Common Mortgage Pitfalls And How To Avoid Them
Set Yourself Up For Success Throughout Each Step of the Mortgage Process
Purchasing a new home can be a lengthy process that involves plenty of hard work. One of the most important steps to ensuring a successful home purchase is securing a mortgage.
Since the mortgage plan you select will determine important long-term factors like interest, you should take a careful approach. This means looking over your options thoroughly and avoiding some of the common mistakes that home-buyers make when securing a mortgage.
To start the mortgage approval process off on the right foot, we will explain some of the most common mistakes that home-buyers make, and how you can avoid them.
Mistakes to Avoid Throughout the Mortgage Process
Not Checking Your Credit Rating Before Applying for A Mortgage
If you don’t have a lot of debt to your name, you may assume that your credit is healthy, and choose to ignore your credit report. However, debt is not the only factor that contributes to your overall credit score.
The following factors can lead to a lower credit score, even with relatively low debt:
- Missing or making late payments
- Filing for bankruptcy or a consumer proposal
- Having little credit variety
- Closing old accounts
- Carrying a balance that’s close to your credit limit
To avoid disappointment later on, check your credit report a few months before you proceed with house shopping and apply for a mortgage. If your rating is lower than you had hoped, there are steps you can take to give your credit report a boost.
READ MORE: Don’t Let Bad Credit Stand In The Way Of Home Ownership
Focusing Only on the Rate
While finding a great mortgage rate is important and will have a significant effect on your monthly mortgage payments, it’s not the only thing you should be looking at.
Mortgages have many different characteristics, so be sure to consider the following:
- Fixed vs. variable mortgage
- Term length
- Pre-payment ability
- Payment frequency
Working with a mortgage broker is the best way to ensure you are choosing a mortgage that is the best fit for you and meets all your needs. A broker can explain how each factor is relevant to you and provide expert guidance on how to move forward.
Not Having a Fixed Budget
You may have a loose idea of what price range you are aiming for, but it’s important to have a precise plan. Take a hard look at your finances and determine what monthly mortgage payment you can realistically afford, and what home price that will translate to. Without a plan, you may mistakenly put in an offer on a home you can’t actually afford.
Getting pre-approved, on the other hand, can give you an accurate idea of what price range your lender is willing to approve.
Making Big Decisions After Pre-Approval
Lenders want your savings and debt-to-income ratios to stay the same as when you were pre-approved. Making significant purchases with cash or credit can jeopardize your ability to keep your pre-approval rate.
If possible, you should avoid changing or leaving your job following a pre-approval. Since these decisions affect your income, your pre-approval could be significantly reduced or even revoked.
Not Giving Your Options Careful Consideration
When making any big investment, settling for the first option that catches your eye is never recommended. With a new home, it’s smart to look at different options, consider the pros and cons of each one, and make an informed decision based on your needs and budget that serves you in the long run.
The easiest way to compare options effectively is by meeting with a mortgage broker. They can help you look at different rates, put you in contact with multiple lenders, and help you determine the best result.
Waiving a Financing Condition In Your Purchase Offer
A conditional offer is an agreement formed between the buyer and seller that requires a particular step before the transaction is approved. Conditional offers can protect buyers since the seller is often required to meet the set condition, though this practice is becoming a thing of the past.
As a buyer, you may feel pressured to waive certain conditions that can actually protect you. A financing condition is an example of a buffer that can protect the buyer but is often opted out of. It is a clause in your offer to purchase that allows the buyer to back out of the sale penalty-free if they are not able to obtain the necessary financing.
If you do not have a financing condition and you are unable to obtain financing after your offer has been accepted, you may be at risk for the following:
- Losing your deposit
- Being required to follow through with the sale, likely increasing your debt
- Legal action
It is common for buyers to forgo consideration towards a financing condition in today’s real estate climate. It’s important to understand the risks involved with this omission.
READ MORE: The Risks Of Putting In An Offer Without A Financing Condition
Only Saving Your Minimum Down Payment
Saving up a down payment can be one of the most difficult and lengthy elements of buying a home. It may take years to save enough for a minimum down payment – 5% of a home’s sale price. However, it’s important to keep in mind that the more money you put down, the more equity you will be starting with. Putting more money down will also give you lower mortgage payments.
Buying a home is a complex process, and the mistakes outlined above only add to the stress you may experience. With the help of a mortgage expert, your experience will be stress-free, and you’ll get the home you’re looking for at a great price.
Contact the Chris Allard mortgage team today for expert guidance throughout every stage of the home-buying process.
Chris Allard’s experience in the field means he can get you offers with over 50 financial institutions lending in Ottawa. Every lender has many mortgage products they offer, which means Chris and his team will make sure a mortgage caters to your needs while also ensuring you get a competitive rate. Chris Allard is a proud mortgage broker of Smart Debt Mortgages, independently owned and operated. Smart Debt broker #12236.