Mortgage

Mortgages 101: The Basics of Buying a Home

mortgages

Purchasing a home is a significant financial investment, so it’s essential to know each step that goes into it. Educating yourself about mortgages will empower you to feel confident in the decisions you make when it comes to your home purchase.  

Our article explores the basics of mortgages and home buying and how you can make the process go as smoothly as possible. 

What Is a Mortgage?

A mortgage is a loan used for purchasing a property. In essence, it acts as security for the loan. A mortgage will often be a large sum of money to be paid off, usually over 25 or 30 years.

When you get a mortgage, you must make regular payments. These payments feature both principal and interest. When a person makes the payment, it covers the interest and then the principal. In other words, a mortgage lets the mortgage lender take possession of the property if you do not make payments on time.

Questions to Ask a Mortgage Professional 

Before you start the mortgage process, you’ll want to work with a savvy mortgage professional. When you work with a mortgage professional during your purchase, you’ll want to ensure that they are the right fit and committed to getting you the best deal possible. Here are some questions that can help inform you as a buyer:

  • What role do you play in helping me buy a house?
  • How long have you been doing business?
  • What products and services do you offer?
  • Why are you recommending this mortgage in particular?
  • What is the relationship between you and the lender?
  • How do you get compensated?
  • Do you have any references?
  • How long does the application process take?
  • What documents are necessary for the application?

How Do Mortgages Work?

Before even looking at properties, you’ll want to get pre-approved for a mortgage. When you get pre-approval, you’ll have a budget for what you can afford on the home. 

Once you get pre-approved, then you can go on a search for a home. When looking for the right home, you can come up with a list of needs and wants, and this planning can help you narrow down options that will work best for you.  

You can put in an offer when you find a home ideal for you. If the offer is accepted, you will work with your banker or mortgage broker to get the official approval. During this process, you’ll provide documents and financial information so the lender can sign off and remove the financial conditions from your offer. 

How do You Qualify for a Mortgage?

For all insured and uninsured mortgages, with a 20% down payment or more, borrowers must prove that they can afford their payments. In addition, they will need to show that they can pay these payments based on a minimum qualifying rate of 5.25% or their mortgage rate plus two percent. 

These minimum qualifying rates are necessary since they will ensure home buyers can pay their mortgage payments in case interest rates increase.

Want to know approximately how much your mortgage will cost? Try our handy Mortgage Calculator at Dream Big Mortgages

What is a Credit Score, and is it Important When Applying for Mortgages?

A credit score is a rundown of your credit history and how consistent you are when it comes to paying your financial obligations. This score includes information about your credit account, employment, and personal finances.

Having good credit in your financial history and a good credit score are significant factors when purchasing a home. A good credit score can help you borrow any money you need when making a home purchase. Unfortunately, you’ll likely have to pay a much higher interest rate if you have a poor credit score. In other words, your credit score shows how likely you will repay future payments and debts. As a result, it can impact the mortgage approval process. 

In Canada, the two major credit bureaus are Equifax and TransUnion are the two principal credit bureaus in Canada. On their websites, you can learn more about credit history, credit scores, and why checking your report is essential. These sites will also provide information on gaining access to your credit report to take the steps needed to improve it. 

How Does Paying Off Mortgages Work? 

The mortgage amortization period is the years it will take to pay off the mortgage and interest. For example, if your mortgage amortization period is 25 years, it will take 25 years to pay your mortgage in full. It is essential to note that the longer the amortization period, the more you will have to pay interest

Here is some important information about paying off your mortgage:

  • You will need to borrow less money overall if you have a higher down payment.
  • The frequency of your mortgage payments will impact how much you pay. For example, paying weekly or biweekly instead of monthly can mean you will pay less interest as time passes.
  • Increasing your payment amounts can also be beneficial. You’ll be able to reduce the length of the amortization period, therefore, paying less interest.
  • If you choose the shortest possible amortization period, you can reduce the time you need to pay off the loan.

In Summary 

There is much to consider regarding mortgages and home buying, and this guide is a good start for your journey. You now have some basics for preparing your mortgage application and how the process works. 

The mortgage process can seem stressful, but working with top experts in this field can make it much more manageable. These professionals can help ensure that everything runs smoothly and that your mortgage application gets approved.