How The Mortgage Pre
This mortgage pre-approval calculator gives you the opportunity to know in advance how much home financing you can qualify for. But please understand its a calculator only, and the official number will be determined by a mortgage lender.
In addition, the validity of the results youll get from this mortgage prequalification calculator will only be as good as the information you input. For that reason, be as accurate as you can be. If you inflate any information, like your annual income or your credit score range, you may get a higher loan amount, only to get a smaller pre-approval amount from an actual mortgage lender.
The mortgage pre-approval calculator is self-explanatory, but heres a general overview.
What Are Todays Mortgage Rates
Todays mortgage rates are exceptionally low. However, rates vary a lot from one customer to the next. So its important to shop around and find your best deal.
See what you qualify for today.
Step by Step Guide
Criteria Banks Look At For Home Loan Approval
The dream of owning a house can now be fulfilled with ease due to the ever booming market of home loans. Although relatively easy to obtain in this present day and age, there are criteria that banks look at before they approve a housing loan. Following the list mentioned below will ensure that you dont have your home loan rejected.
Understanding the points mentioned above and planning your application process beforehand will eliminate the risk of your home loan rejection to an extent. Always remember, a rejection in your home loan application only makes to harder for future loans to get approved.
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Boost Your Credit Score
The higher your credit score, the more trustworthy a borrower youll seem to be in the eyes of lenders — and thats a good thing when youre asking for what could be a sizable home loan. You can boost your credit score in a number of ways: First, be on time with all of your bill payments in the months leading up to your application. Your payment history is the most important factor that goes into calculating your credit score, so you cant afford to be late.
Next, pay off a chunk of existing debt. Doing so will lower your credit utilization ratio, which measures the amount of available credit youre using at once. The lower that number, the more it helps your credit score.
Finally, avoid opening new credit cards in the weeks prior to applying for your mortgage. Each time you apply for a new type of financing, it results in a hard inquiry on your credit record, which can knock down your score.
Its Not What You Can Borrow Its What You Can Afford
In some respects, the mortgage lending industry is working against your best interest. If you are deemed a qualified borrower, a lender is prone to approve you for the maximum it believes you can afford. But in some cases, that amount may be too generous.
Buying a home always means dealing with big numbers. And the impact to your budget may seem to be a stretch, particularly in the beginning. The challenge is buying a home that meets your current and future needs, without feeling like all of your money is in your home leaving you without the financial freedom to travel, save for other priorities and have a cash flow cushion.
Now that the NerdWallet How much can I borrow calculator has given you an idea of your buying power, you may want to gut-check the number by:
Run affordability scenarios. You can get another view of your home-buying budget by running some what-ifs through the NerdWallet home affordability calculator.
Talk to more than one lender. You are more likely to get a better interest rate by comparing terms offered by multiple lenders, and it might be illuminating to see the loan amounts different lenders will qualify you for.
Consider all homeownership expenses. Its not just whats built into your monthly payment such as insurance, taxes and the rest but the other having-a-home expenses, like structural upkeep, new furniture, maybe even yard maintenance equipment.
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Gather The Appropriate Documents
Lenders will want to verify your identity, credit history, employment history, income and financial assets to issue a preapproval. Theyll likely ask you to fill out a uniform residential loan application .
The 1003 application asks for your personal information, financial information and loan information, including
- Bank accounts, retirement and other accounts
- Any other assets you have
- Property you own
- Employer contact information
- Debts you owe or other liabilities
Your lender will also likely do a hard credit inquiry, and may require additional documents based on your individual situation, such as pay stubs, tax returns or bank statements.
The Maximum Amount You Can Borrow
You can figure out roughly how much of a mortgage you can afford by using the same calculation the banks use to qualify you. The maximum amount you can borrow is based on two formulas: the Gross Debt Service Ratio and the Total Debt Service Ratio. For the GDS, no more than 30 to 32% of your household’s gross annual income should go to housing expenses, including the mortgage payment, property tax, condo maintenance fees and heating. For the TDS, your debt repayments should not exceed 37 to 40% of your household’s gross annual income. Debt repayments include mortgages, credit cards, car loans and personal loans.
If youd like to understand what you can afford, try out Scotiabank’s mortgage calculator available through eHOME. It only takes a few seconds and you don’t need to fill out an application to access it.
If you don’t meet the qualifications to borrow as much as you need for a property, some options to consider are looking to reduce your debt, increasing your down payment or searching for lower-priced property. If you’re worried that you won’t qualify because you’re a newcomer to Canada or a temporary resident, then Scotiabank offers special mortgage products suited to your needs.
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Shop Around For The Best Mortgage Rates
With all that out of the way, its time to secure a loan. But dont let your excitement cause you to jump into a contract too soon. Choosing the right mortgage lender and loan offer requires some research and patience to ensure youre getting the best deal.
The mortgage interest rate you agree to will have a major impact on the total cost of your loan. Even a fraction of a percentage point can add up to a significant chunk of change over many years. Say you borrow $200,000 at 4.25% over 30 years. Youd end up paying a total of $154,197 in interest over the life of the loan. If your rate was 3.50% instead, youd pay $123,312 in interest, for a savings of $30,885 over those same 30 years.
In addition to the interest rate, pay attention to closing costs, origination fees, mortgage insurance, discount points and other expenses that can tack on thousands of dollars to your loan. These fees often are rolled into your loan balance, meaning you pay interest on them in addition to the principal.
Once simple way to compare the true cost of a mortgage is by examining the annual percentage rate . This is the total yearly cost of your loan once all fees are factored in, expressed as a percent of the total borrowed. However, one thing to keep in mind is that the APR assumes you will keep the loan for its entire term if you plan to move or refinance within a few years, the APR may be a bit misleading.
How Much Mortgage Can I Afford
Generally speaking, most prospective homeowners can afford to finance a property that costs between two and two-and-a-half times their annual gross income. Under this formula, a person earning $100,000 per year can only afford a mortgage of $200,000 to $250,000. However, this calculation is only a general guideline.
Ultimately, when deciding on a property, you need to consider several additional factors. First, it’s a good idea to have some understanding of what your lender thinks you can afford . Second, you need to have some personal introspection and figure out what type of home you are willing to live in if you plan on living in the house for a long time and what other types of consumption you are ready to forgoor notto live in your home.
While real estate has traditionally been considered a safe long-term investment, recessions and other disasters can test that theoryand make would-be homeowners think twice.
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Get An Idea Of How Much You Can Borrow
Lenders will look at front end and back end debt ratios to decide how much money you should be able to borrow. The front-end ratio is your total housing payment per month including, principal, interest, homeowners, taxes and mortgage insurance if needed, compared to your monthly income. This ratio should not be higher than roughly 28% to 31%, depending upon the type of loan you get. And your rear end ratio should not be above 36% to 41%. This ratio includes all of your monthly debt payments compared to your gross monthly income.
Get first-time home buyer tips and check with your mortgage broker or lender to see what the debt to income ratios are for the mortgage programs you are considering. Then you can ensure that your ratios are in the proper range before you apply for your pre-approval.
Documentation Required To Get Pre
To get a full pre-approval, youll need to be prepared to provide the following documentation:
- Pay stubs Youll need to provide your most recent pay stub, which must show your year-to-date earnings. Youll need a pay stub for each job you have, and for each person applying for the pre-approval.
- W2s Many mortgage lenders will require your W-2 for at least the most recent calendar year. However, some lenders may require them for the past two years.
- Completed, signed income tax returns Youll need to provide these if youre self-employed, or have substantial real estate, investment, or partnership income. They should include all pages of IRS Form 1040, including schedules.
- Asset statements For bank accounts or taxable investment accounts, youll need to provide statements covering the most recent two months, or the most recent quarter. For retirement accounts, youll need to provide something similar.
- Gift information If some or all your down payment will come from a gift, youll need to provide the amount of the gift, when it will be available, who the donor will be, and what their source of funds for the gift will be. The lender will likely request that the donor complete a formal mortgage gift letter, that will request specific details.
- This can usually be satisfied by providing your drivers license. In some cases, the lender may request a copy of your Social Security card. These documents will be requested to verify your identity for federal compliance purposes.
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What Factors Impact The Amount You Can Borrow
Lenders consider several factors in determining the amount you qualify for, including:
Your debt-to-income ratio. Our How much can I borrow calculator? depends on an accurate input of your income and recurring debt. Youll want to really hone those figures down to a fine point, because lenders will be using them too.
Your loan-to-value ratio. This ratio is a function of the amount of money you put down. If you want to drill down on this calculation, use NerdWallets loan-to-value calculator.
Your credit score. This number impacts the pricing of your loan, more than how much youll qualify for. But thats really important. If you dont know your score, get it here.
Apply For A Mortgage Pre
Most Canadians think the first step in the home-buying process is to contact a realtor and start looking at homes. This isnt correct. The first thing you should do is apply for a mortgage pre-approval. After all, if you find a home you like, youll want to move quickly. Being pre-approved for a mortgage removes an extra step in the process.
Being pre-approved also helps you know how much you can afford to spend. You can get a good estimate of how much you can afford with our mortgage affordability calculator. However, the hard limit will always be how much the bank will approve you for a mortgage pre-approval gives you that.
How long does it take to get a mortgage pre-approval? It can be done within an hour if you have your documentation together. Get in touch with a mortgage broker near you to get started.
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What Are The Chances Of Getting Denied A Mortgage After Pre
If youve stayed within your budget, not high, but it does happen. Remember that pre-approval is a statement that you are considered generally qualified to pay back a mortgage, whereas the actual mortgage approval is on a specific purchase. The lender may believe that you are paying too much or may have uncovered liabilities that they did not find in the pre-approval. Also, if you are not able to pay a certain percentage of the cost in a down payment, typically 20 percent, then you may have to purchase mortgage insurance, which increases your costs.
You dont have to stay with the lender that gave you pre-approval, so you can consider applying elsewhere, which is a good idea in any case.
What Is Loan Pre
A loan pre-approval means that a lender has agreed, in principle, to lend you an amount of money towards the purchase of your home but hasn’t proceeded to a full or final approval. It allows you to know your maximum available funds so you can narrow your search, negotiate with more certainty, and bid with more confidence if you’re going to auction.
A pre-approval is a valuable step in getting you closer to your new family home or investment property. It’s not a requirement in the home buying process, but it can make life easier.
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Dont Apply With Too Many Lenders At Once
Dont put all your eggs in one basket, right?
Its important to compare lenders, but submitting applications to several lenders will show up on your credit report. While it wont have a massive impact on your credit rating, it is frowned upon by lenders and it just doesnt look very good especially if youve already been denied for a loan multiple times.
Its a much better idea to compare all your options first, then apply for a loan once youve identified the right one for your needs.
Get Your Paperwork Together
Your finances are in good shape and you know how much you can borrow. Now here comes the real work.
Lenders require quite a bit of documentation as part of the mortgage approval process, so its a good idea to gather everything up before youre ready to apply. Heres what youll need:
Income verification. First, youll need to prove you have the income to support your mortgage payment. Lenders will likely want to see tax returns for the last two years, as well as recent W-2 forms or pay stubs. If youre self-employed, youll need to verify your income with 1099s or profit and loss statements from the past couple of years instead.
If you receive income from alimony or child support, youll also be expected to provide court orders, bank statements and legal documentation that shows youll continue receiving that income.
Proof of assets. In addition to income, additional assets can help you secure a mortgage. Expect to provide bank statements for checking and savings accounts, retirement accounts and other brokerage accounts from the past 60 days.
List of liabilities. Lenders may also ask you to provide documentation related to outstanding debts, such as credit card balances, student loans or any existing home loans.
Additional paperwork. Depending on the lender, you may have to come up with some additional documentation. For example, if you currently rent, the lender might want to see canceled rent checks or a letter from your lender as proof that you pay on time.
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How Much Can I Afford
How much you can afford to spend on a home in Canada is most determined by how much you can borrow from a mortgage provider. That is unless you have enough cash to purchase a property outright, which is unlikely. Use the above mortgage affordability calculator above to figure out how much you can afford to borrow, based on your current situation.