5 Mortgage Mistakes to Avoid for Homebuyers

1. Neglecting to Check Your Credit Score

1. Neglecting to Check Your Credit Score

Many homebuyers assume their credit is in good standing – so there’s no need to check on their score. However, a bad credit score can throw your home buying process off track. With bad credit, you may face higher interest rates, or even a mortgage denial. By regularly reviewing your credit score, you can be up to date on where it stands – and if it needs some improvement, you can take steps to increase your score. The good news is, it’s fairly easy to check your credit history and there are several ways to build a strong credit score.

2. Not Getting Pre-Qualified

2. Not Getting Pre-Qualified

As you start to look for a home, there is a lot to be excited about – from open houses to online searches to exploring new neighbourhoods. But before your house hunting starts in earnest, one of your first steps should be to find out how much mortgage you will qualify for.

When you go through the exercise of getting pre-qualified for a mortgage with a broker, it gives you a clear understanding of how much home you can afford. It also demonstrates to your realtor and sellers that you’re a serious and qualified buyer.

Some buyers make the mistake of skipping this step, which can lead to any number of disappointments – from falling in a love to a home you can’t afford to wasting your time looking at properties out of your price range to watching an offer fall through when you can’t get your financing sorted in time. Understanding what you qualify for early in the process is well worth it in the long run.

3. Ignoring Your Budget

3. Ignoring Your Budget

Do you have a dream home in mind? While it's tempting to buy the “perfect” home, it's also important to consider how much it will actually cost you. A home at the top of your price range may in fact bust your budget when you consider other associated costs, including property taxes, insurance, maintenance, and utilities. Creating a realistic budget that includes all expenses (large and small) and that allows for unexpected expenses, can help ensure that you can make your mortgage payment out of your regular income, without having to take on debt or dig into other savings.

Keep in mind as well that interest rates do fluctuate, and as you budget for your new home, you’ll want to feel confident that should interest rates rise, you will be able to continue making your mortgage payment. While the Canadian government requires lenders to conduct a “stress test” to ensure buyers don’t get in over their heads should interest rates rise, it’s worth doing your own as you set your homebuying budget.

4. Forgetting About Closing Costs

4. Forgetting About Closing Costs

When homeowners save for a home purchase, many will only calculate the amount they need for their down payment, expecting that any other costs will be rolled into their mortgage. This is a common, and costly, mistake as there are other out-of-pocket expenses that come with buying a home. These expenses, which combined are considered “closing costs,” can range from 1.5% to 4%¹ of the home's purchase price. For example, if you plan to purchase a home for $500,000, you may need to set aside $7,500 - $20,000 to cover your closing costs.


Here's a rundown of common closing costs:

• Appraisal: $300 - $500. The cost will vary depending on the property’s location
• Land Transfer Tax: This cost is calculated as a percentage of the purchase price and depends on the province where the property is located. In some cases, the municipality may also have a separate land transfer tax
• Legal Fees: $1,000 - $3,000. Costs can vary depending on the amount of work required to complete and review the paperwork
• Title Insurance: $150 - $5,000. This is a one-time cost that protects against title fraud. It may be required before you secure your mortgage

5. Making a Major Financial Change

5. Making a Major Financial Change

Once you've been pre-approved for a mortgage, it's important to maintain relative financial stability until the closing date. This means avoiding making significant purchases, opening new lines of credit, or even changing jobs. Any of these actions could affect your creditworthiness and risk your loan approval.