Common Mistakes People Make When Obtaining a Mortgage
For most people, fulfilling the dream of homeownership is possible only with the help of a mortgage. However, wrapped in the excitement of fulfilling a lifelong dream, people invariably end up committing errors that prevent them from obtaining a mortgage successfully.
Mortgages may be simple, but the process of obtaining one is complicated, which makes it essential to enlist the services of a professional. If you are in the process of obtaining a mortgage, as an experienced mortgage broker, Stephen Spriggs wants to help you get the best mortgage product and avoid making mistakes.
To help you steer clear of these expensive errors, I’ve compiled a list of common mistakes people make when obtaining a mortgage and how to avoid them.
1. Looking only at the lowest interest rate.
In my experience, the most common and often the most damaging mistake people make is simply looking at the lowest interest rate when obtaining a mortgage. By doing so, they totally overlook penalties for breaking the term early or even prepayment privileges, which can make a lot of difference to a mortgage decision. Therefore, I always advise that clients should look at all the terms including penalties and privileges of a mortgage, all the while looking at a lower-interest rate. A trusted mortgage professional can go over your mortgage options and explain how the terms can be beneficial or risky to you.
2. Waiting too long to review your credit profile.
Another mistake, I would advise you to avoid making is not getting your credit profile reviewed on a regular basis. Remember that lenders are more willing to give you better interest rates when your credit profile is strong, and your credit scores are high. If you follow these basic rules, it can save you thousands of dollars over the term of your mortgage.
It is very simple to look at your credit or have a professional look at your credit in the technology world of today. You could even visit Equifax or Tran-Union websites, which are the two credit reporting agencies in Canada and request to look at your credit profile. I’d still say the best option is to show your credit report to a mortgage professional, who can properly educate you on how your credit will affect your ability to obtain a mortgage. Keep in mind that credit issues can take months and even years to be corrected or repaired, which can cost you thousands over your mortgage term.
3. Making a large purchase with credit after your mortgage is approved.
Often I have seen that people make a big purchase on credit, like buying a car, after their mortgage is approved, but before they get the mortgage. This can end up being a very costly mistake because the lender may refuse to lend you a mortgage in such cases.
When you apply for a mortgage, the lender takes into consideration all your incomes and debts, including the future mortgage payments and property carrying costs. The combination of debts to income is put into a ratio and must be under a set number (around forty percent) to qualify. When committing on a mortgage to purchase or refinance, the lender will assume that this ratio will not change. You will run the risk of not qualifying for a mortgage if the ratio changes.
4. Not having a proper history of the downpayment.
Keep in mind that banks need to know where every penny of the downpayment is coming from with a detailed paper-trail history. It will be a mistake if you don’t have a proper history of the downpayment. Usually, the lenders need to see ninety days history of the money used to purchase a property. Moreover, they question any larger deposits. If the bank has an unanswered question about your down payment, the bank may not fund your mortgage. This happens in many cases, and it can cost you thousands. Working with a mortgage professional early in the buying process and keeping detailed records will help you avoid this mistake.
5. Taking the largest mortgage you qualify for.
It would be best if you took a mortgage, which you can comfortably afford to repay. A widespread mistake is people take the highest mortgage amount they qualify for, which means they end up buying a more expensive property than they need. Therefore, I’d always advise you to make a decision based on whether you can repay a mortgage comfortably or not. Remember that the cost of a property also includes taxes, insurance, maintenance, condo fees, furnishings costs, etc., apart from mortgage re-payment. Consider all these costs while making a decision.
Having too much of mortgage can lead to future money problems or even bankruptcy. You may even lose your home for which you took the mortgage in the first place. To avoid this mistake, always work with an unbiased mortgage professional, who can guide you and help you set proper home ownership and mortgage goals.
To avoid these and other mistakes, reach out to Stephen Spriggs. As an experienced mortgage broker, I offer customized mortgage services to clients across Toronto, Mississauga, Richmond Hill, Hamilton, and the surrounding areas.