Excellent question! A mortgage is essentially a loan specifically designed for buying a home. In this legal arrangement, a mortgage lender fronts the full cost of your home, expecting you to pay it back, along with interest, over a predetermined timeframe. This system enables individuals to own homes even if they can’t pay the full price upfront. Now, let’s clarify some frequently used terminology:

Mortgage Advisor: This is the me! I am the expert responsible for managing your loan file and guiding you through the entire process.

Interest Rate: This is the cost of borrowing money, represented as a percentage.

Closing: This term refers to the final stages of transferring property ownership. Here, the buyer completes all necessary paperwork, and the seller receives the payment.

Credit Score: This numerical value indicates your creditworthiness. A lower score suggests a higher risk of defaulting on your mortgage, while a higher score signals to lenders that you’re a lower risk.

A pre-qualification serves as an initial assessment by your mortgage advisor of your home-buying capability. It takes into account your credit score and some additional information you provide. This preliminary step can guide you toward the loan program that may be most suitable for you and give you a ballpark figure of how much you might qualify for.

On the other hand, a pre-approval is a more formal verification that specifies the amount you can borrow, based on a thorough review of your income and assets. Once you’re pre-approved, you’re in a stronger position to actively seek out a home. If pre-approval isn’t possible at the moment, your advisor can offer valuable guidance on improving your credit score, reducing your debt, or overcoming any other financial hurdles that stand in your way of homeownership. 

Here are three key elements that influence your eligibility for a mortgage:

1. Credit Score: Each mortgage program has a minimum credit score you’ll need to meet to be eligible. A higher credit score could also open the door to lower interest rates.

2. Down Payment: Various loan schemes might require you to contribute a specific percentage of the home’s price upfront.

3. Debt-to-Income Ratio (DTI): Your existing debts should represent only a limited portion of your earnings, especially since you’re about to take on a substantial new financial obligation by buying a house.

Here are some credit score ranges that could impact your mortgage terms and approval likelihood:

• 300 to 579: Qualifying for a mortgage may be unlikely at this range.
• 580 to 620: This is typically the starting point for mortgage eligibility.
• 720 to 850: You could potentially receive the most favorable rates and terms.

Likely not! Some loan programs permit down payments as low as 3.5% or even none at all. While a 20% down payment can lessen your monthly installments and the overall interest you’ll pay over the loan’s lifespan, it’s certainly not a mandatory requirement for every applicant.

As a general rule, most homeowners should aim for a mortgage payment at or below 30% of their gross household income. Use our mortgage calculator for an estimate on your total monthly payment. It’ll include principal, interest, taxes, and insurance. Your monthly payment may also include Homeowners Association (HOA) fees as well. HOA fees vary from community to community.

Interest rates can change from day to day, making it impossible to pinpoint the ideal moment to secure the lowest rate available. If you find a rate that leads to a monthly payment you’re comfortable with, it’s generally a good idea to lock it in. As you advance through the mortgage process, your mortgage advisor will provide further details about how rate locks work and when might be the best time to implement one.