If you’re new to the world of real estate and mortgages, you might be feeling a little overwhelmed with the tasks you have to do to successfully buy a home. We won’t lie, buying a home IS a lot of work. However, it’s also rewarding when you can call yourself a homeowner! If you’re in a financial position to buy a home and you decide to go ahead, we can certainly help you get there. However, there are some mortgage mistakes and traps you don’t want to fall into. Here are five of the most common errors homebuyers make, so you can be sure to avoid them yourself!
#1 Not being pre-qualified
A pre-qualification is one of the most helpful and important parts of the mortgage process. Neglecting it is one of the biggest mortgage mistakes. Your pre-qualification tells you how much financing you may qualify for, which means how big of a mortgage you might be able to get. It’s just a snapshot of your situation at that point in time, and it’s not a guarantee of financing, but it has several benefits. First, it tells you where you stand in terms of your budget and finances, so you can feel more confident in your situation. It also gives lenders an idea of your circumstances, and when you come back for mortgage financing, already having your information will make the process quicker and easier. Not getting pre-qualified means you have neither of these benefits. As a result, you might find your application for mortgage financing is rejected because you overestimated your budget.
#2 Being in the dark with your credit
Your credit score is a big factor in determining your future mortgage. It’s not the only thing lenders look at, but it plays a huge role. Shouldn’t you be familiar with your own credit score if lenders are going to examine it as well? Your score can be anywhere from 300 to 850, with 650-670 generally being the magic number that lenders look for. Scores below that amount might mean you won’t qualify for a conventional mortgage, and you might have to turn to alternative or private products. These mortgages are a good option for some buyers, but they come with higher interest rates, so if it’s something you need to consider, you should know that well ahead of time. If you don’t know your credit score, you won’t know where your number sits with lenders. To ensure you can keep your score as high as possible, do your best to make your payments on time, pay more than the minimum amounts if possible, and don’t overuse your available credit. Plus, be on the lookout for any mistakes on your credit report. They are more common than you think!
#3 Making big financial changes
Your ability to buy a home depends on your finances, and if your finances go through a big change, so might your buying power. Between the time you get your pre-qualification (because now you know it’s essential) and your mortgage approval, don’t make any major changes. This includes switching jobs, buying a car or another property, or co-signing for another person. If your employment changes, even if it’s for a job with a higher salary, you will likely be on a probationary period. Lenders will be less comfortable with your employment status if you are within the first months of a new job. Taking on new debts like a car loan, or co-signing for another person, means you have less available credit for your mortgage. Lenders will not finance a mortgage they think you might struggle to afford, so don’t overload yourself.
#4 Not budgeting for closing costs
Forgetting about closing costs is another one of the biggest mortgage mistakes you can make. Closing costs often make up about 1.5 to two per cent of your home’s purchase price, which in comparison to your mortgage and down payment, don’t seem like much. However, it’s this misconception that can be a curse later on when you can’t cover all the costs. Closing costs will take a good sized bite out of your savings, so you must be prepared for them. These costs include legal fees, land transfer taxes, property taxes, utilities, moving costs, property insurance, home inspection, and maintenance of the home itself. Do not make the error of underestimating these costs.
#5 Trying to do it solo
Finally, buying a home is a huge process, and most buyers aren’t experts in the real estate and mortgage fields. With that in mind, don’t do it alone! Buyers who try to save some money by not hiring a real estate agent usually lose out. Agents are an essential part of helping buyers make the best offer on a home, completing paperwork, and giving market advice. If you don’t have an agent, you look less prepared and appealing to sellers.
This may seem biased, but we also think the help of a broker is essential. Brokers have the most well-rounded and objective view of the market. Brokers dedicate their entire work around finding clients the best mortgage product. Doesn’t it make sense to take advantage of these services so you can secure what you deserve? While the help of family and friends is also great, don’t underestimate the benefits of a professional in the industry.
Mortgage mistakes are fairly common, but with some preparation you can have more confidence that you can avoid them. Be sure to get your pre-qualification, keep an eye on your credit and finances, and contact a mortgage broker! We can guide you through the process from start to finish so you can have the smoothest experience possible.
If you have questions about your mortgage, get in touch with me!