Top Mistakes to Avoid While Thinking About Buying a Home in Canada

Buying a home is a major financial commitment, and there are many factors to consider before you even begin the mortgage approval process. Making the wrong moves early on can complicate your journey toward homeownership, delay your plans, or even cost you your dream home. To help you avoid these pitfalls, we’ve put together a list of common mistakes to avoid while you’re thinking about buying a home in Canada.

1. Not Having Stable Employment

Your employment situation plays a critical role in your ability to secure a mortgage. Lenders want to see a steady income that will continue throughout the term of the mortgage, so any disruption to your employment can affect your approval.

Tip: If you’re thinking about changing jobs or transitioning to self-employment, it’s best to wait until after your mortgage is approved and the home purchase is complete. Stability is key when it comes to lenders approving your application. Even if the new job offers more income, lenders prefer to see at least a few months of steady employment history.

Example: A buyer changed jobs during the mortgage application process and, despite earning a higher income at the new job, the lender required additional paperwork and delayed the approval. This almost caused the buyer to miss the deadline for securing their home purchase.

2. Ignoring Your Credit Score

Your credit score is one of the most important factors when applying for a mortgage in Canada. Lenders use it to assess how reliable you are as a borrower. Ignoring your credit score or taking actions that lower it could result in higher interest rates or even a declined mortgage application.

Tip: Before you start the home-buying process, check your credit score and ensure it’s in good standing. Avoid taking on new debt or missing payments, as this can negatively impact your score. If your credit score needs improvement, take the time to pay down existing debts and make consistent, on-time payments to boost it.

3. Not Saving Enough for a Down Payment

One of the biggest mistakes potential homebuyers make is underestimating how much they’ll need for a down payment. In Canada, the minimum down payment is 5% for homes priced up to $500,000. For homes priced higher, the down payment increases, and if you’re buying a home for $1 million or more, you’ll need a minimum of 20%. Failing to save enough could delay your home purchase or result in higher costs in the form of mortgage default insurance.

Here is a handy chart from the CRA!

Tip: Start saving early and aim to put down more than the minimum required if possible. A larger down payment can reduce your monthly mortgage payments and may help you avoid the additional cost of mortgage insurance. Consider opening a dedicated savings account for your down payment to stay on track.

4. Overlooking Additional Costs of Homeownership

Many first-time buyers focus solely on the purchase price of the home and the down payment, but owning a home comes with a variety of additional expenses. These include closing costs, property taxes, home insurance, maintenance, utilities, and potential repairs.

Tip: Before buying a home, create a budget that includes all these expenses. Closing costs alone can range from 1.5% to 4% of the home’s purchase price, so it’s important to have extra savings set aside. Be sure to factor in the cost of regular maintenance and unexpected repairs as well.

5. Not Getting Pre-Approved for a Mortgage

Many buyers start searching for homes without first getting pre-approved for a mortgage. This can lead to disappointment if you fall in love with a home that’s outside of your budget or find yourself competing with other buyers who are already pre-approved.

Tip: Getting pre-approved for a mortgage helps you understand how much you can afford and makes you a more attractive buyer to sellers. It also streamlines the process once you’re ready to make an offer. Be sure to get pre-approved before you start your home search so you can act quickly when the right property comes along.

6. Making Big Purchases Before Your Mortgage Closes

Even after you’ve been pre-approved for a mortgage, it’s important to avoid making large purchases or taking on new debt. Lenders will review your financial situation again before finalizing the mortgage, and any big-ticket purchases can affect your debt-to-income ratio, potentially causing delays or even a denial.

Tip: Hold off on making any major purchases, such as buying a car or taking a vacation, until after your mortgage has closed and you’ve moved into your new home. This ensures your financial profile remains stable throughout the mortgage process.

7. Focusing Only on the Short Term

When you’re thinking about buying a home, it’s easy to focus only on your immediate needs, such as finding enough space or staying within a certain neighbourhood. However, it’s important to also consider your long-term plans. Will this home still meet your needs in five or ten years?

Tip: Think ahead when making your decision. Consider your career prospects, potential family growth, and how the neighbourhood may change over time. This will help you make a more informed decision and avoid the hassle of moving again sooner than expected.

Conclusion

Buying a home in Canada is a major financial decision, and avoiding these common mistakes can help you navigate the process smoothly. From ensuring stable employment to managing your credit and finances wisely, careful planning and preparation are key. If you’re ready to start your home-buying journey, contact us at Mortgages for Less, and we’ll guide you through the process from pre-approval to closing, ensuring you make informed decisions along the way.