Ravi Chandran
Ten mortgage preparation steps you have to take before you venture out to your mortgage broker
Have you checked your credit score and decided the time is right to buy a nice, beautiful home?
Check these ten mortgage preparation steps before you venture out to your mortgage broker and you’ll be ahead of the game!
Table of Contents
1. Start with your credit report
The first thing lenders will probably do when you apply for a mortgage loan is to check your credit; you should, too. There’s no better time for regular credit monitoring than when you’re trying to prove your creditworthiness to a lender so you can get the best possible rates. You want to make sure that your credit report is as accurate as possible, your scores are where you want them to be, and no one else is getting access to your credit, possibly harming your scores.
2. Then, get things in order
Once you’ve been keeping regular tabs on your credit report, you’ll be able to see how you’re doing. Dispute any inaccuracies with the credit bureau and get everything cleared up. If your debt-to-credit ratio is too high, monitoring your score over time will show you how your score might change. If you see accounts that you didn’t open or addresses that aren’t yours, take immediate steps to investigate what could be identity fraud.
3. Do your homework
Yes, the word “homework” makes us shudder too, but this time the reward is much bigger than memorising geometry theorems or the periodic table. You’re finding a home but you’re also making a financial commitment you’ll have to live with for years: get the best deal you can. Research loans, rates and mortgage brokers exhaustively before you sign or commit to anything. Doing the hard work now will pay off down the road with a better rate and terms.
4. Be realistic about what you can afford
Home ownership may be the Singaporean dream, but keep one foot on the ground, too. If you’re looking for a rate that will require you to come up with a 25% down payment and you only have about 5% in cash, figure your calculations based on the rate you’ll be able to get. You can utilise up to 20 per cent from your CPF to buy that dream house you really want.
5. Understand how lenders operate
Your credit score, on which lenders base much of their decision about your loan amounts and rates, is a reflection of their confidence in your ability to repay them. In a nutshell, the higher your credit score is, the easier it will be to get the amount and rate you want.
This is perhaps the most basic of the mortgage preparation steps.
6. Decide how you’ll finance it
Once you research the types of financing available, determine which is best for your financial situation when buying a home: 15-year mortgage or 25, adjustable or fixed. If you are looking for security and a guarantee that payments won’t increase, a fixed rate mortgage might be the way to go. If you believe mortgage rates could still fluctuate and you want more flexibility, consider an adjustable rate mortgage.
7. The larger your down payment, the wider your options
See pointer 4 of mortgage preparation steps to understand why it’s important to be realistic. So within a realistic framework of what you can afford, the more you put down, the better your terms. Putting more money down up front will help ensure you pay less each month.
8. Check on pre-payment penalties
Something else to keep in mind when finding your perfect mortgage is whether or not you’ll be penalised for paying the mortgage off early. Some homeowners double up on payments to reach the end of their term sooner – regularly or when they experience a cash windfall. Check and make sure you won’t be dinged for actually getting to your goal sooner!
9. Take a targeted, rather than shotgun approach to mortgage applications
Remember that whenever you apply for a loan, including a mortgage, the “hard inquiry” the lenders make shows up on your credit report and temporarily lowers your score. Applying for several mortgages in a two week period only counts as one inquiry, but if you drag it out and canvas as many lenders over a longer period, you’ll end up doing damage to your score, which could result in a lower rate than you were hoping for. This part of mortgage preparation steps is perhaps lesser known by prospective home buyers.
10. “Not now” doesn’t mean “never”
Home ownership is just not a realistic option for everyone right now, despite what may look like once-in-lifetime mortgage rates. If you fall into this category, don’t despair. Your financial circumstances could change. With the Covid-19 pandemic the economy is still very much in flux. In such unpredictable economic climate a lot of home buyers may get in over their heads. When it comes to a major purchase like a home, timing is critical.
Mr Paul Ho, chief mortgage officer at iCompareLoan, said: “home ownership, especially private residential property ownership may not be the best option for every one. It is best if they speak and take advise from their loved ones and professionals before taking the plunge.”
