Your Guide to Getting a Mortgage

Your Guide to Getting a Mortgage

If you are finally comfortable in your job, feeling the need to nest, looking to settle down, no doubt you’ll find yourself browsing realtor sites for your dream home. There’s nothing wrong with that, but unfortunately it takes a little more forethought than what hardwood floors you want to put down and whether a dog can play in that backyard. 

All the money that is wrapped up in buying a house and gaining a mortgage is overly complicated and full of little loopholes. They’re also measured on a case-by-case basis, meaning that there is a lot of things that can make a big difference in how big your mortgage is. 

If none of that puts you off, take a look at our guide to gaining a mortgage to help you wade through the numbers. 

Wipe your debt

Debt gets in the way of everything – and it’s far more common than it should be. Everything from looking for a loan to stalling your retirement plans and even getting a mortgage will be affected by debt. It hardly needs mentioned the affect this can have on your mental wellbeing. 

Ultimately it needs wiped clean as fast as possible. Your lender will look at your debt-to-income ratio to determine how much your minimum monthly payments are taking up of your income and determine if they think you can afford a mortgage from there. 

If you have assets set aside for something else, put it towards your debt. That money won’t be much use if debt is getting in the way of what you want to do. 

If you don’t have any assets, you should at least try to pay more than the minimum monthly repayments on your debt. The interest on your debt will go up and up, but you can avoid a majority of it by paying it off as soon as possible. You can also avoid the interest by using a balance transfer card. Or you could pay it all off by refinancing an auto loan. 

Save for a decent deposit

The hardest part of gaining a mortgage, beyond debt, is saving for the deposit. It sounds so easy, and yet it’s so easy to dip into, if not for a rainy day, then for a decent meal. 

There are a few things that you can do to make it easier, but most of them come down to your own psychology. 

The best way people have learned to save is with the 50/30/20 method. If 50% of your income is going towards monthly expenses, then you should be putting 30% towards yourself and 20% into savings. This is a healthy balance between the three directions you will need your money to go, and it’s probably more than you think. 

If you are spending more than 50% on your monthly bills, maybe it’s time to rethink your budget. Is there anything you are overspending on, or you don’t use enough. Go through your subscriptions and ask yourself if you really use them enough to justify them. 

Compare what you expect to spend with what is actually coming out of your bank account and see if there is anything you can cut back on. 

There are a lot of ways you can save money and put it aside for your deposit. Tally's guide to saving will show you how to save $1,000 in a month!

Extend Your Borrowing Power

Before you go in demanding a mortgage, make sure you are prepared. There is a lot of little things that you can present to your lender to extend your mortgage borrowing power, so you can afford that more valuable home. 

The first thing they’re going to look at is your debt-to-income ratio, so see above for what you can do to lower your debt. Even if it’s not entirely clean, a lower DTI will have an effect on what you can be offered. 

Part of that, however, is looking at your income – and you might be surprised as to what is regarded as income. It isn’t just your 9-5 salary, although if you ask for a higher salary and get it, it can’t hurt. 

A lot of other things are included in income, like alimony, child support, social security, income from a side business or part time job, and profits from investments or a rental property. The bigger the income you present your lender with, the more they can offer you in a loan. 

Your bigger down payment can help you down the line too. With more than 20% put down on your down payment, you will forgo the Private Mortgage Insurance that covers lenders if you stop paying your mortgage. Your PMI will be removed from your monthly payments, making a difference in the long-term. And remember that the more you put up front the less you will pay down the line. 

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