GETTING A MORTGAGE PRE-APPROVAL
GETTING A MORTGAGE PRE-APPROVAL IS ONE OF THE FIRST STEPS TO BUYING YOUR OWN HOME.
A mortgage pre-approval will help determine what mortgage amount you can qualify for and help you look for homes in your price range. Here is a list of information and documents your Mortgage Broker may need in order to obtain a pre-approval for you:
• Driver’s License or government issued photo ID
• Details of your employment (time at job, title, and income structure)
• Your sources of income
• Asset list
• Amount and source of down payment and closing costs
• Your debts and financial obligations (credit cards, car payments, loans, etc.)
A mortgage pre-approval with a Mortgage Broker has many advantages, some of these are:
• Rate holds. A rate hold is generally for 90-120 days and can protect you from rate hikes during that time
• Determining a maximum purchase price to help streamline the home buying process
• The ability to come up with a monthly budget
• Finding out your credit score and potentially working with your Broker to help improve credit if needed
• Being prepared come time to write an offer (knowing which documentation is needed in advance)
• The ability to close a mortgage loan faster
• Mortgage rules and rates are always changing, having a mortgage professional on your side to look out for your best interest and keep you in the loop
HOW MUCH CAN YOU AFFORD
Lending institutions such as banks and credit unions use two simple rules to determine how much you can afford in monthly expenses for housing including your mortgage payment:
1. Gross Debt Service (GDS) Ratio: The first rule is that your monthly expenses for housing cannot be more than 35% of your gross monthly income (there are some exceptions for credit scores over 680). Your monthly expenses for housing include:
• Principal mortgage payment
• Interest on the mortgage
• Property taxes
• Heating
• If applicable, half of the monthly condominium fees
These expenses are known as PITH for short. Lenders add up these housing expenses to determine what percentage they are of your gross monthly income.
2. Total Debt Service (TDS) Ratio: The second rule is that your total monthly debt load should not be more that 42% of your gross monthly income (some lenders will allow up to 44% if your credit score is over 680). This includes housing expenses (PITH) and other debts such as car loans and credit card payments. Lenders add up these debts to determine what percentage they are of your monthly gross income.
Keep in mind that most homebuyers keep their debt ratio comfortably below the maximums prescribed above. The lower your debt load, the more affordable will be your home and lifestyle.
The Down Payment: If you have a down payment of 20% or more, you may qualify for a conventional mortgage loan that does not require mortgage loan insurance. A minimum down payment of 5% is required for a high ratio mortgage. A down payment of less than 20% requires mortgage insurance.
If you would like to calculate what your mortgage payments, visit my mortgage calculator.
If you have any questions about Mortgage pre-approval, please contact Marco Pontillo.