4 Mortgage Mistakes You Need to Avoid

Unless a Kelowna homebuyer is purchasing a home with cash, they need to get a home loan. Mortgages are one of the most important parts of the home-buying process. However, getting a mortgage isn’t quite as easy as just applying with the first lender that shows up on Google. Mistakes are easy to make if the buyer doesn’t know about them. Here are some of the different mortgage mistakes buyers often make and how to avoid them.

For informational purposes only. Always consult with a licensed mortgage or home loan professional before proceeding with any real estate transaction.

The Buyer Goes With the First Option Found

A quick Google search will turn up many different mortgage lenders who would be more than happy to have a buyer’s business. However, not all lenders are the same. They will all have different terms, and because of this, buyers should shop around to ensure they’re getting the best deal. 

Unfortunately, many buyers don’t shop around and instead go with the first option either because they’re pressed for time or the employee they speak with ensures them their company provides the best terms. While it may be true, there’s no way of telling for sure without anything to compare it to. Before signing with a lender, be sure to test the waters and see what the competition is like.

The Buyer Assumes They Must Put 20% Down

When purchasing a new home, the traditional down payment is 20%. However, if the home costs $500,000 or less, they can actually put down as little as 5%. While 5% down can get a buyer a home, it does have a few drawbacks buyers need to know about. For instance, a lower down payment will lead to higher interest rates, which can lead to paying more in the long run. A low down payment can also lead to the buyer paying for mortgage default insurance. However, a low down payment can make homeownership much more accessible for people, so it can be worth the price.

The Buyer is Pre-Qualified, Not Pre-Approved

The first recommended step of buying a home is to get pre-approved for a loan. However, the first thing to do in order to get pre-approved is to get pre-qualified. Because of the similar names, many home buyers get the two confused and think they’re the same thing, but they’re not.

The difference between the two is that the buyer completes the pre-qualification process entirely. All the information is user-submitted, and it may or may not be completely accurate. When a buyer gets pre-approved, the lender will do research into their financial and credit history. It requires a lot more hard documentation than pre-qualification, but the results are more accurate. 

The Buyer Doesn't Get a Mortgage Rate Lock

Mortgage rates can be volatile and drastically change between the time a buyer files their loan application and their closing date. A mortgage rate lock ensures homebuyers get the same interest rate and loan terms they’re quoted by a lender at the time the lock is made. This is an especially smart strategy in a market environment where interest rates are in their favour or are expected to rise. Not locking in a guaranteed favourable rate with a lender can be expensive, because even a point or half-point increase in rate can cost a buyer tens of thousands of dollars more over the life of a mortgage loan. 

If a buyer makes one of these mortgage mistakes, it isn’t life-threatening. However, they are inconveniencing themselves. If buyers don’t shop around for the best mortgage deal or don't get a mortgage rate lock, they risk paying a lot more money than they need to, and it can cost them thousands of dollars. If they try to purchase a home while only pre-qualified instead of pre-approved, they can get their offers rejected by sellers who don’t want to have to wait for the buyer to get pre-approval. Buyers need to be aware of the different mistakes they can make while applying for a mortgage in order to avoid them.

Buyers should do whatever they can to avoid these and other mortgage mistakes. As with many things, knowledge is the key to prevention, so research the ins and outs of how mortgages work before agreeing to one. And as always, buyers should consult their real estate agent with any and all questions.

For informational purposes only. Always consult with a licensed mortgage or home loan professional before proceeding with any real estate transaction.