For most people, getting a mortgage is a must when purchasing a home. It’s a pretty straight-forward process, you borrow money from a lender so you can purchase a home. Despite how “simple” it sounds, there are plenty of mortgage mistakes to avoid when you’re making an application. The biggest mistake is arguably not getting pre-approved – don’t you want to know how much you can afford?
Some mortgage mistakes are unintentional and totally understandable, but there are a few “mistakes” that people make that can be absolutely shocking. The sad thing is, I’m not even sure if shocking is the right word anymore. Owning a home has become such a priority for Canadians that some people are willing to do just about anything to say they own. If you plan on applying for a mortgage, try to avoid the following mistakes.
Don’t invest your down payment
When I was saving for my down payment, I really struggled with what to do with my money. I hated seeing all my hard earned cash sitting in a savings account that was making less than 2%. Surely my hard earned cash could get a better return somewhere else right? Well, of course, there are plenty of investments that might give you a better return but is that what you really want?
Getting a higher return means increased risk. So you could potentially earn a 20% return when investing your down payment in the stock market but you have just as much of a chance losing 20%. Is this worth the risk? For most people, the answer is no. If you’re comfortable with the risks involved then by all means, invest it, but I think most people are a bit more conservative.
Just so we’re clear. There are no investments that guarantee 5%+ returns without any risks.
Don’t lie on your application
Just don’t do it. I shouldn’t have to explain why lying on your application is one of the biggest mortgage mistakes to avoid but enough people do it so it deserves a mention. Some people lie about their income so they’ll qualify for a larger mortgage. Why do need to borrow more money? Because they won’t be able to afford a home otherwise. If you need to lie, the odds are you can’t afford to be a homeowner. Most lenders will do their due diligence but unfortunately, there are some questionable tactics that still happen in the industry.
Don’t apply for multiple credit cards
Whenever you apply for a credit card, your credit score takes a small hit since the application requires a hard check. This normally isn’t a big deal, but if you’re about to apply for a mortgage and you’ve recently applied for multiple credit cards, lenders may seriously question why you’ve requested so much credit. If you’re anticipating purchasing a home in the near future (less than 6 months), avoid applying for too many new credit cards.
Don’t assume you can afford it
Remember earlier how I said not getting pre-approved is a huge mistake? Well, some people still go house hunting without know how much they’ll be approved for. It’s silly to just assume that you’ll be able to afford any home you look at. You can use online calculators to get a rough idea what you’ll qualify for but speaking to a mortgage broker and getting formally pre-approved should be done before you go house hunting.
Don’t forget about your other costs
This isn’t actually a mortgage mistake but it would be pretty foolish to not consider all the costs involved when buying a home. There’s your mortgage, property tax, utilities, maintenance fees and insurance to consider but how about furniture, saving for retirement, vacations, and the costs of having kids? Don’t underestimate your costs moving forward. You want to make sure you’ve left some extra money available for those expenses that will eventually come up.