Mistake #1Not being pre-approved for a mortgage before you look for a home. Know your limits. Nothing is more frustrating than finding the home of your dreams, putting in an offer that is accepted, then losing it because the bank won’t lend you enough money.
Any bank or mortgage lender will do the pre-approval for you, at no cost, but you need to have the basic information ready to give them.
First, determine your total household income from last year. Then add up what you are spending for all debts. You must be able to prove everything, so get a "proof of employment" letter, (you'll need several years continuous employment, not just one), a recent income tax return, and anything else you can get that will verify income before you go to a lender. If you're getting some of your down payment as a "gift" from another family member, you'll need documented proof of that too.
It is also a good idea to check your own credit rating first. Even if you've been good, your report may have surprises or inaccurate information that could scuttle a home purchase at the last minute. It’s easy to do and there's no cost. Call the Credit Reporting Bureau and ask for a report.
If you have less that 25% of the price as a down payment, your loan will have to be insured, usually by CMHC, and there are restrictions and costs that change constantly. In any case, you will need at least 5% down payment. Your monthly mortgage and tax payments should not exceed 30% of your household income, your total payments for all debts cannot exceed 40% of income. These figures will vary slightly, so it’s best to find out from a lender before you look.
It's important that you don't just be pre-qualified, where a lender tells you what you should be able to afford, you should be pre-approved. Get a commitment - in writing - of the amount and the rate that the lender will give you. Sometimes people who are pre-qualified go to their bank with an accepted agreement only to be turned down during the approval process. There are a lot of hoops you have to jump through to get a mortgage, it's best to do the jumping at the beginning, not when you're squeezed for time.
