As we’re all aware, the interest rates have been quite the topic of conversation over the past year. Should you go fixed? Variable? 5 year fixed? There are so many options, it’s hard to understand your best bet. In this article, I’ll share why I’m not recommending a 5 year fixed mortgage term to clients…Read Article
Debunking 6 Popular Mortgage Myths
When it comes to mortgages, you will hear a lot of information that may not always be the most accurate. I like to call these mortgage myths. It’s easy to get confused because rules change and new information is always coming along.
I thought it would be a good idea to debunk some mortgage myths for you today. I’ll be sharing 6 mortgage myths that many people believe to be true but aren’t actually! There are obviously more that I’m happy to share if this is of interest, so please let me know.
Let’s get started.
You need 20% down payment for a home.
One of the biggest myths that people believe is that you must have 20% down when you’re planning to purchase a home. This is true and untrue, so let me explain!
You need 20% down if the home you’re buying has a sales price of more than $1 million. The minimum down payment for a home priced between $500,000 and $999,999 is 5% down on the first $500,000 and then 10% based on the remaining amount.
Example: If the property is $700,000, it would be 5% on the first $500,000 and then 10% on the remaining $200,000.
So, while homes over $1 million require 20% down payment, homes that go for less than that do not.
Max amortization is 25 years.
Up next is the belief that the max amortization is 25 years. The max amortization for an insured mortgage in Canada is 25 years, but for uninsured homebuyers, who put 20% down, can push their amortization up to 30 years.
Having a higher amortization will lower monthly mortgage payments.
To learn more about insured vs uninsured mortgage, read my article “Uninsured vs. Insured Mortgages: What’s The Difference?”
Being pre-approved guarantees you a mortgage.
This next one may surprise you! Just because you’ve been pre-approved through an online approval form, like this one on my website, doesn’t exactly mean that you’re guaranteed a mortgage.
The pre-approval qualification is the first step in buying a home in Canada. This process includes providing your income, debt information and asset information. Once I have this information, I can go through the system to see what you’d be qualified for. After your pre-approval, then we go into the proper qualification process. This is when I and the lenders have a deeper dig into your finances and situation to see if they are comfortable lending to you. They’ll consider your assets, debt ratios, credit score and history, etc.
So, just because you were pre-approved online, doesn’t mean that guarantees you a mortgage. You have to wait until the lenders review your specific situation to determine whether or not you will be fully approved.
Once the lender decides you are approved, they will determine the max amount that you qualify for. The cost of the home you’re interested in and the size of your down payment will also determine what amount you will receive from the lender.
You need excellent credit to get approved.
A lot of people come to me worried that because they do not have the perfect credit score, they will never be approved for a mortgage. I am happy to say that is a myth! While you need to have good credit to get approved, just because you’ve had previously bad credit doesn’t mean you’ll never get approved.
In most cases, the banks will want you to have two sources of credit, established for two years or more. When I say credit sources, what I mean is at least one credit card and either a loan or line of credit.
That is what the banks prefer, with the credit card having a limit of $2,000 if you have had it for 2 years or more. If less than two years, banks want to see your limit at $5,000 or higher. There are exceptions where you do not have to have a credit card, but the banks prefer you to have one so they can see you are able to manage a voluntary and variable payment.
Banks will want your credit score to be between 620-650 or above when getting approved for a mortgage. But, it’s recommended to have 680 or above when applying for a mortgage. They will also put into consideration whether you have any collections in your name.
When we go through the approval process, I can pull your credit score if you’re unsure what your score is to let you know.
And, if you’re going through bankruptcy or have had past collections and an A lender won’t lend to you, we don’t stop trying there. That’s when I’ll reach out to B lenders and eventually private lenders to see what’s possible for you.
Find a house you love, then worry about the mortgage after.
This is a big myth that I find a lot of people believe. They believe that once they find a home they wish to buy, then they contact a mortgage broker to get a mortgage. But, it should be completely the other way around!
It’s best to know what you are approved for before you go house shopping. This allows you to know what your budget is and look within it. It also allows you to not fall in love with a home that is completely out of your budget and come to me hoping to make it work – because it won’t and it’s never a good feeling to let someone know they can’t afford a home they love.
I truly believe it’s best to reach out to a broker, like myself, at the very beginning of your home buying journey. We will go through your situation and see what you will be approved for. Then, you can take that number to your Realtor and let them show you the homes that you know you can realistically afford.
The bank is the best place to get a mortgage.
Finally, the last myth that I see a lot is that people believe that the best (and only) place to get a mortgage is through a bank. But, hello, what about the trusty mortgage broker?! So, while you can get a mortgage through a bank, I believe it’s best to speak with a mortgage broker instead.
The main difference between the two is that at a bank you’d be working with a mortgage specialist. This person doesn’t have to have a mortgage license. They also only represent the products their financial institution offers.
When you work with a broker, like me, you’d be working with a mortgage broker. A broker has to receive their license and renew it every two years. In addition to being licensed, a broker has access to several of the main financial institutions plus many other broker specific lenders. This means that I am able to shop around the different banks to find the best rate possible for you.
If you were to use a mortgage specialist at a bank, they only have access to their institution’s rates and are not able to shop around for the best rates coming from other banks.
Reach out to me today.
I hope that this article was useful for you today! If you’re interested in another article sharing more myths, please let me know. I would be happy to write one! If you’re ready to start your mortgage process, today is a great day to contact me! You can call me at 250-826-3111, contact me through my website or apply directly here. I will speak to you soon!