Question 1: What credit score is typically needed to get approved for a mortgage loan?
The typical credit score needed to get approved for a mortgage can vary based on the financial institution, but most banks offer the best rates to those who have A score.
Given that, it’s important that we don’t focus just on the score, but also on the other things we need to be able to purchase a home successfully. For example, having a good amount of money saved for a down payment and closing costs is equally — if not more — important than what your credit score is.
Question 2: Is it better to get pre-approved for a mortgage before I look for a home?
You should certainly know your purchasing capacity before you start looking. Getting pre-approved helps you fully understand what your financial institution is willing to lend you. You can make a more informed decision as to whether you can afford this new home when you have this information. Technology has made it easy to obtain pre-approval, so you don’t have to go visiting a lot of lenders.
You can get pre-approved online from the comfort of your own couch. One thing to keep in mind, however, is that a pre-approval is just a pre-approval. It isn’t your final loan; so make sure you know the contingencies you’ll have to meet to make that loan final.
Question 3: What is the best type of mortgage for me? Fixed? Variable?
Personal finance is personal, so “best” is going to be based on what works for each person’s situation. But a fixed rate mortgage is probably best for the average person. When you think about variable-rate mortgages and/or adjustable-rate mortgages — or ARMs as they’re called — you have to realize that your monthly payment can increase, potentially causing you financial hardship.
Question 4: What is Mortgage Insurance Programme (“MIP”)
According to the guideline issued by the Hong Kong Monetary Authority, banks have to comply with a 60% loan-to-value (“LTV”) requirement on owner-occupied residential mortgage lending for properties valued below HK$7 million. Yet, with the MIP providing mortgage insurance to banks, banks can provide mortgage loans more than 60% of the property value without incurring additional credit risk. As long as an application meets the relevant eligibility criteria (e.g. the maximum property value and the maximum loan amount, etc.), the bank can provide a mortgage loan of up to 80% LTV ratio under the MIP. In other words, homebuyers may only need to pay 20% of the property price for the down payment, which greatly reduces their down payment burden.
Under the MIP, banks are the mortgage loan providers. The mortgage insurance aims to protect the participating banks from losses, in general, on the portion of the loan over the 60% LTV threshold due to mortgage default by the borrowers. Therefore, in addition to helping the promotion of home ownership, the MIP also contributes to the maintenance of the banking stability.
Question 5: Is there any general advice you would give to someone who is purchasing a home for a first time?
When you buy a home, you’re not just buying the home. You’re purchasing all the other responsibilities that come with maintaining the home. Don’t get me wrong — home ownership is a great way to begin increasing your wealth, but you can possibly set yourself back if you’re not fully prepared.