- Reduce your personal debt. Prior to approving your mortgage, lenders need to be assured that your existing debt will not prevent you from making the monthly payments to finance your mortgage. One major factor that lenders consider greatly is your ability to make those payments. This is measured by assessing your debt against your monthly gross income. If your debt-to-income ratio is close, to or higher than, 40 per cent, you may want to take steps to reduce it. You may want to consider increasing your monthly debt payments. The additional payments will help to lower your overall debt quicker.
For example, if your gross monthly income is $150,000 and you have monthly debts (car loan, student loan and credit card payments) amounting to $60,000, already you are at 40 per cent. In this scenario, it would be wise to reduce one or two of these debts, in order to comfortably afford a mortgage. Additionally, you may want to avoid taking on additional debt. Therefore, you should consider reducing the sums charged on their credit cards, and postpone applying for additional loans
- Postpone large purchases. This means you will be accessing less credit and save more of your income. More time to save means you are able to put away more money for your deposit on real estate; and other costs associated with purchasing a home.
- Get to know all the costs involved in the mortgage process. Knowing the various fees and payments necessary to complete the acquisition is critical. Some buyers are aware of the deposit, but many are unaware of the fact that in some instances, they will also need up to 25 per cent cash, up front, to cover the cost of a series of professional and other fees. These other fees include, the closing costs, escalation fees, and legal costs, and there may be need to purchase new furniture and other fixtures for the new house. Therefore, someone purchasing a home valued at $8 million, could be required to pay about $1.6 million at five per cent, for the deposit or $2 million, at 10 per cent for the deposit, when taking into consideration all the associated costs.
- Save towards the deposit and other mortgage fees. It is important for prospective homeowners to save in advance to meet their deposit and the additional fees. It’s estimated that it could take approximately three years, for the average person, who wishes to purchase a home in a middle-income community, to save the deposit.
- In order to save, start by creating a budget and stick to it. Avoid spending on non-essential items and impulse purchases, as this type of spending impacts negatively on your ability to save and will delay your dream of owning your home. Open a separate bank account, ideally a high-earning savings account and set-up an automatic pay day transfer, as well as, make top-ups whenever possible.
- Get pre-approved. The mortgage pre-approval process in the journey towards home-ownership. The pre-approval process looks at your total financial health – that is, your income against your total debt. This will tell you what you can afford to pay for a house.
Pre-approval is a service that is offered, at no charge, at JN Bank. The pre-approval process is quite simple. It entails providing your income details and outlining any existing debt you may have.
All you need to provide is:
- Valid government issued identification, such as a driver’s licence or passport
- tax registration number
- proof of address
- income verification letter and last two payslips
- completed credit report forms and statement of affairs
The pre-approval letter will include the sum for which you are pre-approved, interest rate, term and monthly payment. You can present this letter to your realtor or vendor, to start negotiations. It is usually valid for up to three months. Remember, a pre-approval is not a guarantee for a loan. The terms of the letter may change if there are changes to your financial circumstances after the letter was issued.
- Choose the right mortgage provider. Finding a mortgage provider involves more than simply looking for a good interest rate. You should consult with the best mortgage institutions, staffed by professionals, who will guide you through the process in a proficient manner, from beginning to end.
Your mortgage provider should take personal responsibility for your loan. This means that they should communicate with you in a timely manner; deliver documents without delay; anticipate complications and take proactive steps to avoid those problems. In addition, they should oversee the loan application process thoroughly and competently; as well as, meet crucial deadlines.