Homebuying can be an exciting process, but it's essential to avoid common mistakes that can end up costing you down the road. Here are the four most common ones that first-time homebuyers and homeowners should watch out for.
1. Thinking You Can't Qualify for a Mortgage
You’ve always dreamt of owning your own home, but you aren’t sure if the qualifications are insight. Even with a perfect credit history and an uncertain job market outlook, alternative factors can help you get approved.
Need help understanding your credit score? Refer to our blog post here.
2. Not Knowing the Down Payment Choices
Fortunately, there are different options for down payments depending on how much you can afford:
Conventional mortgage (20% down payment)
Low-down payment mortgage (minimum 5% down payment)
For low down payment mortgages, homeowners must have mortgage default insurance. You can pay the premium upfront or add it to the amount you borrow.
The federal government has created a program to help Canadians save for their down payments. The Home Buyer’s Plan allows first-time homebuyers to use up $25,000 in RRSP savings per person ($50k if married), which they can withdraw without taxation as long they repay within 15 years. To qualify, the RRSP funds you intend to use must have existed in your RRSP for at least 90 days.
3. Focusing on the Interest Rate Rather Than the Overall Solution
Homebuyers, especially first-time ones, often overlook the importance of considering what type of interest rate will cost them when they sign a new mortgage. Even though this is essential, it’s not all that matters in determining if purchasing homes makes sense for you financially. The different types of mortgages, payment structures, terms and flexibility will bear more on the overall cost of homeownership.
Fixed-Rate Mortgage Fixed-rate mortgages are a great way to ensure that your interest rate stays the same during the term of your mortgage and that you know exactly how much is applied towards the principal. The main advantage? You can plan with certainty, knowing what lies ahead regarding finances.
Variable Rate Mortgage
There’s a lot to love about variable-rate mortgages. When interest rates go up, you’ll enjoy paying off your mortgage sooner and saving money. But don’t worry if they drop again because, with this type of loan, there won’t be any change on how much each month pays towards principal versus interest. So when things get extra-special expensive around town, we’re still able to keep our heads above water, mainly due to the current low inflationary pressure.
Combined Fixed and Variable Mortgages By diversifying your mortgage, mortgage plans offer you the advantages of both variable and fixed rates. The variable portion allows potential long-term savings, while the fixed portion protects when rates rise. Based on your budget and plans, we can help you decide which mortgage solution works best for you.
For more clarification, refer to our blog post, Choosing Between Fixed and Variable Rates.
4. Being Unrealistic with How Much You Can Afford
Homeowners make the common mistake of underestimating how much they can afford to pay for their homes. A mortgage calculator will make it easy to find the maximum mortgage payment amount you can afford each month.
Bottom Line
If you’re in the market for a new home, you must be aware of some of the most common mistakes that homebuyers make. By applying today, you can avoid these pitfalls – our experts will help you find the best mortgage solution for your unique situation. Plus, we can give you all the information you need about down payment options and realistic affordability calculations so you can shop for homes within your budget.
Don't let inexperience or misinformation cost your dream home – contact us today!