Knowing what to do before shopping for a mortgage is just as important as knowing which features you want in a home before asking your Realtor to show you houses! If you dismiss this step, the outcome can sometimes be confusing and counterproductive Let`s also bring attention to the idea that it`s not just about knowing what to do before shopping for a mortgage, but more so knowing where you stand before making offers on properties. The mortgage process remains constant for most scenarios, but all banks (whether A or B institutions) require certain criteria to be met. Your eventual approval would be subject to the review of many factors including credit history/tenure, employment, provability of income, debt servicing and most recently… the stress test.
So here’s a list of what to do before shopping for a mortgage:
- Know your affordability. This is the most important step to complete in the ‘what to do before shopping for a mortgage’ guide. Shopping for a mortgage is really a step that comes after determining your maximum affordability. It would be disappointing to shop for the best rate without knowing whether or not you even qualify for the purchase price range you’re interested in. Once you know that you can qualify, you can then begin shopping for the mortgage itself.
- Determine your comfort zone. It’s easy to shop for houses and it’s even easier to fall in love with houses out of your price range. Know your monthly comfort zone and factor in what you want to be able to save on a monthly basis after all household expenses (most people neglect this!). Planning for this step helps avoid the use/dependence on unsecured credit later on.
- Speak to someone about the down payment/closing cost requirements. Having enough money saved is the first step in knowing whether you can even purchase. Most banks don’t allow ‘borrowed’ funds… so if you don’t have enough money saved there is no quick fix to that (unless you can get money ‘gifted’ to you).
- Speak to someone about credit (and even better yet, having a mortgage broker pull the credit reports from Equifax or Transunion). The only way to fully understand credit is to visually see the report. The score is important, but the history is even more important now. It doesn’t make sense to put in your valuable time and effort searching for a property with the hopes of putting less than 20% down only to find out after making an offer that credit is problematic. Save yourself time, and if need be, start fixing credit as soon as you can (this does not necessarily apply to buyers putting larger than 20% down).
- Income requirements are not as clear as they used to be. Employment can very much work on a case by case basis for over 60% of mortgage applications now. From self-employment to contractual work to commissioned work to even full time/permanent employment with probationary periods… the banks needs to validate income well before you commit to anything. It is better to know (rather than assume) that your income is acceptable based on tenure, status & provability.
Knowing what to do before shopping for a mortgage is the most crucial part of the process. In hindsight, it’s the step before step 1! Shopping for the best rate is somewhat of a privilege that comes after knowing that you can be approved. Gaining the knowledge of what to do before shopping for a mortgage requires guidance from industry experts… and the longer your broker/agent has been in the industry, the better for you! Things have changed and will continue to change. New programs are introduced regularly, exceptions can sometimes be granted, application can be positioned differently to different banking institutions… and if you have the right support you will see positive results.