Debunking Mortgage Myths
Getting a mortgage is one of the biggest steps in purchasing a home. With so many lenders and mortgage plans available, it’s important to understand the process and be aware of your options. There is tons of information out there, and not all of it is true. As a mortgage broker, it is my job to keep you informed and debunk those common mortgage myths, so they don’t affect your decisions.
Pre-Approval and Pre-Qualification Are The Same
Pre-approval and pre-qualification sound quite similar, but they are not the same. Mortgage pre-qualification happens before a mortgage pre-approval. It’s a quick process where the borrower’s financial situation is assessed by answering questions about their income, debt, and credit. Then, their mortgage eligibility can be roughly assessed.
This process does not involve any documentation and borrowers are not required to provide proof of their financial situation. The pre-qualification is a rough quote of what the borrower will be eligible for, without a thorough analysis of their situation.
A pre-approval, however, is a much more accurate representation of what a borrower qualifies for. To be pre-approved, buyers meet with a mortgage broker and present documented proof of their finances. Then, we perform credit checks, stress tests, and income checks to get a greater understanding of what they qualify for. After a detailed assessment, I submit a formal pre-approval application to the lender. This will give the borrower accurate insight as to whether they qualify for a mortgage loan and the amount and rate of the loan.
Since pre-qualifications are conducted without any proof or evidence of the borrower’s financial situation, they are much less accurate and can’t get you very far. A pre-approval will give a borrower a better idea of what they qualify for, and confidence in their home buying process.
1. you need a 20% down payment to buy a home
This common myth often convinces new homebuyers they are not ready to buy. The down payment can be any size you’d like, as long as it is above the minimum limit. The minimum down payment differs based on the price of the home, the location, and additional factors.
If the price of the home is under $500,000, the minimum down payment is 5% of the purchase price. A 20% down payment is only required if the purchase price of the home is above $1 million. Many factors affect the minimum down payment amount, but I can help you determine how much down payment is required for your situation.
There are also first time home buyer programs that you may be able to take advantage of for your down payment. One of these is the First Time Homebuyers incentive where first-time homebuyers may be eligible to receive 5% to 10% of the home’s purchase price to use for a down payment. I can always let you know of programs that you qualify for to help you get into a home.
Your credit has to be perfect to get a mortgage loan
It’s no secret that credit checks are an important step in the mortgage approval process. However, homeowners often overestimate how great their credit needs to be to get approved for a mortgage. Canadian credit scores range from 300 to 900, and many people believe a score upwards of 800 is required. Someone with a score of 680 and sometimes even lower, can still qualify for a mortgage with great lenders.
With a score below 600, you may still qualify for a mortgage even if you are not approved by the top Banks. B lenders / Private lenders will accept scores lower than 600 depending on the situation. To secure themselves against added risks, lenders will increase down payment, interest rates and fees in these situations.
To avoid spiked fees and rates, you can improve your credit score before applying for a mortgage. There are numerous ways to do this, such as making purchases on your credit card and immediately paying them off.
If you are concerned about your mortgage eligibility or have any questions, I am here to answer your questions and offer mortgage advice. Contact me today to learn how you can qualify for a mortgage.
– Duane Springsteel