Ask the Expert: How Can I Prepare to Apply for a Mortgage?

Applying for a mortgage can be stressful but it need not be if you are well prepared.  Here are some steps to ensure you are in the best possible position to secure a loan.

Check your credit score. You will want to know your score and how it lines up with lenders. You can access a copy of your credit report from registered agencies in Barbados. This score allows you to confirm your credit status and to dispute any inaccuracies. If you need to improve your score, make timely payments, pay down debts, and avoid new credit. Learn more about credit reporting in Barbados.

1. Determine your budget. Determine how much you can afford based on your income, expenses, and the required down payment.  Online mortgage calculators can help with this budget.  Get pre-approved for a mortgage to understand how much a lender is willing to loan you.
2. Assess your finances. Calculate your debt-to-income ratio to ensure it meets the lender’s requirements. The lower the ratio the better. Lenders’ maximum limit is normally around 45 per cent. Ensure you have enough savings for a down payment, closing costs, and an emergency fund.
3. Gather required documents.  You can obtain information on required documentation from the lender’s website or by calling the lender. Typical information includes statement of affairs, job letters, pay slips, bank statements, identification, and proof of address.
4. Research mortgage options. Your decision will be based on rates, terms, and what best fits your needs.  Shop around and compare offers from different lenders to find the best rates and terms. When comparing your options, do not automatically select the offer with the lowest interest rate; also pay attention to closing costs.
5. Avoid major financial changes. Avoid making large purchases, changing jobs, or taking on new debt before and during the mortgage application process. Any changes can have an impact on your credit score and affect the amount you will be able to borrow.
6. Respond promptly to queries from your lender.  Once you have applied, the lender will review your documentation and may have additional questions or requests for information. Ensure you respond promptly to avoid delays with approval.
7. Secure life insurance. Lenders generally require proof of you having adequate credit life insurance in order to obtain your mortgage.
8. Prepare for closing.  Once you receive the mortgage agreement, be sure to review it carefully, as it will set out the terms of the mortgage and outline the payments and costs you will be responsible for.  Once all is well and you sign all paperwork, your mortgage will be in place.

Lydia R. McCollin, FCCA, FCA, is the Managing Director of LRM Consulting Services Inc.

Do you have a question about saving, budgeting, investing, borrowing, planning for retirement, or anything related to personal finance? Pose it here. You can also visit our MoneySmart hub for more articles, videos, and tips on how to secure your finances.