Common Mortgage Mistakes and How to Avoid Them
Finding a house can be quite taxing, especially if you are a first-time buyer. Getting a mortgage broker to assist you throughout the process, whether, it is an upgrade, a new home or just investing in real estate can make the process a lot less stressful. Working with a mortgage broker with experience in the industry guarantees that the final decision will not be regretted later.
If you decide you are going to handle your mortgage on your own and just though your regular bank, I strongly recommend against it. Though it might appear like going to the bank where you have your saving account or existing mortgage is the easiest option, it may end up costing you with high rates or less-than-desirable mortgage terms.
To help you avoid some basic errors that could prove to be costly, here’s a list of the most common mistakes people make when choosing the right mortgage.
1. Failing to choose the best product for your situation. There are many different types of loans out there. There are options with fixed and variable-rate products, hybrid and no-frills mortgages, lines of credit, term options, amortization choices, and more.
And although choice is great, it can be quite overwhelming without expert advice. While one person would benefit from a variable-rate product, their neighbor may be better suited to a fixed-rate product. Conventional thinking is that fixed is always better, and while this is sometimes true, it is not always the case. The key here is to ask, “How long am I going to live at this property?” A variable can actually be a better choice if you are going to be in the home for a short time. The average for how long a first time homebuyer keeps their mortgage is less than four years. In general, the longer you plan on staying in your home, the better a fixed rate mortgage will suit your needs. The key is always to explain your current situation and future goals in detail so a mortgage broker can suggest a product that best meets those needs.
2. Automatically renewing with your existing lender. Although you may feel an allegiance with the current financial institution that holds your loan, they may not be able to offer you the best products. When refinancing or renewing, it’s important to always allow our broker to shop the market for your best available option, much like you did when securing your first mortgage. This ensures you end up with the best mortgage rate and terms customized to your unique situation. In many cases, your bank will offer you the posted rate in hopes that you’ll simply sign and return the commitment without shopping around. Make sure you do your due diligence when refinancing and renewing. After all, this is your home, your mortgage and your money!
3. Failing to plan ahead. If you know that you’ll need to obtain, renew or refinance a mortgage, it’s essential to plan for it by ensuring your credit is in order. If it’s not, start preparing. Don’t make any purchases on your credit cards that you can’t pay off and if you carry a balance on your credit cards, start paying them down. Refrain from making any large purchases before securing your mortgage. If you’re planning to buy a car, wait until after you have secured financing, as your debt-to-income ratio will rise and you don’t want this while trying to secure a mortgage.
4. Leaving out the additional costs that come when purchasing a home. These various charges can add up and, for the most part, they are all legally required payments in buying a property. These payments include:
Legal fees: since a lawyer or notary public is an essential part of your home-buying team, the work you'll need done involves legal fees. Most legal fees include searching the title of a property, arranging a property survey if necessary and handling other disbursements as required.
Home inspection: a professional home inspector knows what to look for and can confirm or add to the information you have gleaned from the REALTOR® or your inspection.
Hook-ups: there may be hook-up charges required for appliances and services such as telephone, TV cable, gas, water and other utilities.
Moving costs: the basic costs involved in moving from your old place into your new home, particularly if you use a professional moving company.
5. Having your credit status change and applying for new credit. You’re excited about moving into your new home. You’re out shopping for the new bedroom suite, the couch, and recliner for the family room and the entertainment center for the media room. However, taking out new credit can jeopardize your mortgage. Wait until you have the keys to your new home and then you can shop your brains out.
Why? Because your file was based on you having a certain amount of debt. If that amount increases, it can push your debt service ratios up, and you may no longer qualify for the mortgage you were previously approved for.
6. Getting rid of existing credit. This one sounds odd but the lender approved your mortgage based on your current situation, and this includes the strength of your credit history and profile. Lenders have been known to re-pull your credit report days prior to funding. Paying off and/or closing accounts could change your credit profile putting you in an undesirable situation.
7. Stopping credit payments. Continue to make all payments on all credit sources. Never give anyone a reason to back out of the mortgage approval. Not paying a bill negatively changes your credit profile. Even if this payment is something that you are disputing, it is best to pay and file a dispute then to not pay it at all.
To avoid these and other mistakes, reach out to Karen Pacheco. I have been a mortgage broker for years around the Alberta area. My areas of expertise are helping clients trade up their home, assisting them with first time purchases, real estate investments, vacation property or debt consolidation. I can even help you set financial goals. For a complete list of my services, please click here. If you have any questions about how I can help you, I’d love to hear from you. Please contact me here.