Acquiring mortgage financing is an important step towards building a life. It not only gives you access to your very own home but also helps you build lasting wealth.
However, there are several common misconceptions around mortgage financing that can cause you to shy away from applying.
Let’s review some of these and provide more accurate information to help you make more informed decisions about your financial future.
Misconception #1: You Need A 20% Down Payment To Qualify For A Mortgage
While it is true that a large downpayment will reduce the overall cost of your mortgage and improve the likelihood of being approved, it doesn’t necessarily have to be 20% of the purchase price of the house.
In Canada, the 20% rule only applies to homes valued at more than $1-million. However, even for homes above this threshold, if you cannot pay the 20% downpayment, many lenders will still approve your mortgage application if you purchase mortgage loan insurance.
For homes under $1-million, a 5% to 10% downpayment is generally acceptable without needing to purchase mortgage loan insurance.
Misconception #2: You Need A Perfect Credit Score
While a good credit rating will certainly improve your mortgage approval prospects and interest rate, a less-than-ideal score won’t necessarily disqualify you either.
Although your credit score is important, it’s not the only thing taken into consideration. Mortgage providers will assess your debt-to-income ratio, your employment stability, and the size of your down payment.
If your credit score is low, you might still be approved. However, it will most likely result in a higher interest rate.
Misconception #3: Pre-Approval Guarantees Your Loan
Mortgage pre-approval gives you an idea of the kind of financing you are likely to get so that you can shop for homes with a clear budget in mind.
However, it is crucial to understand that pre-approval is not a guarantee. You might very well find that once financial institutions go through your formal loan application in more detail, they might reduce the mortgage offer or raise the interest rate.
This might be because additional information has come to light that compromises your application, or it could be because your financial circumstances have changed since you were pre-approved.
If you want to own your own home, then you need a mortgage financing broker to help you get a home loan that suits your budget. Contact us at Nowik Mortgage today to get started.