5 common mortgage myths

For veteran borrowers, the mortgage process can seem relatively simple. But, for borrowers that are new to applying for a mortgage, the process can seem overwhelming. To make matters harder, there is a lot of outdated and false information to navigate through. This can make getting a mortgage seem out of reach to some borrower. Luckily, we’ve gathered 5 mortgage myths and debunked them for you!

Myth #1: Pre-qualified is the same as pre-approved

Reality: The first of our 5 mortgage myths is that pre-qualification and pre-approval are the same. A mortgage pre-qualification is used to determine a potential borrower’s likelihood of receiving a mortgage. A borrower provides the lender information about their employment, income, and debts which is then used to determine if they pre-qualify for a mortgage. The information provided to the lender during a mortgage pre-approval is usually not verified until the borrower applies for a mortgage, so the information a borrower provided could be incorrect or false. A mortgage pre-approval holds more power than a pre-qualification for borrowers. A mortgage pre-approval verifies a borrower’s employment, income, and debt. If a borrower is pre-approved, they are given a maximum loan amount that the lender is willing to loan them based on the information provided.

Myth #2: Your down payment is the only upfront cost

Reality: Unfortunately, a down payment isn’t the only upfront cost. There are many other costs and fees that need to be taken into account with the upfront costs of a mortgage. A down payment is a major upfront cost that needs to be accounted for, but there are many other closing costs to consider. Closing costs are a plethora of fees ranging from a mortgage application fee to the home inspection. The closing costs typically account for one to two per cent of the sale price on the property. So, it’s important to budget for closing costs to make sure you have enough to cover them.

Myth #3: You need a 20 per cent down payment to receive a mortgage

Reality: While having at least a 20 per cent down payment is beneficial to the borrower, it is not necessary. A down payment can be at low as five per cent and as high as a borrower wants it to be. Anywhere from five per cent to 19.99 per cent down payments require borrowers to have mortgage insurance. These borrowers are seen as a “higher risk” since their down payment is lower than 20 per cent. For borrowers that have a down payment of 20% or more, they aren’t required to have mortgage insurance because they are seen as a lower risk. No matter what size down payment a borrower has, there is a mortgage product for them.

Myth #4: Mortgage brokers and lenders are the SAME

Reality: Buyers tend to not realize that mortgage brokers and mortgage lenders are very different from each other.  A mortgage lender is the one that lends the borrower money for a mortgage. A mortgage broker is a middleman between a borrower and lender to help find the best product for them. With that, not every lender and broker are the same. Each lender and broker offer a different product to a borrower. They will charge different fees, interest rates, and follow different guidelines. For more information on what a mortgage broker is, check out our previous blog post!

Myth #5: If you’ve been denied a mortgage once, you can never get a mortgage

Reality: None of us like receiving the answer no. Everyone says that the worst someone could reply with is a “no,” but sometimes that can discourage us. Many borrowers think that if they’ve been denied a mortgage once, they won’t be able to receive one in the future. Often, being declined a mortgage discourages borrowers from working to receive one in the future. Talking to a mortgage broker during the first start of the mortgage process can help set a borrower up for success. They will work together to create a financial plan. Whether they receive the mortgage approval right away or work towards getting one in the future, a mortgage broker will help turn that “no” into a “yes.”

When looking to apply for a mortgage, it’s helpful to talk to a mortgage professional. They will help demystify these 5 mortgage myths and more, along with any concerns you have about receiving a mortgage. Here at Clinton Wilkins Mortgage Team, we will help you navigate and understand the mortgage process. You can get in touch with us here!