Buying your first house? 5 Golden Rules for Getting a Mortgage
Remember these five golden rules if you'll be applying for a mortgage:
#1. Clean up your credit history. A few months before applying for (or renewing!) a mortgage, review your credit report and check for any discrepancies. You can access your credit report from www.Equifax.ca or www.TransUnion.ca, where you can check your report for free, or call me.
#2. Don't become house poor. Be realistic about how much house you can afford. Some say plan to borrow roughly 3 times your annual household gross salary. And in these uncertain times, if you're buying the house with another person, you'd be wise to take on mortgage payments (including taxes and insurance) that can be supported with one income.
#3. Know the 35/42 ratios rule. The majority of lenders will back a buyer whose monthly house payment will not exceed 35 percent of their gross monthly income. Lenders also require the borrower's overall debt payments to fall below 42 percent of their gross monthly income.
#4. Use a bigger down payment. While you can buy with as little as 5% down, if you can put down 20% on your home purchase, you'll avoid mortgage default insurance.
#5. Get pre-approved. Try to be pre-approved for a mortgage before your home search begins. That way you'll be able to better focus on the best potential home in your price range and give yourself one additional competitive advantage should you decide to make an offer.
And always remember that even though looming new mortgage fees and strict lending standards are making home purchases a more daunting task these days, it is a buyer's market if you're well prepared!
What do you think of the 3x salary rule-of-thumb? It used to be 2 to 2.5, but that seems unreasonable with the price of real estate in some parts.