Renew your Mortgage with Ottawa Mortgage Broker: Capital Mortgages

3 Steps to Take Before Applying for a Mortgage

Do you think it’s time to contact your local mortgage broker for a new home purchase or a refinance on your current home? Here are three things to consider before filling out the loan application.

1. How is your credit?

Your credit score will impact your ability to get a loan more than anything else. The higher your score, the better interest rate and terms you can get on the loan. The best thing to do is to view your credit report from the three credit reporting agencies, Transunion, Equifax, and Experian. You can do this once a year for no charge. Once you have the reports, you should look them over carefully to make sure all the information is correct. Once you’ve verified that everything is accurate, you will then need to look at your overall score. If your scores are anywhere above 580, you should be able to get a loan. Ideally, you want to be above 700, but there are programs that work with credit scores lower than that.

2. Pay down your debt as low as possible

There are two main reasons to focus on paying off your debt before applying for a new loan.

If you have any bad debt or are behind on any payments, your credit score will be lower. If you can pay off debts that show up on your credit report, you will see your score go up. Also, if you have a high debt to credit ratio, your credit score will be lower as well. A high debt to credit ratio means that you have used up most of your available credit limit. For example, let’s say you have a credit card with a $5,000 limit and you owe $4,500 on it. You will show up as a higher credit risk because you’ve almost tapped out your limit. On the other hand, if you only owe $500 on the card you will show up as a lower risk, and your score will be higher.

The other reason to pay off debts is that it will increase how much you can borrow on your home loan. Your mortgage broker will look at your debt to income ratio which is how much you owe on debt every month in comparison to your income every month. The more cash flow you have in your budget, the higher your mortgage payment can be. The higher the mortgage payment, the nicer house you will be able to afford.

3. Fix up your home

If you are not looking to buy a new home but only wanting to refinance your current home you not only need to do the first two items on this list, you also need to make sure your house is spruced up and looking nice. The refinance is based on a home appraiser giving value to your home. The more repairs that are needed, the lower the value the appraiser will give your home. You want the home to appraise as high as possible to get the best loan options. If you have at least 20% equity in your home, you will have the best rates, and you won’t have to pay extra mortgage insurance.
Your mortgage is usually your largest monthly expense, taking these steps will help ensure that you get the best deal possible with the lowest out of pocket expenses. If you are unsure, feel free to give Capital Mortgages a call, and one of our Mortgage Professionals will be happy to answer any of your questions.