A home is one of the best personal assets you can invest in. You cut yourself from what would otherwise be a lifetime expense of rent and you have an asset that for the most part, keeps on appreciating in value. A house is also a great asset to pass from generation to generation.
You may be unsure about how to apply for a mortgage as a first time home buyer. There are a number of factors to consider, a lot of paper work to be done and a process to be followed.
Get a guiding hand
A first step would be getting guidance from an expert. They will guide you through a process that might otherwise be confusing. It is best to consult a mortgage officer or mortgage broker. Apart from having updated information on housing market conditions, they can also advice you on what is best for you in line with your financial circumstances.
A misstep can cost you a lot down the road. If you go for a house you cannot really afford, you may eventually lose it when you fail to keep up with repayments or you may have to compromise your quality of life to keep up with the payments. Also, choose the wrong mortgage product and you end up paying so much more that you could have avoided paying over the duration of the loan.
Starting the process
The first step of applying for a mortgage as a first time home buyer is getting pre-approved. Pre-approval will give you an idea of the kind of mortgage you can secure which determines the kind of house that you can buy. Pre-approval also gives you a rate guarantee that is valid for 120 days. During this period, you are cushioned against higher rates should you complete the process of securing a mortgage.
What is needed to get pre-approval?
Getting pre-approved will depend on the information and documents you provide. Submitting complete and updated information will give you the best chance of getting pre-approved and securing a first time home buyer mortgage at the best rates and terms.
If you are working with a mortgage broker, they will represent you and present your documents to lenders. Lenders will offer or deny you pre-approval based on an assessment of:
- Your income
- Your current liabilities or debts
- Your employment or self-employment history
- Your credit history and rating
- The current property value
When you know that these are the factors that are assessed, you can improve your chances of getting pre-approved by putting in a strong application. This is one with:
- Good credit history where your bills and any debts like credit card balances are paid on time
- Debt to income ratio that does not exceed 44% meaning that no more than 44% is being used on paying off debts
- A steady source of income where you have held the same job for at least two years or have derived steady income from your business for the same period
- A household expense ratio that does not exceed 32% meaning that no more than this percentage is going towards paying for utilities and other household expenses
- The value of the home is equal to the price that it is being sold for
Hopefully, your pre-approval application goes through. You can then start looking for a house that is within the range you have been approved for. There will be more paper work to do before your mortgage for a first time home is completed but you will be well on your way to becoming a proud home owner.