A home is the most expensive purchase most of us will ever make. Combine that with rising real estate prices, the need to save for a down payment, and trying to find the lowest mortgage rate; buying a home can also be one of the most stressful purchases we’ll ever make. Here is the truth about some of the most common mortgage myths.
Myth No. 1: You need to make a down payment of at least 20% to secure a mortgage.
A 20% down payment is required on homes valued at more than $1 million, but the lower the sale price the lower the down payment. The minimum down payment for a house priced from $500,000 to $999,999 requires a 5% down payment on the first $500,000 and then 10% based on the remaining amount. A house priced less than $500,000 requires a 5% down payment. However, a minimum down payment is subject to the lender’s approval and they may require more, especially, if you have a poor credit history or are self employed.
Myth No. 2: The maximum amortization time for a mortgage is 25 years.
25 years is the maximum amortization time for an insured mortgage in Canada, uninsured homebuyers—those who make a minimum down payment of at least 20%—can have an amortization on their mortgage for up to 30 years. A longer mortgage reduces your monthly payment, but it increases the amount of interest you pay over the life of the mortgage.
Myth No. 3: Pre-qualification and Pre-approval are the same thing.
Mortgage pre-qualification is the first step in buying a home and comes before pre-approval. Pre-qualification is a simple process that involves supplying a lender with your income, debt, and asset information, which can often be done over the phone. This information allows the lender to estimate the interest rate you could expect, so you can estimate your monthly mortgage payments. The pre-approval stage involves a more detailed look into your finances including your credit rating. During this time, your lender will decide the maximum size of a mortgage you qualify for and at what interest rate.
Myth No. 4: Being pre-approved guarantees you’ll get a mortgage.
A pre-approval is only one step in securing a mortgage. But being pre-approved doesn’t guarantee you’ll receive the maximum amount. The value of the home you intend to purchase and the amount of your down payment are other factors a lender will look at when deciding how much, if anything, to lend you.
Myth No. 5: It’s always best to wait until the spring to purchase a home.
It’s true that property sales and mortgage activity start to increase in March and continues through the summer, but that has nothing to do with interest rates. It is because of the warming weather. It is easier to look for a home or put it up for sale when the weather is nice. The busiest time for lenders is during spring and summer, but the best time to move is the time that’s best for you.
Buying a home is definitely stressful. So look for a mortgage broker or lender who can work with you to help reduce some of that stress.
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