Top Mortgage MythsDecember 17, 2012
There are so many rules, regulations, and stories behind obtaining a mortgage that it may be hard to separate fact from fiction. Here are the top five mortgage myths and the truth behind them:
Myth #1: You Must Pay Down at Least 5 Percent
Yes, this is technically true, as a 5 percent down payment is the mandatory minimum to obtain a mortgage. However, many lenders offer 5 percent cash back (sometimes more) programs. All you have to do is come up with the 5 percent down payment (you are free to borrow this amount) and the lender will reimburse you after the closing date. Keep in mind, though, that these types of mortgages typically come with a slightly higher interest rate.
Myth #2: A Pre-Approved Mortgage is Set in Stone
Pre-approval merely looks at the basics of your finances to ensure the you are – at least on the surface – mortgage-able, and to give you an idea of your loan amount and mortgage rates. Once you have settled on a home to buy, your lender will require confirmation of all your financial and employment information, as well as your down payment, in order to confirm the loan. This is why it is imperative to include a “subject to financing” clause on your purchase contract, just in case.
Myth #3: Bankruptcies Need Not Apply
For decades we have been told that once we’ve declared bankruptcy, we can kiss all dreams of home ownership goodbye. This is not the case – there are plenty of lenders who specialize in providing mortgages to post-bankruptcy home buyers. As long as your bankruptcy has been discharged for at least two years and you have worked to rebuild your credit, finding a lender should not be a problem.
Myth #4: Bad Credit? No Mortgage!
Most lenders understand that not everyone can maintain perfect credit and they are still willing to provide mortgages to home buyers in this situation. Although in this case they may not offer the “best” rate due to the increased risk, you can still obtain a competitive interest rate, particularly if you have a larger down payment.
Myth #5: 25 Years or Less
Although there have been recent changes to CMHC rules governing the maximum amortization period, these rules only apply to mortgages requiring mortgage insurance (those with less than a 20 percent down payment). If you have the down payment, and thus don’t require mortgage insurance, then you may be able to negotiate with your lender for a longer amortization period if required.
There you have it – five common mortgage myths debunked!