The Mortgage Agreement In Principle
Obviously, you cant complete the mortgage process until you have found a property to buy. Not least because the lender will need to do a valuation survey to ensure it is a good investment for them. All lenders will give you an indication of how much they are prepared to lend you and on what terms, given your circumstances.
Most lenders will go further and offer you a mortgage in principle after you have supplied them with the evidence they need of income etc. They offer this in the hope that you will use them as your lender once you find the property you want to buy and so you have evidence of having funds in place when you make an offer on a property.
To get your mortgage in principle you should:
Quick First Mortgage Qualification Tip:
You should speak to a mortgage broker atleast 12 months before you seriously begin the process of looking for your first home. Your mortgage broker will be able to assess your entire situation, and provide you with a budget, saving strategies, and even some credit repair ideas
You might now be asking, what does a 610 credit score mean?
We have discussed credit scores and criteria in detail on this blog in the past here, but generally speaking, a credit score of 610 would be held by someone who has not had any credit delinquencies in the past 6 months, and no more than 3 delinquencies in the past 2 years. A credit delinquency refers to any negative reporting on a persons credit report. Late payments, collections, credit cards being over the limit, past due, etc.
Avoid Delays Fill Out The Application Form Correctly
Here are our top five tips for filling in the paperwork or online application. Even if you end up getting a broker to help you, its normal for you to be asked to check it first so make sure you:
DO state your income exactly. Dont round up.
DO give your FULL NAME even middle names are necessary.
DO declare ALL your debts.The lender will find them anyway and withholding the info can mean a quick decline.
DO get your three-year address history exactly right, including postcodes.
DO give honest answers when asked about how much you spend.
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How Much Money Do I Need For A Down Payment
The larger the down payment you are able to make, the less youll have to finance when you purchase a home. On a conventional mortgage, making a down payment of at least 20% will prevent you from having to pay for private mortgage insurance. The minimum down payment required varies based on the type of mortgage you obtain. In 2019, the median down payment for first-time buyers was 6%.
Pick The Right Type Of House And Neighborhood
Weigh the pros and cons of different types of homes, given your lifestyle and budget. A condominium or townhome may be more affordable than asingle-family home, but shared walls with neighbors will mean less privacy. Don’t forget to budget for homeowners association fees when shopping for condos and townhomes, or houses in planned or gated communities.
Another option to consider is buying a fixer-upper a single-family home in need of updates or repairs. Fixer-uppers usually sell for less per square foot than move-in ready homes. However, you may need to budget extra for repairs and remodeling. Renovation mortgages finance both the home price and the cost of improvements in one loan.
Think about your long-term needs and whether a starter home or forever home will meet them best. If you plan to start or expand your family, it may make sense to buy a home with extra room to grow.
Check out potential neighborhoods thoroughly. Choose one with amenities that are important to you, and test out the commute to work during rush hour.
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Sort Your Paperwork To Speed Things Up
Lenders need proof of your income before they can offer mortgages, so it makes sense to get your paperwork together in advance. Sending all the paperwork in one batch speeds up the process as it reduces the chances of your application being reviewed by more people.
If your lender won’t accept PDFs, uploads or printed internet bank statements, you may need your bank to send you original copies. Ask for these a few weeks in advance in case you need to wait for the originals to arrive.
Your lender may want to see any or all of:
Work On Your Credit Score
If your score is below 760, its worth the effort to improve your credit score by taking steps to pay down your balances and make all your payments on time. Having excellent credit will make you eligible for the lowest mortgage interest rates. The Loan Savings Calculator from myFICO is a great tool for estimating how much you could save on your mortgage by improving your credit score.
If youre putting down less than 20% on a conventional loan, excellent credit will also make you eligible for the lowest mortgage insurance rates. But even if you have bad credit, you might be surprised by your loan options.
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Go Through The Underwriting Process
Feel like a lot of steps? It is, but youre almost there. Now youre waiting on your application to get approved, and this is when the lender will take a look at you as a borrower and finally decide if youre really eligible for the loan.
So, what will the lender be looking at?
The lender wants to feel certain youll be able to keep up with your monthly payments. Even if you are working, a lender might get nervous if youve switched jobs a few times lately. It helps to have stayed at your job for at least two years, so if you’re thinking about making a switch, consider waiting until after you secure your mortgage.
Your other debts. If you have other debts like student loans or a sizable balance on your credit cards it might signal to lenders that youre not ready to add more. Lenders will look at your “debt-to-income ratio,” which is calculated by adding up all your monthly debt payments and dividing them by your gross monthly income. You want that number firmly under 43% to avoid scaring away lenders.
Overall, you want to give the bank the impression that you are a reliable person and wont flake out on your mortgage when times get tough. It can help to show that you’ve been in your current residence for a year or more.
If a lender sees you tend to break your lease every six months, or if you have any history of eviction, that can be a red flag. And if an eviction is on your record, the lender will dig deep into your past and may even contact your former landlord.
The Bottom Line: Keys To Getting A Home Loan
Lenders look at many factors when you apply for a mortgage. Theyll examine your income, job history, credit score, debt-to-income ratio, assets and the type of property you want to buy. Youll be responsible for providing them with all relevant documentation that can prove your viability to qualify for a loan.
The first step in getting a mortgage is applying for preapproval. Getting preapproved gives you a good idea of the loan principal you can receive, making it easier to shop for homes within your budget. Once youre preapproved, you can start viewing homes, and potentially enlist the help of a real estate agent.
Your agent can help you make an offer on the right home once you find it. Youll need to get full approval from your lender once the seller accepts your offer. Full approvals also include underwriting and an appraisal. Once youre approved, youll attend a closing meeting, sign the closing documents, and pay your down payment and closing costs.
If youre ready to start shopping for home loans, apply for a mortgage today with Rocket Mortgage.
Find out what you can afford.
Use Rocket Mortgage® to see your maximum home price and get an online approval decision.
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Will I Be Accepted For A Mortgage As A First Time Buyer
Assuming you have saved at least a 10% deposit and want to borrow no more than 4.5 times your income, there are a few more tests you need to pass in order to secure your mortgage offer.
The first is a youll need a good track record of borrowing and repaying money on time.
The second is the affordability test. Your lender wants to make sure you can afford your mortgage repayments not just on paper, but in practice. So they will look at all your spending patterns to see if you have enough money left over to pay your monthly repayments.
For this reason, in the weeks and months before your application, its a good idea to get your spending under rigorous control so you can demonstrate a comfortable surplus of income each month. Remember that any rent youre currently paying wont count, because of course, if all goes to plan you wont have to pay rent anymore!
How Do I Get Prequalified And Explore My Home Loan Options
Once you have an idea about what you can afford and you’re ready to find a home, you can talk to a loan officer. Your loan officer can help you explore your mortgage options and get you prequalified.
To get prequalified, you provide your loan officer with your basic income, asset and debt information, and they provide an estimate of the mortgage amount you may qualify for.
Your loan officer can also help you understand all the available mortgage options, and which works best with your budget and home-buying goals. Talk to a TD Bank Mortgage Loan Officer today at 1-866-325-4516.
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Work Out Your Eligibility For Schemes
There are a number of schemes out there to help first-time buyers purchase a home. While offering a helping hand to aspiring owners, most of them come with exceptions that you should make sure you fully understand.
If you’re planning to use a Help to Buy equity loan, for example, you can only buy a new-build property. It also has to be worth less than £600,000.
On the other hand, a Help to Buy Isa doesn’t need to be used just for a new-build to earn the bonus, but the property must be worth less than £250,000 .
Affordable housing schemes, meanwhile, tend to have their own rules, with many requiring you to live in your local area. So check what’s required and whether you qualify before relying on these schemes as a leg-up.
Budget For Solicitor Fees And Application Costs
While the deposit is often the biggest hurdle when buying a house, you’ll also need to budget for all the other expenses of buying.
Some mortgages have application fees, which could be as high as £900, while you may need to pay a fee to the broker.
Your solicitor fees will also need to be paid, as well as the costs of having a house survey done.
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How Do I Make An Offer On A New Home
When you find the home you want, you’ll need to enter into a written contract with a written offer. Working with a real estate professional can simplify this process because they will:
- Provide you with standard forms that comply with state and local laws
- Guide you on your offer amount based on comparable home sales in that area
- Present your initial offer and any counter offers to the seller and assist you with negotiations
You Shouldnt Chop And Change Your Application
Once youve started your mortgage application, dont mess around with it and start changing figures as it could hold up your property purchase. David Hollingworth said Changing the figures further down the line will mean the offer being reassessed which, although may not necessarily be a problem, could add unnecessary delay.
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What Is The Difference Between Pre
Both pre-qualification and pre-approval involve a review of an applicant’s credit report. The difference is the degree of credit review. Pre-qualification involves a quick review of one’s credit and only provides a potential borrower with a general idea of how much mortgage they could qualify for and under what terms. Pre-approval involves a full credit review, while only offered for a limited time window, provides the potential borrower with a solid offer of credit from a lender with which they can use to make good faith offers on homes for sale.
Know What Youre Getting Into
If youre reading this article, youre likely thinking about investing in rural or farm land some day. Whether that land is going to be used for farming purposes or just as your primary residence, its best that you do a lot of research beforehand so you know exactly what youre getting into. As we mentioned earlier, while buying rural real estate might appear to be more financially sound than buying urban or suburban real estate, it definitely comes with its fair share of risks, no matter what province or territory you live in. Just like any form of real estate investment, there are a number of different factors that need to be taken into consideration when it comes to the property, even if that property is just an unused plot of land. However, if you do the math and have a good investment strategy, buying up agricultural real estate can certainly pay off, as long as youre being cautious and patient enough to see your commitment through until the end.
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Test Drive Your Mortgage Chances
Once you’ve done all the steps above, your finances should be in great shape. To test this, a mortgage agreement in principle , offered by many lenders, is the acid test.
It’s a conditional offer saying you may be accepted, based on a quick check of your income and, probably, your credit file. However, it offers no guarantees and it’s not compulsory. But for first-time buyers especially, it boosts estate agents’ or sellers’ confidence that you’ll be able to complete the sale, so may up your chances of having an offer accepted. Some worried sellers might only accept viewings where you’ve had a mortgage AIP.
It’s worth benchmarking a top deal with our Mortgage Best Buys tool, and asking the lender to see if you pass the checks for their AIP. Don’t worry just as it doesn’t tie them in to lending to you, it doesn’t mean you have to borrow from that lender if you spot a better deal further down the line.
Beware too many of these checks in a short space of time could harm your credit rating if the lender does a credit check and marks it on your file. This could damage your mortgage application later on.
Some lenders offer a ‘soft’ search option, which won’t be visible to other lenders . Find out from the lender which it is before agreeing to one.
What Does A Mortgage Broker Do
Your mortgage broker is an independent go-between who scours the whole of the mortgage market to find the most suitable loan for you, and maximise your chances of a successful application.
First and foremost, a mortgage broker can save you money by identifying the best deal with the lowest interest rates and/or lowest fees, or lowest exit penalties, or whatever other criteria make it most suitable and affordable for you.
Secondly, your broker can make this choice based on all the deals available on the market, and will have access to some special broker only deals that you wont find direct from any provider or on any price comparison sites. Thirdly, being independent, your broker isnt tied to any particular providers, so can give you unbiased advice on the best deal for you, with no conflicts of interest.
Fourthly, your broker will guide you through the whole process to ensure that your application is as strong and complete as you can make it, to improve your chances of being accepted first time. Finally, as a first-time buyer you can benefit enormously from having an expert on hand who can answer any questions you have about the mortgage or the process in general. Many mortgage broker clients have mentioned this as the service they valued most having someone to reassure and inform them throughout this major life decision.
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Correct Credit Score Errors Pronto
If your credit file info’s wrong, you have a right to do something about it either having the error corrected or, at the very least, having your say.
Your first step should be to check if the error is on your credit file held with other agencies, then talking to the lender. If this doesn’t work, the free Financial Ombudsman could step in and order corrections.
Here’s our step-by-step help:
Check your file with other agencies. See if your file with them has the same error. If you get it corrected with one agency the information should be sent to the others, but it’s better to contact them yourself to ensure your file with all three TransUnion, Equifax and Experian have the right details.
Contact the lender. Most will have a system in place to deal with customer disputes, and if you’ve proof, it should be resolved quickly. Write to it, say you think the error is unfair and ask it to wipe it from your file.
If it’s a default and you’re prepared to settle with your lender, either in part or in full, you could also try negotiating with it. As part of negotiations, you could make a condition of settlement that the default is wiped off your credit file. Companies can do this for disputed defaults.