Obtaining financing on a new or existing home can be a stress-free, straight-forward process if you're prepared. But if you're not prepared, there are many common mistakes you can make. Most of these mistakes are easily avoidable with some preparation and informed advice. Below are the Top 5 Mortage Mistakes people make when trying to secure financing for their home:
- Failing to choose the best product for their situation.
- AUtomatically renenwing their current mortage with their existing lender.
- Signing documents without reading them.
- Taking it to the limit - running up credit.
- Not planning for your mortgage application.
Failing to choose the best product for your situation.
There are many different types of loans out there. There are fixed and variable-rate products, hybrid and no-frills mortgages, line sof credit, 1-10 year terms, up to 35 year amortizations and more. And although choice is great, it can be quite overwhelming without expert advice. While one person would benefit froma variable-rate product, their neighbour may be better suited to a fixed-rate product. The key is to always explain your current situation and future goals in detail so that the product that best meets your needs can be seleted.
Automatically renewing with your existing lender
ALthough you may feel an allegiance with the current financial institution that holds your loan, they may not be able to offer you the best products. When refinancing or renewing, always shop the market for your best available option, much like when securing your first mortgage. This ensures you end up with the best mortgage rate and terms customized to your unique situation.
Signing documents without reading them
Never sign documents without reading them. If you are unsure about your understanding, always ask a professional for clarification. Remeber that you are the one entering into the agreement, so you need to understand and agree with what you are committing to.
Taking your credit to the limit
Make sure that your credit balances are in your favour when it comes to your mortgage application. Lenders are looking for an approriate debt-to-income ratio. In other words, you need to have more income than you have debt. Avoid running up a balance on your credit cards and pay down existing debts as much as possible.
Failing to plan ahead
If you know that you will need to obtain, renew or refinance a mortgage, it's essential to plan for it by enusirng your credit is in order. If it's not, start preparing. Do not make any purchases on your credits cards that you cannot pay off and if you carry a balance on your credit cards, start paying them down. Refrain from making any large pruchases before securing your mortgage. If you're planning to buy a car, wait until after you have secured financing, as your debt-to-income ratio will rise and you don't want this while trying to secure a mortgage.
Understanding how the mortgage process works and how lenders qualify your loan will help you avoid the above mistakes.
-Article originally published by Dominion Lending Centres, August 2009