Like Many aspects of your life, obtaining financing on a new or existing home can be a lot less stressful and a whole lot more straight-forward if you’re prepared. But if you’re not prepared, there are many common mistakes you can make. Most of these mistakes are easily avoidable with some preparation and informed advice – feel free to call or email with any questions/concerns!
Below are the Top 5 Mortgage Mistakes people make when trying to secure financing for their home.
- Failing to choose the best product for their situation.
- Automatically renewing their current mortgage with their existing lender.
- Signing documents without reading them
- Taking it to the limit – running up credit
- Not planning for your mortgage application.
1. Failing to choose the best product for your situation
There are many different types of loans out there. There are fixed and variable rate products, hybrid and no-frill 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 neighbour may be better suited to a fixed rate product. The key is to always explain your current situation and future goals in detail to your mortgage broker so the product that you select best meets both your current and longer term 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 choices. When refinancing or renewing it’s important to always 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. Signing documents without reading them
Never sign documents without reading them. If you’re unsure about something, always ask for clarification. Remember that you’re the one entering into the agreement. You need to understand and agree with that commitment.
4. Taking your credit to the limit
Make sure that your credit balances are in your favour when it comes to your mortgage application. Lenders are looking for an appropriate debt-to-income ratio. In other words, you need to have more income than you have debt. Avoid running up a balance on your credit cards and pay down existing debts as much as possible.
5. Failing to plan ahead
If you know that you will be needing 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, prepare to change that. 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 to occur while trying to secure a mortgage.
Understanding how the mortgage process works and how lenders qualify your loan will help you avoid the above mistakes. As always, if you have any questions or concerns, clarification is just a phone call or email away!