I have put together a list of what I feel are the top 9 “mortgage mistakes” individuals should avoid if they are planning to finance a new home purchase or refinancing their current mortgage.
Not saving enough for a down payment
Failing to check your credit scores in advance
Opening new liability accounts before applying
Not talking to a mortgage agent before starting to property hunt
Making late debt payments
Applying with limited employment history
Changing jobs prior to loan application or during a mortgage process
Purchasing a car while in the middle of a mortgage process (yes, some borrowers have done this - it can be a game changer for your mortgage deal)
Attempting to refinance after listing your home
Not enough down payment
Although $5,000 is a lot of money for many of us and it could have taken some time to save it, unfortunately it will not get you far on a down payment to purchase a property. Down payment is a minimum of 5% of the purchase price and when you think of how well the market is doing and what is happening with property value, an absolute minimum dollar figure would be $25,000. This is a general idea because when you talk about rural locations, yes, $5,000 can go a long way. Bottom line is, know ahead of time what you can qualify for to purchase and work towards saving for the down payment.
Applying Without Solid Credit History
You may not get approved for a mortgage if you fail to establish your credit history. You generally need at least two credit tradelines that show up on your credit report, these could be a car loan, credit card accounts and/or personal loan/line of credit with a minimum two-year history on each to qualify for a mortgage. Yes, credit is apparently the root of all evil, but also a necessary one in the mortgage world, that is, unless you plan to pay for your house with cash -- and that can be even tougher as it is not as simple as it used to be to just walk into the bank and drop a bag of money and say, I want to buy a house. Nope, not happening. Checking your credit regularly is important, through Equifax.ca or Transunion.ca. This will give you a very good idea of where things stand before applying for a mortgage.
Ensure all your debts are paid on time, this means paying 3-5 business days before the maturity date on the statement.
If you already have two or three liabilities; for example two credit cards + a car loan or a line of credit + a car loan + a credit card, then this is fine to help you build your credit score and credit history. Do not take on more credit than you are able to properly manage as this will be a negative impact when it comes to qualifying for a mortgage. Credit cards if possible should be a minimum limit of $2,500; use the credit card but ensure you pay it off and on time each month. If there has to be a balance then try to have it no more than 40% of the limit.
Definitely do not open new credit once you have applied for a mortgage, this will affect your ratios and can possibly be declined.
Applying for a Mortgage with Limited Employment History
Employment history can get a bit complicated as to how lenders look at things. As a general rule of thumb, being stable in one industry or with one employer for at least two years will definitely reflect positively on your mortgage application. That being said, if you recently started a job and have passed your probation, with a job letter to state your salary or hourly rate and # of guaranteed hours weekly/bi-weekly, this will be fine for you to qualify. Just do not change jobs once you have applied.
Listing Your Property Before a Refinance
Listing your property on the MLS and then attempting to refinance your mortgage on that same property within six months (or longer) is usually a big no-no. Lenders do not love the idea of giving you a loan on something you do not actually want, or tried to get rid of unsuccessfully just months before. Know what you want before pushing ahead. Do your pros and cons and talk to both a real estate agent as well as a mortgage agent to help you to see all options and what option actually works for you.
Tip: Remember to compare different loan products, a fixed-rate mortgage vs. a variable rate, conventional loan vs. high ratio/insured loan. Both have pros and cons, and should be carefully considered before applying for a mortgage. There is no one-size-fits-all approach.
My biggest advice has always been, talk to the experts. Find a good mortgage agent to help guide you through and educate you. With so many rules involved in getting a mortgage, it is very difficult for borrowers to keep track and know it all, simply talk to an expert.
Find a good real estate agent, again, one that will guide you and educate you along the way. There are thousands of mortgage agents and real estate agents in the industry, finding the right one is as important as buying a property. You want someone that is genuine in their intent not to simply just make the deal and earn their commission.