Last week, we explored the advantages and disadvantages of renting versus buying a property. Perhaps you or your children are starting to feel the desire to finalize the purchase of a first property. To initiate the home acquisition process, you surely have essential questions regarding your borrowing capacity, the necessary down payment, and your credit score.

In this week’s newsletter, we are pleased to share with you some tips aimed at facilitating and optimizing your borrowing capacity. Our goal is to help make this transaction as smooth as possible, thereby reducing the stress associated with this important step in your life or that of a loved one.

Credit Score

First and foremost, it’s crucial to understand that your credit score plays a crucial role in your borrowing capacity. Indeed, it has a significant influence on your ability to obtain advantageous loan terms and competitive interest rates. Therefore, it’s essential to thoroughly analyze your credit report and take the necessary actions to prevent it from becoming an obstacle for you.

To improve your credit score, it’s essential to start by paying your bills on time and in full. This demonstrates to the bank that you are financially reliable and take your borrowing commitments seriously. Additionally, minimizing your credit utilization can also have very positive effects.

A 20% Down Payment

The choice of down payment may vary from person to person. However, if you are considering making an initial contribution of 20%, this could save you significant amounts, as you would not have to pay the SCHL mortgage loan insurance, which represents a notable expense. Nevertheless, it is sometimes more advantageous to enter the real estate market by relying on SCHL rather than waiting to save a 20% down payment and facing market value increases in between. This consideration can be enlightened by your real estate broker and your mortgage broker who often work closely together.

In the end, if you demonstrate that you have saved enough over the past few years and are ready to bear the related expenses, you will make a good impression on your lender!

Reduce Your Debts

To optimize your borrowing capacity, it’s important to understand the concept of debt-to-income ratio. This ratio evaluates the proportion of your income devoted to debt repayment. The lower this ratio, the better for you, as lenders then consider that you are capable of managing your finances effectively. At different stages, the repayment capacity can be affected. For example, when starting retirement, it may be more challenging to apply for a mortgage. In short, preparation is necessary, reducing your debts as much as possible, and presenting your case to the lending institution. One key aspect of this preparation lies in the support of a mortgage advisor who knows exactly how to optimize your case.

Our real estate brokers work closely with these professionals who can direct you to the right resources. Thus, you will be well accompanied throughout your purchase process, from preparing the financing file to the final stage of signing at the notary’s office!

An article from Century 21 Estrie