With the British Columbia housing market heating up, more and more potential homeowners are looking to take the plunge. Taking on a mortgage is a huge commitment, both emotionally and financially. Whether you are looking to purchase your first home or are hoping to invest in a rental or investment property, the main point of focus should be your interest rate.
From down payments to closing costs, purchasing a home comes with a ton of added expenses, not the least of which relates to your interest rate. Even a couple of percentage points can mean thousands of dollars in additional payments over the course of your loan.
Mortgage rates in B.C. are based on a number of factors, including credit score, debt to income ratio (DTI), employment and salary, terms of your mortgage and a long list of other similar details. With so many contributing factors at play, it can feel impossible to organize an application, never mind being approved! Luckily, there are things that you can do to improve your application, boost your financial profile and get the lowest rate possible.
Breaking Into Real Estate: What You Can Do To Get Low Mortgage Rates
It can take years to repair bad credit or establish credit at all. Luckily, there are a few quick and simple ways to improve your mortgage application.
Choose the Right Lender: Despite what you might think, a loan application is not all about you. Many potential homeowners are quick to consult their bank or credit union about a home loan. This is a great starting point; however, it does not mean that you don’t have options. Shopping around is a great way to compare rates from different institutions, but it does require a bit of additional leg work and research. If this seems like an overwhelming task, it is a specialty of mortgage brokers to connect potential buyers with the most appropriate lender for their unique needs.
Credit Score: Repairing a damaged credit score can take a long time and a ton of effort but you do not need a perfect score to gain an approval. Even something as simple as paying down small debts, settling any outstanding collections or ensuring bill payments are made on time for a period of months, can contribute to approvals.
Raise Your Down Payment: The higher your down payment is, the less risk that you pose to lenders and the better investment you become. It can be a scary premise to put all of your available funds into a single lump sum for a high down payment but doing so can result not only in approval, but in a lower monthly payment over the course of your mortgage.
Term & Type of Loan: Approval and interest rates will differ depending on the length (or term) of the loan and which type of mortgage you are applying for. The longer the length of your mortgage, the more opportunity there is for something to go wrong (i.e., Employment loss, divorce or other changes financial contributors). A shorter term means higher monthly payments but can also help to encourage lender approval. When choosing a loan type, it is important to research the difference between a fixed rate mortgage and a variable rate mortgage. The type of loan will either ensure a locked-in interest rate or the option to seek a lower or adjusted rate in the future.
Gather Financial and Employment Information: When applying for a loan, lenders will usually ask for two years’ worth of financial and employment documents. This information is used to assess whether or not applicants will be able to comfortably make payments without defaulting on the loan. Gathering this information can be a complicated process – made even worse if you are self-employed.
Lower Your Debt-to-Income Ratio: A DTIR provides a snapshot of your debt in relation to income, which means weighing monthly costs and debts to currently salary. This ratio can help to decide what amount of a loan is feasible without the threat of defaulting on payments. These numbers are often used by lenders and institutions to ensure that their loans are good investments.
Getting The Necessary Help
While some of these steps are simple enough to carry out on your own, others are more complicated. Consulting with a mortgage broker in B.C. can help to organize, plan and execute a mortgage application with the greatest chance of acceptance. An established broker will have industry connections that help to pair potential borrowers with lenders in their area.