Financing Your New Home

What could be more comforting than the peace of mind that goes with knowing your mortgage is fully approved. You will have a greatly improved negotiating position when you are preapproved for a mortgage. Sellers are more apt to negotiate with someone who already has a mortgage approval in hand. The preapproval letter lets the seller know they are working with a serious buyer. A preapproved buyer can also close on a property more quickly, another major consideration for a motivated seller. Obtaining a preapproved mortgage is essential in a "sellers' market" or where supply is limited.

Preapproval uses basic information as well as electronic credit reporting. It is a true mortgage commitment. Which means a commitment to financing your future home, and an indication of the total mortgage amount available to you. Mortgage lenders can help you through the preapproval process, and in most cases, there is no charge for this service. Ask your Sales Associate for more information.

Prequalification, on the other hand, is not a full mortgage approval, but an estimate of what you can afford. When you prequalify for a mortgage, the lender collects basic information regarding your income, monthly debts, credit history and assets, and then uses this information to calculate an estimated mortgage amount. Of the more than 50 different mortgage types available, the two largest categories are fixed and adjustable rate mortgages, each with advantages to consider.

Fixed Rate Mortgage

The fixed rate mortgage is a traditional method of financing a home. The interest rate stays the same for the entire term of the loan (usually 3 or 5 years). Your payments are stable and predictable, but initial interest rates tend to be higher on a fixed rate mortgage than on variable rate loans.

Variable Rate Mortgage

Interest on an variable rate mortgage is linked to a financial index determined by the Reserve Bank, so your monthly payments can vary over the life of the loan, usually 25 to 30 years. The lower initial payments make it easier for buyers to qualify. Some loans may also be converted to fixed rate mortgages at specified times, usually within the first five years.

Documents Needed to Apply for a Mortgage

When you apply for a mortgage, you will need to furnish information regarding your income, expenses and obligations. It will save time if you have the following items available:

Tax returns for the last two years Last two months' bank statements Long-term debt information (credit cards, child support, car loans, etc.)

Click here to download Worksheet of Estimated Buyer's Costs

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