How To Tell If You’re Ready For A Mortgage

how to tell if you're ready for a home mortgage

You may be at a stage in your life that buying a home looks like a good idea. According to recent realty statistics, 78% of Albertans own their own homes. The fact that your peers and the majority of the province have committed to a buying a home may not be the best way to determine if you are ready for a home mortgage loan.

How To Know If I Am Ready For A Home Mortgage Loan?

Make a list of financial factors to give yourself a good snapshot of your financial readiness for a mortgage. The New Year is an excellent time to assess your finances. This is when people begin collecting their yearly financial data to complete income tax.

Look At Your Gross & Net Income

Lenders want to know that as they base how much of a mortgage they will lend you on your yearly income. They like you to have a steady income but will factor in your average income based on your tax return record. You can book an appointment with a bank manager or mortgage broker to determine how much they will lend out based on that yearly income. You can also do a quick evaluation is using an online mortgage calculator

Assess your savings before applying for a mortgage
It is important to assess your savings before applying for a mortgage

Look At Any Savings You Have

Lenders require a down payment on the mortgage loan. Most lenders require at least 5% of the home price for a down payment and up to 20% on higher-value homes. The legal and realty costs are also extra costs related to the buying process. The lenders may figure those costs into the amount of the mortgage they lend you.

How Much Debt Are You Carrying?

Lenders look at debt along with what you currently spend on monthly on housing and utilities. These factors help the lender ensure you can afford the mortgage payments of the new loan. Those two costs shouldn’t exceed 25% to 36% of your gross monthly income. You can get a credit rating report that banks use to look at your debt by following the instructions from the federal government site under ordering your credit report and score. Make sure to go through it to be sure it is correct. Sometimes companies don’t clear debts you may have paid, or you might appeal scores and mediate a better rating.

Take A Look At Your Current Monthly Budget

Do you have room to include the extra things that come with homeownership? You may need to factor in more money for increased utility costs, home and mortgage insurance, taxes, HOA fees, home development, and maintenance costs.

Other Factors To Consider

Finances are not the only thing to consider in being ready to commit to a home mortgage loan. You want that financial commitment to give you the quality of life you will enjoy.

Do You Know What Kind Of Home You Want To Buy?

There are a lot of choices out there. There are condos, apartments, townhouses, duplexes, single-family homes, acreages, and farms. If you list the features of where you are currently living and note the things you dislike, those points can help you evaluate what type of home would suit you best.

Where Do You Want To Live?

Is it an area closer to your work? Maybe you want to move your family to a community with good schools and lots of other children. You may have certain values that play into your choices. You may want a sustainable living situation with community planning and lots of green space. Cultural factors and entertainment may also be important to your lifestyle. Can you afford the house prices in your ideal spot? Some areas are going to be more expensive than others depending on the availability of housing in those areas. You may have to adjust your ideals to meet your lifestyle goals.

Will You Need To Move Repeatedly Or Can You Settle In One Place?

It takes five years to start to begin to get any equity in your home purchase. If you need to move and sell, you may not gain a profit from homeownership. Some people keep their homes and rent them out when they have to move. If this is the case, rework your budget to ensure you have enough to meet the mortgage and your new living accommodations. Renters can bring a higher maintenance cost than expected as tenants may damage the home.

What Are Your Life Goals?

Some people want to downsize to spend more time traveling. Maybe you want a larger home to raise a family. Perhaps you are buying several properties for investment gains, or you want an additional vacation home. You should examine if the mortgage you are considering fits into those life goals. Again, a good mortgage banker or mortgage broker will be able to help you forecast some factors and present options in achieving those goals, so you can determine if you are ready for the mortgage type that supports your life goals.

Seek Outside Advice

Once you have answers to some of these questions and have factored in your finances, you should have some concrete facts to weigh the pros and cons of taking out a home mortgage loan. You can ask for advice, but it is best to get several opinions from people who know you best, other homeowners, and professional mortgage specialists. 

Ultimately, it comes down to you to decide. If the answers point to the negative, but you still have a goal to purchase a home or investment property, talk to your mortgage banker or broker. They have many suggestions that can improve your ability to qualify for a home mortgage loan in the future.

For any questions or information you need, the brokers at The Mortgage Group will be happy to help. Give us a call anytime, or fill out our online application.