With such a plethora of mortgage information floating around the internet, it can be confusing for a first time home buyer to understand what is fact and what is fiction. Falling for the major mortgage myths can often deter a first-time buyer from following through with mortgage applications, and more so, can cause a lot of confusion when it comes to affordability and approvals. Let’s explore some of the most common mortgage myths you may stumble across and de-bunk them once and for all.
“I Need A Large Down Payment”
A common home buying misconception when it comes to buying a house is that a full 20% down payment is required. However, in Canada, there are some exceptions to this mythical “rule”. In fact, in most cases for first time home buyers, the minimum down payment for a home priced under $500,000 is actually only 5%. There are also different types of loans, rebates and grants for first time home buyers that can help alleviate the stress of coming up with the initial down payment.
“All I Need Is My Down Payment”
This myth is commonly believed by first-time home buyers, especially of the younger generation. While there is some leniency in your down payment, regardless of that cost, there will be additional costs in the purchase of a home. Along with your down payment, you will also need to come up with the funds for real estate taxes, bank appraisals, mortgage application and broker fees, underwriting fees, attorney fees and mortgage insurance. These costs should all be factored into your savings before you try to skip ahead to the dotted line.
“I Need Perfect Credit”
While your credit score and credit history are definitely taken into consideration when it comes to your mortgage approval, perfect credit is not required. In fact, a smaller percentage of people actually have perfect credit with no history of debt or financial hiccups. However, the important factor is how well your credit is managed. For example, multiple credit cards and late payments are often big red flags. However, paying smaller amounts as often as possible and managing your debt in a productive approach can help a person with poorer credit get approval.
“I Need To Find A Home First”
This myth is actually the opposite of what we suggest you do. As many mortgage brokers or financial lenders will tell you, finding the house first is always a bad move. For one, you have to understand that your mortgage approval takes time, and a home you’ve fallen in love with can sell within 24 hours. Secondly, you will be approved for a mortgage based on your income, debt, credit, etc., not based on the cost of the home you’ve decided you’d like to buy. To avoid disappoint from not getting a mortgage approval for what is needed to buy the home you’ve found, get the financial paperwork done first, then go house hunting.
“My Income Determines My Loan”
To a certain degree, yes, your income determines your mortgage loan. However, it’s not the only factor. Debt and credit history also is a major player in the approval of your application. For example, a person with an income of $80,000 who has significant credit card debt may find it harder to be approved for a loan than a person making $65,000 with no debt.
“Pre-Qualification Is The Same As Pre-Approval”
While these two terms are often confused, they are not interchangeable. When it comes to a mortgage, to be pre-qualified, your mortgage broker will require basic information such as your assets, income, debt, etc. in order to determine what kind of loan you may be able to qualify for. They will also be able to determine a general ballpark of how much you will be eligible for. Once your lender has gone over your information and verified everything, they will then decide whether or not to give you a pre-approval, which means they are ready to give you your loan and you can proceed with searching for a home.
Applying for a mortgage can be a big daunting process, and is often overwhelming for first time home buyers. As a home is usually the biggest single investment you will ever make, it is important to understand the entire process, and ask questions you may have along the way. If you have any questions about mortgage myths or financial facts, don’t hesitate to give me a call at 705-315-0516. I am always happy to help you better understand your mortgage application and to help you make a safe financial investment in your future.