Common Mistakes People Make When Purchasing A House

Author: Gary Corriveau | | Categories: First Time Home Buyer , First Time Home Buyer Mortgage , Investment Property Mortgage

Blog by Mortgages with Gary

For a first-time homebuyer, purchasing a home signifies the fulfillment of the dream of homeownership. However, financing your dream home requires figuring out how to secure mortgage financing as there are crucial steps that you need to take to avoid long-term repercussions. 

To maximize your chances of receiving a mortgage approval, it is best to work with an experienced mortgage broker who will guide you through the mortgage process and help find a solution that will suit your requirements.

To help you avoid some basic errors that could prove to be costly, Mortgages with Gary has put together a list of the most common mistakes people make when purchasing a house.

1. Not accessing the professional services of an independent mortgage broker
One of the prevalent mistakes made by most borrowers when looking for mortgage financing is not using a mortgage broker. Some people tend to go to their bank because they already have a bank account with them or go to their bank because that is what their parents did when they needed a mortgage. 

The right mortgage is a critical factor in determining long-term savings. A professional mortgage broker’s value comes from having someone who objectively works for you and is not limited to mortgage product offerings from one source like a bank. 

In terms of choice, Mortgages with Gary has access to over fifty lenders and banks. We provide independent and objective advice by ensuring the right mortgage option, taking into consideration interest rate, payment privileges, payment penalties, and long-term savings based on your personal and financial goals.

In addition, we provide ongoing service by conducting annual reviews, refinancing your existing mortgage, renovation financing, or debt consolidation. 

Best of all, having a professional mortgage broker working for you comes at no cost to you as brokers are paid by the financial institution that funds your mortgage. In addition, choosing a mortgage broker means that you never have to worry about a better mortgage on the market. You will have it!

2. Neglecting to obtain a mortgage pre-approval
Like most homebuyers, you may under or overestimate how much you can afford to pay for a home. There are calculators available to give you a general idea but knowing the exact amount you will be approved for gives you the confidence to know you are looking for that perfect home in your price range.

A pre-approval is a commitment from a mortgage provider to lend you a specific mortgage amount at a particular rate subject to the approval of the property. When you get pre-approved for a mortgage, you will find out the maximum amount you can afford to spend on a home, the monthly mortgage payment associated with your maximum purchase price, and what your mortgage rate will be for your first mortgage term.

Applying for a mortgage pre-approval is free and does not commit you to a lender. However, getting pre-approved does hold the mortgage rate you are offered for sixty to ninety days. This means you are protected if interest rates rise while you are shopping for a home. If interest rates go down during this time, your lender will honour the lower rate. That said, a pre-approval is not a full guarantee you will receive that rate. Also, it relies on your finances, staying the same when you finally apply for your mortgage. The first step in the home buying process is to contact a mortgage professional for a no-fee mortgage pre-approval.

3. Focusing too much on interest rates
All too often, many homebuyers give more thought to interest rates than the mortgage solution itself. While rates are a valid consideration, the different types of mortgages, payment structures, and flexibility will have a much more significant bearing on the overall cost of homeownership. 

There are two mortgage types pertaining to interest rates:

a. Fixed rate mortgages

A fixed rate mortgage offers the security of locking in your interest rate for the term of the mortgage. The payment amount stays the same, providing ease of budgeting. The main advantage is that the interest rate remains the same during the term of the mortgage and that you know exactly how much of your payment is applied to principal and interest.

b. Variable rate mortgages

Variable rate mortgages fluctuate based on the prime lending rate. If the rate goes down, then more of your payment goes to pay the principal and less to interest, enabling you to pay off your mortgage sooner. When the rates go up, the reverse happens, less payment goes toward the principal and more to interest, extending the amortization period. Contact a mortgage professional to find the right mortgage solution for you.

Payment Structures

There are regular payment structures such as weekly, bi-weekly, semi-monthly, and monthly. Also, there are accelerated payment structures such as accelerated weekly and accelerated bi-weekly to pay down your mortgage faster thus saving you thousands of dollars in interest costs.

There are two types of mortgages in terms of prepayment options:

a. Open mortgage - Lets you pay off your mortgage in full or in part at any time without any penalties.

b. Closed mortgage - Offers limited (or no) options to pay off your mortgage early in full or in part, but it usually has a lower interest rate.

4. Being unaware of the down payment options available
Depending on the amount you have available for a down payment determines the mortgage options available.

A conventional mortgage or a home equity line of credit (HELOC) requires a down payment of 20%. A high ratio mortgage is obtainable if you have the minimum 5% down payment. Any time you are looking for a mortgage with less than a 20% down payment of the purchase price of the home it is subject to mortgage default insurance.

This premium cost can be either paid upfront or, more commonly be added to the mortgage amount.

One great source of funding for your mortgage down payment is a Registered Retirement Savings Plan (RRSP). The Canadian government has a program called the Home Buyers’ Plan (HBP). To be eligible, you must be a first-time homebuyer (eligibility means you have not purchased a home or lived in a home owned by a spouse within the last four years). This program permits first time home buyers to borrow up to $35,000 from your RRSP for a down payment, tax-free.

If you are purchasing with someone who is also a first-time homebuyer, you can both access $35,000 from your RRSP for a combined total of $70,000. However, since the HBP is considered a loan, it must be repaid within 15 years. 

Another source of a down payment can be in the form of a gift from an immediate family member. The best course of action is to consult with a mortgage professional to know all of your down payment options.

5. Forgetting about closing costs
You have selected a house, determined your mortgage options, and are getting ready to finalize everything. It helps to know what the associated costs may be upfront to minimize any last-minute complications. When calculating closing costs, make sure you have set aside enough money to cover expenses such as home inspection, appraisal costs, legal fees, and land transfer taxes. Besides this, you will want to account for property insurance and moving costs. 

As you can see, planning is the key. Take advantage of utilizing a mortgage professional to help guide you through the home buying process.

6. Thinking you won’t qualify for a mortgage
Not sure if you qualify for a mortgage? The best way to find out is to complete a no-cost, no-obligation application. We will be able to let you know where you stand in terms of qualifying for a mortgage and help you determine an appropriate purchase price based on your current situation. 

A good credit rating can improve your ability to get a mortgage, however even if your credit history is less than perfect, there are solutions, and our job is to find the one that best fits your situation.

Even if you are not ready to buy a home today, we can develop a plan to make sure you qualify in the future.

To avoid these and other mistakes commonly associated with getting a mortgage, reach out to the experts at Mortgages with Gary. As a reliable mortgage agent in the province of Ontario, we offer personalized mortgage services to our customers. We have many years of mortgage lending experience, providing a wide array of solutions for clients from working with first time home buyers to experienced clients looking to refinance, purchase a second home or investment property.

For a complete list of our services, please click here. If you have any questions about our mortgage services, we would love to hear from you. Please contact us here.