to Know about Minimum Credit Scores & Mortgage Loans

One of the major factors considered by lenders who are determining your eligibility for a home loan, is your credit score. Having a credit score of 720 or greater will give you the best mortgage rates. However, if you credit score is below the 720 minimum threshold your interest rate may not be as low as you’d like, but you can still get approved.

If you’re credit score is below 620 and you don’t have a 20 percent down payment, then there is a chance your application may be denied by some lenders. This doesn’t mean you cannot get a mortgage, it simply means that you’d fall into the “Subprime” category. Essentially, your interest rate and fees would be much higher, because you’re at a higher risk in the eyes of lenders.

Your Employment

As a mortgage borrower, you employment and job history will play an important roll and give you the ability to prove you can pay back your mortgage. If you’ve been steadily employed for 2 years or more, this will prove you are stable. If you’re self-employed be prepared to show your banking statements a proof of income.

In the end, with the proper first-time homebuyer knowledge, you can save a bundle and find enjoyment during your home purchase.

When we say Yes! We stand behind our promise.