Here Are 5 Of The Most Common Mistakes People Make When Getting A Mortgage
In the past year, mortgage borrowers have been taking serious advantage of the record-low interest rates brought on by the COVID-19 pandemic. Last year, over 551,000 homes were sold, representing yet another new yearly record for home sales. The thriving real estate market was a key economic driver in 2020, in what was otherwise a year of unstable and uncertain market conditions.
With so many buyers taking out loans to purchase properties, the mortgage brokers at Clover Mortgage have noticed a number of recurring trends among borrowers. Here are 5 mistakes to avoid making during your mortgage application process:
1. Documentation errors
When you enlist the services of a mortgage broker, their job is to work as a liaison between you and a potential lender. As such, they take care of all of the complicated paperwork for you, including helping you gather the necessary documents such as proof of income documents, proof of assets, credit score and credit history, and any other necessary information you need to secure a mortgage loan.
Many borrowers tend to not have this type of information readily available, and some end up providing inadequate documentation. Errors on paperwork like not filling out your name or other essential information on documents, sending outdated bank information that is over 30 days old, producing poor quality document scans that lenders cannot read properly, or leaving pages blank in the loan application occur too frequently.
A mortgage broker works hard to find you the best mortgage rates and mortgage terms available to you based on your specific needs and financial goals. To ensure a loan application is not delayed, have all of the necessary documentation that your broker asks for, completed carefully and accurately.
2. Do not focus all of your attention on the interest rate only
The primary concern for borrowers is often to secure the lowest rate they can find. The interest rate on your mortgage is rightfully a very significant factor in determining which loan is best for you. That is why a mortgage broker is a valuable asset to have on your team. Clover mortgage brokers Toronto have access to a wide variety of mortgage products that you can compare, which makes it much easier to find your ideal loan.
While the interest rate is an important consideration for a loan, there are still a number of other aspects of a mortgage that some borrowers neglect to factor into their decision. A mortgage at a super low rate might help a borrower save some money, but conditions like stringent qualification requirements, inflexible terms, and hefty penalties for breaking the contract might not be worth it for a borrower in the long run. Make sure you look past just the interest rate when comparing mortgages and also look at the terms and conditions of your mortgage commitment in detail.
3. Skipping the fine print
Whenever you make a large financial commitment like a mortgage, it is extremely important to make sure you know the details of exactly what you are getting yourself into. Many borrowers assume that once they sign up for a loan, they won’t break the terms in the future. However, an estimated 70% of borrowers end up moving from a property or breaking their mortgage earlier than they originally intended.
As a borrower, you have to be informed of what the rules are and what type of penalties you might have to face if you cannot meet your term obligations. Some mortgages have really strict rules, and can end up costing a borrower thousands of dollars in the near future if they are not careful. Loans from a private or specialty lender, for example, may be closed, meaning that a borrower cannot exit the loan until they have finished making all of their monthly payments. Private mortgages also come with additional upfront costs that a trustworthy mortgage broker will help you understand. A great mortgage broker can help you understand the fine print and make sure you do not find yourself in a difficult position if your life plans change down the road, as they do in many cases.
4. Narrow thinking
Taking on a mortgage can help you achieve your goals and dreams, but it can also be a large debt that threatens your financial security. Making sure you are able to afford a mortgage is so much more than simply being able to qualify or make payments each month. Rather, it is about how your mortgage interacts with all the other features of your financial health over time, which is a complex, but essential calculation that many borrowers skip or find too difficult to make.
A knowledgeable mortgage broker specializes in these types of hard calculations. When you work with the right broker, they measure debt-to-income ratios across the lifespan of the loan, including at the beginning of the term as well as when your finances will change in the future. This process helps to protect borrowers from taking on a mortgage that they cannot afford later.
5. Moving too quickly into the wrong mortgage loan
Record sales, record prices! The real estate market in Canada is constantly breaking records across the board with listings being sold at an unprecedented rate for high prices. This trend has led many borrowers to secure loans much too large and much too quickly, without doing their due diligence on their financial state and looking closely at the details of the mortgage they signed up for. No matter how fast homes seem to fly off the market, scrambling into whatever loan you can find is usually not a good idea.
A mortgage is often one of the biggest financial steps that someone takes in their entire life. The decision to take out such a large loan should be made thoughtfully, carefully, and in an informed way. Otherwise, you can ruin your personal finances or lose out on the opportunity to buy your dream home.
An experienced and knowledgeable mortgage broker from Clover Mortgage will help you avoid making these mistakes that too many borrowers make when securing a mortgage. After reviewing your finances and assessing how they may change over time, we will provide you with an unbiased perspective on where you stand and what type of mortgage would be right for you. For such an important decision, make sure you are making the right one. Let a mortgage broker help you find the best mortgage for your dream home.