If you’re new to Canada and considering applying for a mortgage, there are a few things you need to know to avoid any potential pitfalls. This article will explore four of the most common mistakes new borrowers make when applying for a mortgage in Canada. By understanding these mistakes and how to avoid them, you can be one step closer to securing the best possible mortgage rate and terms.
Pitfall 1: Not Budgeting for All Costs
One of the most common mistakes newcomers to Canada make is not budgeting for all costs, which can lead to financial problems. The minimum down payment is 5% of the home’s purchase price. There are a few things you need to account for when budgeting for your new home:
- The home’s cost is usually the most significant expense and can be challenging to estimate, and not being aware of all the costs associated with buying a home. These include legal fees, land transfer taxes, home inspection costs, or renovations.
- The cost of moving – If you’re moving from another country, there are a lot of additional costs to consider. Things like shipping your belongings, changing your driver’s license, and getting new insurance can add up quickly.
- The cost of living – In Canada, food, gas, and utilities are more expensive than in many other countries.
Pitfall 2: Not Getting Pre-Approved
Getting a mortgage can be daunting when you’re a newcomer to Canada. There are many things to consider, and it can take time to figure out where to start. It’s essential to get pre-approved for a mortgage.
A pre-approval means that a lender has looked at your financial situation and agreed to give you a loan up to a certain amount. With a pre-approval, you may be in a position where you can get the financing you need. Knowing your home affordability gives you peace of mind and makes buying a home much more manageable.
When getting pre-approved for a mortgage, there are a few things to remember. Firstly, some lenders will only pre-approve you for a certain amount of money. If the desired home is more expensive than this amount, depending on the amount of your down payment, there may be options offered by different lenders. However, when you buy the home, you will not need to get pre-approved again. You must go through the application process and sign all necessary paperwork.
Find a real estate agent to help you with your search. An excellent real estate agent will help you find the perfect home and negotiate with the seller on your behalf. It’s essential to have an experienced professional represent you. This step is crucial in determining how much you will pay for the home you want. Once you have made an offer, you must sign a purchase agreement. A purchase agreement outlines the terms of the transaction, including price, date of closing, and other vital details. It also states that its terms legally bind both parties.
Pitfall 3: Not Understanding Mortgage Terms
Many try to rush the mortgage approval process, which can be costly. Take your time to learn about mortgage terms and the home buying process. An excellent mortgage broker will explain all of the details involved in home buying, including mortgages, appraisals, inspections, and more.
Learn about the different types of mortgages available, such as fixed rate and adjustable rate mortgages. The lender you choose will help determine the type of mortgage you can get.
Only accept a mortgage commitment after reading the fine print. Ensure you understand all the potential costs associated with the contract, including NSF fees, penalties, pre-payment privileges etc.
A mortgage broker is a middleman who brokers mortgages from one lender to another. He’s not your lender; he doesn’t have to stick with you if he can get a better deal elsewhere. Shop around for the best mortgage, and don’t put all your eggs in one basket. Make sure to get mortgage quotes from multiple lenders before you commit.
Pitfall 4: Borrowing Too Much Money
You don’t have to go overboard–or get a second mortgage–to buy the house of your dreams. You may qualify for a much higher purchase price on paper, but this price may be outside your comfort zone. Ensure you are comfortable with the monthly cash flow required for mortgage payments and other costs, including property taxes and upkeep.
If you’re considering purchasing a home, you’re probably wondering how much mortgage you can afford. Use our mortgage purchase calculator to help you determine what size mortgage loan you can qualify for based on your current income and expenses.
Start planning your dream home today with our free mortgage purchase calculators.