Are you an aspiring homeowner? Well, your dream isn’t far-fetched; you can easily become a homeowner with the right resources. One such resource is a mortgage; it’ll help finance the project. Now, let’s delve into the specifics of how a mortgage can aid your home purchase.
With this type of loan, a financial lender will provide the funds for your home purchase that you’ll repay with interest. They’ll also use the property as collateral for the loan should you fail to pay them as agreed.
Once you understand the premise of a mortgage, it’s crucial to familiarize yourself with the property purchasing process. Here’s a rundown of how it works:
1. Understand The Purchasing Process
A mortgage involves acquiring property. Therefore, it’s important to have a clue about the property-acquiring process.
The process is quite straightforward: identify the property you want and make an offer to its seller. Should the seller accept your offer, proceed to make the payment. Knowing the purchasing process is one thing, but what happens if you change your mind? Luckily, there's a provision for that in the HBRP (Home Buyer Rescission Period). It’s the period between signing the purchase agreement and the seller accepting your offer. However, there’s a timeframe within which you must do this. A BC home buyer rescission period calculator will help determine the timeframe.
With a clear understanding of the purchasing process and the HBRP, it's time to consider the costs associated with taking out a mortgage. Watch this video for more:
2. Know The Associated Costs
Before securing this loan, understanding the costs you’ll incur for the property and mortgage is important. This knowledge will help you in organizing your finances for a smooth time once you start the process.
These costs are:
The Principal: it's the money you’ve borrowed from the lender.
- Interest: it's the additional money you’ll pay above the borrowed money.
- Mortgage Insurance: you'll pay this if you’ve made a downpayment of less than 20%.
- Mortgage Closing Costs: you'll pay this as a percentage of securing the loan.
- Homeowner Insurance And Property Tax: these costs are associated with homeownership and not the mortgage. However, you must pay them, and they’re included in your monthly payments.
These are the main costs you’ll incur. Expect to pay a rescission fee in BC should you opt to rescind your purchase agreement.
3. Start Saving
When buying a house with a mortgage payment plan, the lender will require you to make a downpayment on the house price.
Therefore, it’s essential to save enough money for the downpayment. The more money you pay for the downpayment, the less you’ll pay as interest rates on your mortgage.
Now that you're aware of the costs, it's time to start saving. When buying a house with a mortgage payment plan, it's essential to make a downpayment. Saving will help you avail more money for the downpayment. There are various ways to save, with the main one being spending on a budget. The budget will prevent overspending, enabling you to put away the extra money for the downpayment.
4. Improve Your Credit Score
While saving for your downpayment, you should also strive to improve your credit score. Why is this important? The credit score is a rating used by lenders to determine a borrower's creditworthiness. The lender from whom you’ll request a mortgage will also rely on this score to determine whether to give you the mortgage, the amount to give you, and the interest rate to charge. Therefore, work towards improving your credit score.
Start by knowing your credit score. You can know your credit score from various free online sources. This score ranges from 300 to 850 and is classified as follows:
- 300-629: Bad credit score.
- 630-689: Fair credit score.
- 690-719: Good credit score.
- 720-850: Excellent credit score.
Aim to get an excellent credit score. Improve your score by reducing your credit card balances to below 30% of their limits, paying bills on time and debt, and keeping your old accounts open instead of closing them.
5. Choose A Suitable Mortgage Lender
Once you've improved your credit score and saved for a downpayment, the next step is to choose a suitable mortgage lender. Securing home financing requires you to partner with a lender. Therefore, you should find a mortgage lender to help you land your dream home. They include but aren’t limited to credit unions, banks, mortgage brokers, and private investors.
Who’s the most suitable lender?
A suitable lender offers favorable loan terms, interest rates, mortgage insurance covers, closing fees, and downpayment requirements. Land this mortgage lender by comparing several of them. Consider getting recommendations from your friends and family on lenders they’ve previously worked with. The recommendations give you a starting point for the search.
Of course, when choosing a mortgage lender, it's crucial to ensure their legitimacy. Falling prey to a scam can have severe repercussions. Verify their legitimacy by looking at their reputation and reviews online. Do they have previous clients who’ve complained about their services? If yes, please abandon this lender and find an alternative.
Conclusion
From the discussion, it's evident that adequate preparation for a mortgage is vital. This guide has detailed how to prepare for a mortgage, so if you're planning to take one out for your dream home, consider implementing these tips.
