Every Important Detail You Need To Know About A Mortgage Before Getting One

Posted by: KHTS Articles in News Articles January 18, 2021 - 11:32 am 0 418 Views

Are you looking to opt for a mortgage but are unsure about the details regarding the process? In this article, we are going to talk about all the vital aspects regarding this topic in order to help you understand mortgage better.

What Is A Mortgage Exactly?

Basically, a mortgage is a type of loan that is used in order to purchase a home, and the property further acts as security for the loan itself. Mortgages tend to be for large sums of money, and they are usually paid off over 25 or 30 years. Now, when it comes to signing up for a mortgage, you are agreeing to make regular payments until you pay your mortgage off.

As far as the mortgage payments go, they are, in most cases, composed of both principal and interest payments. After you have made a payment, it is first going to be used to cover the interest, and after that, the principal. Even if you are opting for a mortgage for the first time, the probability is high that you know that if the person fails to make the previously agreed-upon payments on a designated time schedule, you should know that the mortgage pretty much lets the mortgage lender take possession of the property of the person in question. This is exactly why it is vital that you plan everything out properly.

What Does The Process Look Like?

Before you actually begin searching for a property that you want to buy, it would be best that you get pre-approved for a mortgage due to the fact that these things can last, and you don’t always know how much you can expect. Once you are pre-approved, you’ll have an exact number to work with, which will ultimately reduce your risk of making an offer on a property that you can’t afford.

Once you have gotten pre-approved and settled on a home of your liking, it’s time to put in an offer. Once your offer gets accepted, you are going to have to work with your banker or a broker in order to get the mortgage approval. For this step, you’ll need to provide certain documents and information as well. After that step is finished, all that’s left is for your lender to sign off on everything, which should be followed by removing the condition of financing from your offer if this is applicable for your case.

Where Can You Get A Mortgage?

There are two main options for you to choose from, so, let’s talk about them.

In A Bank

When people think about mortgages, in most cases, they tend to think about banks. While banks are most often used for getting a mortgage, you should also look around for other options as your banker surely isn’t going to suggest you a more profitable broker. It is ultimately up to you to do your own assessment on whether what you have been offered by your local bank branch is fair, but in order to do so, it’s vital that you look around as well.

From A Mortgage Broker

As the most popular alternative to bank mortgages, independent mortgage brokers have access to a large number of lenders. They are able to provide you with some unbiased advice due to the fact that they aren’t actually tied to any lender. Even if you end up opting for your local bank branch through a broker, at least you’ll be sure that you got a good deal.

How Do You Know It’s Time?

When you are applying for a mortgage, your lender is going to want to make sure that you can actually afford it on a monthly basis. The way in which your lender assesses this prediction is by utilizing two debt ratios – the Gross Debt Service (GDS) Ratio, as well as the Total Debt Service (TDS) Ratio.

The GDS ratio refers to the percentage of all of your gross monthly income that is needed in order to cover all the expenses related to the home. These expenses are, in most cases, firstly your future mortgage payments, property taxes, but also heating and even maintenance fees. You should know that the percentage that most lenders are looking for when it comes to the GDS ratio is below 39%.
The TDS ratio looks at all the same parameters as the GDS ratio. The difference is in the fact that it also takes other factors in any other debt that you have as well. If we’re talking about revolving debt, 3% of the outstanding balance is most usually used. If we’re talking about an installment loan with a fixed payment, the payment is going to be used for debt servicing purposes as well. The number that you want to be below regarding TDS Ratio is 44%.

While TDS and GDS are important factors, you shouldn’t forget to think about other possible expenses in the future as well!

Getting a mortgage can indeed be a stressful experience, especially if you are not familiar with the process entirely. That being said, the best way to make the situation less daunting is to make sure that you do your research. After you familiarize yourself with the entire process, everything else will feel far more feasible.