Buying a home is one of the biggest investments you will make, so it’s important to do your research and fully understand the in’s and out’s of the mortgage approval process. When it comes to getting a mortgage, there are a few missteps that are all too common among home buyers. To best prepare, here are five mistakes to watch out for when you begin shopping for a mortgage this spring:
1. Not getting pre-approved
A major misstep among many new home buyers is not getting pre-approved for a mortgage. Getting pre-approved will give you greater insight on your mortgage affordability so that you can set a realistic budget. This will guide your home search and allow you to manage your own expectations about the types of homes and neighbourhoods you can afford. Pre-approval will also give you an advantage in the case of a bidding war. A seller is also more likely to select a buyer who has been pre-approved.
2. Only budgeting for mortgage payments
Allocating too much of your monthly income toward mortgage payments may leave you with little money available for anything else. To avoid this mistake, it’s important to factor in other relevant expenses like insurance fees, property taxes and closing costs. Further, it’s important to budget for other life expenses such as retirement savings, car payments, groceries, furniture and other monthly costs. This will ensure there are no surprises as you make this transition financially.
3. Having too much debt
Before your mortgage closes, you may want to avoid getting a new credit card or taking out any major loans. When you apply for a mortgage, lenders look at your debt-to-income ratio — the percentage of your income that goes toward paying your monthly debts — to determine how much you can borrow. If you take on new debt while your application is pending, this can impact your ability to get approved. It’s important to note that lenders can revisit and review your mortgage application at any time before closing. In light of that, we recommend to keep spending on credit at a minimum before your mortgage closes. If your credit score falls and/or your debt-to-income levels are impacted, lenders can change the terms of your mortgage or deny the mortgage altogether.
4. Not shopping different lenders
A common mistake among many home buyers is not shopping for different lenders. Mortgage products vary and so do terms, so it’s important to get a full picture of what’s out there so you’re not overpaying. Further, many home buyers only think that the Big Banks advertised on TV offer mortgages and to that end, offer the best options. There are many mortgage lenders in Canada that aren’t Big Banks, lending as credit unions or monoline lenders. These include institutions you may have heard of like Desjardins or DUCA, as well as many other lenders who offer often stronger products than banks. So, before heading to your local bank, we recommend shopping around to get a view of the full market and what it has to offer.
5. Not starting early and being prepared
Getting started early is a great way to find out what you can afford and what products are available. It’s also a way to go into the home buying or refinance/switch process with the information you need to make the best decision.
Let us help you get prepared. At Homewise, we work with over 30 banks, lenders and credit unions to help our clients not only get their best mortgage, but also get unbiased advice at each step. If you are ready to get started, apply today in just 5 minutes here.