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Getting Mortgage Pre-approval Can Open the Door to Your New Home

getting a mortgage pre-approvalGetting a mortgage pre-approval is a great idea for several reasons. It automatically makes you focus on what you can afford to manage in monthly payments on your new home and you can get a head start on your actual mortgage.

Why Get a Mortgage Pre-Approval?

Your pre-approved mortgage puts you in a good bargaining position, and you can show both the buyer and your real estate agent that you’re serious about buying your new home.

Get Your Calculator Ready

Don’t worry. Getting a mortgage pre-approval is easy as long you follow a few simple steps. First you need to take a look at your current monthly expenses. Be sure to include car loans, personal loans, credit card loans, and utility bills. Total all these up to see your total monthly debt.

The next thing you need to do is add up your household expenses, like groceries, dry cleaning, entertainment, gasoline, office supplies, etc. Add this figure to your monthly debt, and you’ll have a good idea of how much you’ll have left over to pay your mortgage. If you’re currently paying a mortgage or rent, then you have a good idea of what you can afford for your mortgage.

The GDS Ratio

When a lender looks at your income and your expenses in order to do a mortgage pre-approval, they look at your Gross Debt Service (GDS) ratio. Your monthly housing costs represent your monthly mortgage payments, property taxes and heating costs and can also include condominium fees or annual site lease for leasehold tenure. Your GDS must not exceed 32 percent of your monthly gross household income for you to be considered as a home buyer, If your GDS is too high, then you should consider a smaller home or something in a different location.

The TDS Ratio

Another way lenders look at whether prospective homeowners can afford a new home is by examining your gross monthly income versus your total monthly debt. Your total monthly debt includes all your housing costs plus all your monthly debt. These numbers added together will give you your Total Debt Service (TDS) ratio.

This number cannot be more than 40 percent of your gross monthly income. Depending on whether you have low monthly debt or high monthly income will determine if the GDS or TDS method is the best one for you to use to qualify for your pre-approved mortgage.

If you still fall below the affordability ratios, the best thing to do is wait until you have lowered your monthly debt by paying off a credit card or two or try to qualify yourself again when you have gotten a raise or a new source of income.

Your Credit Report Card

If your income and debt levels have passed the approval criteria, then your next step is to get a copy of your credit report from Equifax Canada or TransUnion of Canada. Your lender will examine your credit history to make sure you have promptly paid your debts.

Check your credit report to be sure there are no misreported debts or errors. If you see a mistake, you should report it to the credit bureau immediately. A few late payments should not bar you from obtaining a pre-approved mortgage, but a low credit score could be trouble.

Choosing the Right Lender

Once you are aware of any trouble areas on your credit report, you’re ready to choose a lender. When it comes to choosing a lender, there’s no better option than going with a mortgage brokerage like Keystone Mortgage Corporation that has a working relationship with many lenders. Not only can Keystone Mortgage Corporation tailor a unique mortgage plan for you and your future, but they have access to over 50 lenders. We’re willing to work with you to engineer a great mortgage so that you’ll know ahead of time what you can afford and how much your house will cost you.

Take your credit report and your debt and income figures to Keystone Mortgage Corporation. They can tell you within a short visit if you’re ready for your mortgage pre-approval or how to go about getting your pre-approval if the time isn’t quite right for you.

Taking the time to get a mortgage pre-approval is on of the smartest things you can do when you’re thinking about buying a home. You’ll have the security of knowing you’re shopping for a home you can truly afford, and it shows the real estate agent that you are serious about buying your new home. When you finally find the “one,” your pre-approved mortgage gives you a solid foundation for negotiating your new home.

What’s your experience been with getting a mortgage pre-approval? Leave your comment in the box below.