6 Mortgage Myths Busted
If you’re looking to buy a home sometime in 2019, the first thing you need to start thinking about is researching and applying for a mortgage. Since a mortgage is the financing you need to buy a house or condo unit, it’s important to educate yourself before putting everything on the line. Many people are misinformed about how mortgages work and who can qualify, so let’s bust a few common myths so that you can make some informed decisions during your house hunt.
1. Banks are the best bet
The truth is, many people go to the bank for their mortgage out of trust and loyalty. Banks often post rates on the higher end of the scale. Most lenders will negotiate and have a lower number they’re willing to settle on. If you want lower rates, go to a mortgage broker. Their job is to negotiate with lenders on your behalf to secure a good rate for you. Most of the time lenders offer brokers discounts due to the amount of business they bring them.
2. You pay the broker
If your reason for choosing the bank over a mortgage broker is that you believe you will have to pay the broker a fee, this is false. The truth is, clients pay brokerage fees only in the event that the broker has to go outside the traditional channels to secure financing for you. This might be the case for those with bad credit scores who were denied by financial institutions. Most mortgage applicants are not charged a fee.
3. Poor credit is an automatic denial
Just as we said above, there are circumstances where a mortgage broker will have to take a different approach to ensure you receive financing. Yes, traditional financial institutions will often deny applicants with poor credit, but if you use a mortgage broker, they can secure a mortgage through private lenders. This may cost you a fee, but that might be worth it to not be denied.
4. Your down payment must be 20 per cent or higher
Paying a higher down payment is obviously better, and doing so often ensures you can have the maximum amortization time, meaning lower monthly payments. However, you can put down a lower down payment depending on the type of mortgage you agree to. Don’t be afraid.
5. Only couples and full-time employees can qualify
There are plenty of single adults and self-employed people out there who wish to own their own home — and the truth is, many of them do. Once upon a time it was much harder for the single and self-employed to get a mortgage, but today mortgage brokers have access to all sorts of niche lenders. As long as you have good credit, you can be accepted in these scenarios.
6. Pre-approved = mortgage approval
Receiving a mortgage pre-approval is a great thing, this is true, but it doesn’t equal mortgage approval. There are plenty of reasons why your pre-approved mortgage might fall through, so be aware of these so that you’re prepared. For example, if you put down less than 20 per cent, your mortgage will have to be insured. In this scenario, the insurer decides whether it’s approved. If you’re feeling uneasy, add a condition to your offer that you must have a mortgage in place for the sale to go forward. This way, if your financing falls through you will not be on the hook for a home you cannot pay for.
The bottom line here is that it’s important to talk to a mortgage expert. Even if you think you’re in a difficult situation and that homeownership is a lost cause, ask! You might be surprised by the answer. That said, if you aren’t financially prepared, it’s important to save and educate yourself on how you need to improve to make it work. Good luck!