If you’re thinking about getting a new mortgage or making changes to your existing one, avoid these costly mortgage mistakes
Financing a home is a process most borrowers only go through a few times in their life. We know from experience it isn’t easy to stay on top of all the of the ins and outs of the financing requirements with all of the changes being mandated by the government over the past few years and potentially more changes being suggested. If you’re thinking about getting a new mortgage in the near future, or making a change to the financing you already have, below you will find ten things that should help you avoid costly mortgage mistakes.
10 of the biggest mortgage mistakes to avoid
1. Not reviewing your condo documents
Most condo buyers don’t understand all of the documentation provided by the seller and should defer to their real estate lawyer to explain the pertinent details or at the very least, their realtor if experienced in condo’s. If possible, take the time to read through the minutes of the last year’s meetings of the condo association prior to removing your purchase agreement condo document conditions. These minutes provide not only details about the financial health of your condo fund, but also happenings around your complex too such as what unit is hosting loud parties or who isn’t picking up after their dog . You will also be able to see if there are any upcoming renovations required or more importantly, whether there will be any special assessments due to limited funds accumulated in the condo reserve fund. A special assessment could result in cash out of your pocket, so do ensure you are clear on what is in your condo documents before committing to purchasing the property.
2. Choose the right professional for you
Your home will likely be one of the largest debts you will ever have so it’s important to ensure you are getting proper guidance about all of the products and services available to you before you make a commitment. Ask friends and family for referrals and if you are looking online, be sure to read any of the online reviews posted about that person. If you aren’t comfortable with the advice or opinions of any of the professional involved in the home buying process, don’t be afraid to get a second opinion. A trustworthy professional should send you in the right direction even if you are just making a preliminary inquiry and I don’t believe you should have to provide a detailed credit application if you’re just looking for general information. That can wait until you are 100% ready to proceed and know exactly who you want to work with. Nothing wrong with being upfront and honest in stating you are still in the “shopping” stage of who you want to work with. Once you are comfortable that you have found the right person for you, then be prepared to provide extensive details about your financial position along with supporting documentation.
3. Paying attention to the wrong details
Rate is important, yes, but so are the payout penalties, the pre-payment privileges and the actual monthly payment amount. When it comes to borrowing a large amount, like a mortgage, it is imperative you read the fine print of all documents before you sign on the dotted line. Take the time to go through all the details with your mortgage professional and ensure you have a thorough understanding of the commitment you’re making.
4. Ignoring your credit
I can’t stress enough how important a good credit rating is. Not only does it qualify you for best rates on everything from car loans, credit cards, and mortgages, even landlords are looking at your credit before renting you a place. Ask for a credit consultation from a qualified professional, by that I mean, if you want to get a mortgage, talk to a mortgage professional about how your credit needs to look in order for you to qualify for a mortgage at best rates. If you are not there yet, ask what you need to do and make a plan that you can commit to. If your credit needs extensive rehabilitation, determine your end goal and talk to a professional that shares that vision. You can obtain your credit rating by visiting Equifax.ca.
5. Not getting a pre-approval
There’s nothing worse than putting in an offer on a home and then not qualifying for the financing. Avoid the disappointment by getting a pre-approval. And further to that, when rates are on the rise it makes sense to get an interest rate held for you for up to 120 days. Do be advised even if you are pre-approved, you still need to get the property and supporting documentation approved by your lender as well as the insurance company if you are putting down less than 20% of the purchase price and require a “high ratio” mortgage.
6. Don’t throw out your important documents
If you plan on applying for any financing soon, be prepared to provide documentation confirming the details you stated on your credit application. Most importantly, income documents such as pay stubs, or tax returns and Notice of Assessments. Also important are any documents that have to do with your credit. If you’ve cleared up any derogatory credit such as collections or judgments, always keep the documents confirming that in case your credit report isn’t updated by the time you want to apply for a new loan. By having these documents on hand and accessible, you avoid having to track the paperwork down at a later date.
7. Avoid excessive transferring between bank accounts
There are a few ways to obtain a downpayment in order to purchase your new home and this tip applies when you are saving up your own downpayment. Under the Canadian Anti-Money Laundering Act you are asked for confirmation the downpayment is from your own resources. To do that, you need to provide a 60 to 90-day history of the funds to show they have accumulated over that period of time, or have simply been in your possession for at least that period of time and not just all deposited at once. Be aware if you are moving money around between various accounts, you will be asked for transaction histories from ALL of your accounts.
If you are unable to provide sufficient supporting documentation for any larger deposits, those funds MAY NOT be used towards your downpayment. If you are unsure, do disclose ALL details of where your downpayment is coming from to the mortgage professional prior to proceeding with your home purchase.
8. Over-estimating your income
One of the most important requirements of obtaining a mortgage approval is the qualifying income. Before you begin the process of applying for mortgage financing, make sure your mortgage professional is fully informed of exactly how you earn your income. This is especially important when you are self-employed, paid bonuses or overtime, on contract or paid by commission. This will ensure your personal information is accurate from the get-go and there will be no unpleasant news after you believed your mortgage would be approved.
9. Low appraisal value
An appraisal may be required when you are purchasing a home or considering a mortgage refinance. An appraisal confirms the value of the home by comparing it to recently sold similar homes in the area. If the appraised value does not support the purchase price or estimated value of the home, your mortgage approval could be reduced or withdrawn, or in the case of a purchase, if you still want to proceed a larger downpayment may be required if the seller is not prepared to negotiate. If you do have any questions or concerns about the value of the subject home prior to proceeding with financing, talk to your mortgage professional about an automatic evaluation in lieu of an appraisal, as some lenders are now offering that option.
10. Tight timelines
A mortgage, like home buying is a process and should not be rushed. This is a big commitment that is going to impact the lifestyle you lead and you should avoid getting pressured into making quick decisions without being fully aware of all the financing options available these days. In order to not jeopardize your physical health and well being with unneeded stress, we suggest you have ample time to remove financing conditions for a new home purchase if at all possible ; and given there are a lot of other parties involved in the mortgage registration process it is also advisable to set a reasonable closing date to ensure you can actually close on the possession date. Include a chat about timeline expecations when you’re going through the preliminary process with your Mortgage Professional. This will allow you to shop smart come time to house hunt. If you’re mortgage is up for renewal soon, it’s not a bad idea to get a head start on the search for a better option, if there is one available.
Getting approved for a mortgage can be quite stressful, however, educating yourself on the mortgage process and knowing what to expect can prepare you for any situation that arises. I hope this article will act as a prevention checklist for you to ensure your bases are covered and set up for a home run. As always, I recommend you contact your favourite mortgage professional to ask any specific questions you may have about your own mortgage options in order to ensure you’re getting accurate information that applies to you.
For all of your mortgage needs, contact the Mortgagegirl at 780.433.8412 or email firstname.lastname@example.org. Stay in the loop by following us on Twitter @mortgagegirlca.
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