Although COVID-19 caused a whirlwind of issues with homeowners back in March of 2020, that hasn’t stopped Ontario residents from leaving the big cities and looking for houses in more quaint areas. According to the Financial Post, mortgage rates in Canada over the past two years have fallen, meaning the average person can essentially afford to pay around 25 per cent more for a home, while house prices are up only about 10 per cent over the same period. Stephen Brown, senior Canada economist at Capital Economics says that combined with people seeking more space amid the pandemic could give the housing market a boost. Buying a home is considered one of the biggest purchases a person will ever make in their lifetime. It can be quite nerve-wracking at first, as many questions arise for a first-time homebuyer. To improve your chance of getting approved for the best mortgage rate, here are seven top mistakes to avoid:
- Not getting pre-approved for a mortgage or knowing the difference between being prequalified and being pre-approved
- Assuming all mortgages are the same
- Opting for small down payments
- Keeping your financial situation in check
- Check your credit score
- Failure to consider all costs of owning a home
- Including false information or omitting information
Take the time to get pre-approved for a mortgage as it speaks volumes to sellers and real estate agents. It shows them you are serious about owning a home and you have the financial stability to do so. It also gives you an idea of how much you can spend on a home. Prequalified means a lender has given you an approximate amount of what you can borrow based on a few inquiries about your income, debt, and credit situation. A pre-approval is a written confirmation signifying the mortgage amount you can afford at a fixed interest rate for a specific period (90-120 days on average.)
One of the main differences in the interest rate that lenders charge and that could end up costing you more than you bargained for. It is a good idea to look around until you find a rate you are comfortable with. On that note, it is important to find a realtor who can explain the home buying process with full transparency and make your entire experience less stressful and more cost-effective.
The idea of putting a small down payment sounds like a great option on paper, but realistically, you end up paying a lot more in the long run. According to RE/MAX, homes priced below $500,000 the minimum down payment required is 5% and for homes priced between $500,000 and $999,999, the down payment is 5% of $500,000 plus 10% of the remaining amount. A bigger down payment leaves more money in your pocket, as homeowners will not have to purchase mortgage default insurance (protecting the lender in case the borrower defaults on payments) and your mortgage loan will be smaller. You will also be paying less in interest.
This means not changing jobs, buying new cars, or making extravagant purchases using credit during this time. Your financial situation needs to stay the same between the time you apply for a mortgage and the time you close on your new home even after you’ve been approved. If there are any major changes, it could raise a red flag and your lender could withdraw their mortgage commitment.
Do not forget to check your credit score before buying a home. This is a huge part of the mortgage approval process. Be in the know if you have any outstanding loans, if you have a history of late payments and if you have defaulted on a loan in the past.
In all the excitement of owning a home, homebuyers tend to forget that owning that home is quite costly and there are more costs than just a down payment. Closing costs and fees are some of the extra expenses that homeowners can miss. There’s also the fact that repairs and renovations to your new home can be expensive and the money will be coming out of your pocket.
Although this seems like a bit of a stretch, it happens. You can easily make mistakes in the information you provide to the lender which can harm your chances of getting approved for a mortgage. Little things like including false information or neglecting to include important information that the lender may need to know can cause your application to be rejected.