6 Mistakes People Make With Their Mortgage
Posted on May 11th 2021
Due to COVID-19, interest rates are low, and people have been diving into real estate deals at a fast pace. Last year around half a million properties were sold, creating a new annual record.
Here are the most common mortgage mistakes people make during a home purchase.
1. Not Preparing Your Documents
Some basic documents like your income certificate and source of down payment are required in the mortgage process. No lender would process your mortgage application without these documents.
Some homebuyers don't bring those documents on hand, and when they bring, they may not be the ones required. So, it is better to ask your broker which documents are needed to start the process.
2. Not Getting a Pre-Approval
Pre-approval confirms how much of a loan you can qualify for, and many people neglect applying for it to check their qualification for the mortgage deal. Its application process involves verifying your credit, submitting your proof of down payment and proof of income. Make sure to go through the process to know your eligibility.
3. Getting Blinded By The Rates
"What is your lowest rate?" is the most frequently asked question to the mortgage brokers.
Comparing interest rates on the mortgage is a good thought, but those low rates usually come with many restrictions, impacting its overall cost. Getting the best rate and best deal are two different things in real estate because the best deal always saves you more money.
4. Not Checking Your Credit Score
People usually don't mind checking their credit score, and in case of any error or poor credit score, they face rejection or higher mortgage rates.
Check your credit reports year-wise before applying for any type of mortgage plan. This will allow you to address any mistakes, ensuring they're corrected with an improved credit score. For instance, if it is under 70% of the limit, paying a credit card balance can help improve your score.
5. Not Saving Enough For The Down Payment
The minimum down payment required is five percent of the total value of a property. If you want to buy a home worth $400,000, you will need to deposit at least $20,000 in the down payment.
If your down payment is less than 20%, you would have to pay mortgage default insurance with Canada Guaranty, Genworth, or any other agency. Insurance is an extra burden on top of the mortgage. It is better to consult with your broker and go with enough savings before applying for a mortgage.
6. Neglecting Closing Cost
It is essential to include closing costs when making a budget for your new home. It usually costs 1 to 3 percent of the purchasing price. It includes home inspection, legal fees, home insurance, transfer tax, and utilities.