Mortgage Myths (Debunked)

There is so much information out there when it comes to the mortgage loan application process. Unfortunately, not all of the information that you will come across is true. Misinformation is one of the biggest reasons that new home buyers can be put off from applying for a mortgage. Our expert Kitchener mortgage broker team is here to debunk the top mortgage myths out there for you.


Mortgage Myth One: 20% down payments are compulsory

This is simply not true. While the more that you make for your down payment will give you better rates, as well as make it less likely that you will need to pay for private mortgage insurance, you can make lower down payments and still get approval for a mortgage. You can understand why this myth can stop home buyers who aren’t able to come up with a 20% down payment.

There are mortgage programs for first-time home buyers that will let you make a much lower down payment, for example, down payment assistance programs, which lend you a smaller loan for as much as 15% of the value of the home. This can then be used towards the down payment. Another option is the First-time Home Buyer’s Incentive program, which allows borrowers to make down payments as low as 5%. Even if you don’t qualify for these programs, you can still make a down payment for as low as 10% and get approved for a mortgage. Just bear in mind that you will pay for higher rates and may need private mortgage insurance, depending on how good your credit is. 


Mortgage Myth Two: Don’t begin the mortgage application process until you start shopping for a home

This can actually be detrimental to a home buyer. You should start the mortgage process before you start shopping around for a home, and here is why. Knowing how much you can be approved for lets you know how much you can afford for a home, as well as your monthly repayments. Getting a mortgage pre-approval is also a benefit to a home buyer because sellers see a pre-approval as less of a risk that a sale will fall through at the last minute. It also makes the application process quicker because you have already gone through your financial details with a lender or broker.

Not knowing how much funding you have to work with can cause you to waste time looking at homes that you wouldn’t be able to get approval for, leading to disappointment. Also, having gone through the bulk of the mortgage application process, you won’t be wasting time waiting around to see if you are approved because you will already know this with a pre-approval.


Mortgage Myth Three: A pre-approval and pre-qualification are the same

Definitely not true! These are two terms that tend to get used interchangeably, but they have their differences. A mortgage pre-approval will give you a better advantage than a pre-qualification. With a pre-qualification, lenders and brokers are only taking a cursory look at your finances to give you a potential estimate of what you may be approved for. This can change once the lender or broker delves more deeply into your finances.

A pre-approval on the other hand goes through the main part of the mortgage process with credit scores, credit history, and financial documents being reviewed. In this step, lenders want to be sure that you will be able to meet their requirements for a mortgage loan. Once you have been pre-approved, the lender will give you a document/letter that states the amount the lender is willing to fund you, as well as the interest rate you get. Pre-approvals have terms and conditions that you need to meet at closing. If they aren’t met, your pre-approval amount can change. 


Mortgage Myth Four: Your monthly rent is more than a monthly mortgage repayment, so you’ll have no problem getting approved for a mortgage loan

Not true. There are many factors that a lender will review when it comes to approving someone for a mortgage loan. Even if your mortgage repayment amount would be lower than what you cover in rent, if your credit is bad, you will struggle to get approved. Other things like unstable work history or income can affect things as well.

During the mortgage approval process, lenders and underwriters assess your finances, income, debts, and more. They do this to determine how much of a credit risk you may be. Also, each lender has its own criteria that you must meet for the approval process. One lender may not approve you but another will. This is why you should always shop around for a mortgage product.


Mortgage Myth Five: You should take the lowest rate offered

This is not always the case. Of course, you want to get the best rates possible. However, the lowest rates may not be the best for your situation. For example, some mortgages with lower rates may have a higher fee or are only for a short time frame. This is the case with variable-rate mortgages. Variable-rate mortgages tend to offer lower rates than fixed-rate mortgages. However, that low rate only lasts for a short period before it matches the market rate. This means your rate may shoot up and become less affordable for you.

Another example is mortgages that have a higher rate but which offer cash back. This can be a more beneficial option than a mortgage with a lower rate, depending on your circumstances. You should always choose a mortgage product that balances your financial situation and needs.

One of the best ways to be sure that you find the right mortgage for you is to use a Kitchener mortgage broker. Mortgage brokers have access to a larger pool of lenders and mortgage products. If you want to see which products are available to you, give our expert Kitchener mortgage broker team a call today!

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