How to Get a Home Mortgage

A debt can help you achieve your lifestyle goals like buying your family home on a mortgage. Most home-buyers do not have the available cash to buy their homes outright and ordinarily turn to a bank or financial institution to lend them the money for it. If your loan application is approved, you will then execute a mortgage agreement in favor of the lender guaranteeing the repayment of the loan with the property purchased.

Borrowing money to buy your home should be a major decision that requires a careful examination of your budget. You’ll need to know how much you make and spend monthly, and how much money you have left for paying your monthly amortizations.

Your capacity to pay is an important criterion lenders consider when evaluating your loan application. Typically, lenders look at 2 qualification ratios— Gross Debt Service Ratio (GDS) and Total Debt Service Ration (TDS).

Both ratios compare your monthly income against your monthly debt obligations. GDS shows how much of your monthly income can be reasonably set aside for your mortgage payment while TDS shows a greater picture because it measures how much of your monthly household income may be set aside for your total debt obligations including the proposed mortgage payment.

Lenders usually act favorably on a GDS ratio of round 28 to 32% and a TDS ratio of around 36 to 40%.

Deposit: While a lender may finance your home purchase, you will still have to provide a portion of the purchase price in cash in what is known as a deposit or downpayment.

How much you will provide as downpayment will depend on the terms of your lender but this is often between 5 to 20% of the total cost of the property.

As a rule, the larger the deposit, the less your home costs in the end because with a smaller debt, interest costs are lower and can add up to significant savings in the long run. A higher downpayment will also lead to smaller monthly payments or a shorter amortization period.

Mortgage broker: When shopping for a lender, most people use the services of a mortgage broker. This agent is often a real estate financing professional who specializes in matching loan wholesalers and loan products to borrowers.

Your next step after approaching a mortgage agent is to get a pre-approved mortgage which is an interest-rate guarantee issued by a lender for a specified period of time, usually 60 to 90 days. Most real estate professionals require that you have one before taking you around prospects.