Busting 5 common mortgage myths

While you’re going through the home buying and mortgage process, you’re likely to come across some false information and rumours. The housing market can be a bit complex, and there are a lot of common mortgage myths that can make everything seem even more confusing. Here are five of the most common misconceptions you might see, and what you should know about them!

#1 A pre-approval guarantees mortgage financing

While a pre-approval is a very important part of securing a mortgage, it does not guarantee you mortgage financing on its own. Remember, a pre-approval is not an approval! When you get pre-approved for a mortgage, this means a lender has evaluated your current financial situation, and given you an estimate of what you may qualify for in a mortgage. Since this only looks at your finances at that present time, lenders cannot guarantee your finances will not change before you apply for a mortgage. This is why they cannot promise you financing yet. Plus, their estimate is just a rough idea of where you stand in the market, but it is not set in stone. As your financial circumstances and market conditions change, your eventual approval can change too. Still, we always recommend getting a pre-approval so you can learn a bit more about your buying power before you apply for a mortgage!

#2 You need a 20 per cent down payment

People often shoot for a full 20 per cent down payment when buying a home. This is an ideal goal, but it is not always mandatory. For homes up to $500,000, buyers only need a five per cent down payment. Homes up to $1 million need a five per cent down payment on the first $500,000, and 10 per cent on the remaining amount. Only homes over $1 million require a 20 per cent down payment. The reason people often strive for this amount is because down payments below 20 per cent require the purchase of mortgage default insurance. Often referred to as CMHC insurance, this product protects lenders in case of a default, and it will add onto your monthly mortgage payments. You must make the decision between a larger down payment and default insurance.

#3 Self-employed individuals cannot get a mortgage

One of the most common mortgage myths surrounds self-employed individuals. Many people think they cannot get mortgages, because their income and employment are not as conventional. As more Canadians are becoming self-employed, it’s important to clear up this rumour. Self-employed people can definitely secure a mortgage and buy a home! The process just looks a little different. While home buyers with a traditional employer show proof of income and employment with T4s and paychecks, self-employed individuals use Notice of Assessments, personal tax returns, and business income statements. Self-employed people often also use private lenders for mortgages as opposed to conventional lenders. 

#4 You must be 100 per cent debt-free to qualify

Some people believe you cannot buy a home if you have any current debts. While you should try to limit your debts as best as you can, you do not have to be fully debt-free. Most people have some form of debt, whether through credit card bills, car payments, or student loans. Many of these individuals are also successful home owners. When applying for a mortgage, the amount of debt you have isn’t as important as how you manage it. If you have the income to support your debt payments, and you are consistent in paying them off, you still have a good chance of securing a mortgage. The people who struggle are those who have a hard time keeping up with their payments. Lenders examine your gross debt service (GDS) and total debt service (TDS) ratios when considering your mortgage application, which calculate your income compared to your monthly expenses. Your GDS should be below 35 per cent, and your TDS below 42 per cent.

#5 You can do it alone

Finally, we reach one of the riskiest common mortgage myths, and that is the idea that you can buy a home without any professional help. Some home buyers may be tempted to jump into the market on their own, skipping the process of landing the perfect real estate agent and broker. This will result in a much more difficult buying experience, and you will certainly have a hard time gaining the trust of a seller or lender. Professionals like to know they are working with another professional, so they are less likely to work with an individual who has no broker or agent on their team. Be sure to get in contact with a mortgage broker early so we can start discussing your goals!

Common mortgage myths can cause some damage if left unchecked. It is important to do some research on the market so you know what you are getting into. You can also reach out to us at any time to get started! We’re ready to help you enter the market with confidence.

If you have any questions about your mortgage, get in touch with us at Clinton Wilkins Mortgage Team! You can call us at (902) 482-2770 or contact us here.