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20 Sep

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It may seem premature to apply for a mortgage before you buy a property, but in reality many potential buyers end up losing out on properties because they haven’t qualified for a mortgage in time.

Therefore, it is best to begin applying for a mortgage before starting to seriously look at properties to buy. By arranging for a mortgage early, you can determine exactly what you can afford. It can be easy to get swept up in the shopping and viewing process and get your heart set on a property that is too expensive for you. Before you start shopping, it’s best to use a mortgage loan calculator in order to find out exactly what you can afford.

Remember, it’s not just about the down payment. There are closing costs, and then monthly mortgage payments after. By calculating exactly what you can afford, and even qualifying for a mortgage before making offers, you can avoid disappointment.

It’s especially important to be sure you can qualify for a mortgage before buying if you are self-employed or in an otherwise unconventional employment/financial situation. When applying for a mortgage, you will have to provide detailed financial and employment documentation to prove you can afford your mortgage loan. If you try to buy first, you may find out you aren’t able to borrow as much as you thought, and end up losing out on the property.

Pre-qualifying for a mortgage can also be an advantage if you are bidding against rival buyers who do not yet have mortgage arrangements in place. Overall, being pre-approved, or approved for a mortgage in principle is definitely recommended for those who want to buy a property.

If you are hoping to buy a property, you should start by doing your research. This may include speaking to a mortgage professional, and using a mortgage loan calculator to determine what kind of loan you will be able to afford. Things you will need to decide before you apply for a mortgage include:

  • How much can I afford? You will need to calculate how much of a loan you can afford by looking at your monthly expenses and income. You can find a mortgage loan calculator online, and put in a value in order to get a rough idea of what your monthly payments will be. You will also need to be able to afford the minimum down payment on the home from your own resources. The more down payment you can put down, the easier time you will have getting a mortgage.
  • What kind of mortgage do I want? Usually this means deciding between a fixed or variable rate mortgage. While many home buyers choose the stability and predictability of a fixed rate mortgage, there can be benefits to a variable rate mortgage. Discuss with a mortgage professional to determine which is best for you. Take a look online, or speak to a mortgage broker in order to get an idea of what kind of mortgage rates are out there, and what the market is currently like. The more you know about this, the better mortgage rates you will find.

Once you have narrowed your search down to a few different mortgages, you can try to get pre-approved. During a pre-approval, a lender will look at your financial history and current records and let you know the maximum amount they will lend you, and what rate they will charge you.

If you get pre-approved, you will know:

  • the maximum amount of mortgage loan you can receive;
  • mortgage payment estimates;
  • interest rate for first 60-120 days.

A pre-approval does not guarantee you will get a mortgage from that lender, but it can be very helpful when deciding what kind of property you can afford. A pre-approval will tell you the maximum loan you will receive, so it’s usually recommended to look at properties in a lower price range than what you are pre-approved for. It’s usually best to leave a little room in your budget, especially as you’ll need funds left over for closing costs, maintenance costs, and any other associated fees.

To be pre-approved, you will need to provide documents showing your current income, assets, and level of debt. The documents you will need to provide include:

  • proof of employment (pay stub and letter of employment, though this is different if you’re self-employed);
  • identification;
  • financial statements proving you can pay for the down payment and closing costs from your own resources;
  • proof of other assets, such as cars or other properties;
  • statements of debt or other financial obligation (such as student loans, car loans, child support, credit card statements, etc).

If you are pre-approved and can then prove to a lender that you can pay the amount they are asking for, getting a mortgage should be easy. However, make sure you do all your homework before making any offers, including using a mortgage loan calculator to see what your monthly payments will be, and contacting a mortgage broker for help!

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