Mortgages can be a little hard to navigate, even for the most seasoned homeowner; but for the first-time buyer, they can be downright overwhelming. When you announce your intentions to buy a new home to friends and family, you’ll find yourself subject to all kinds of advice - especially from those who already own a home.
While there’s no doubt your loved ones will provide tons of helpful guidance when it comes to getting your first mortgage, it’s easy to confuse fact with fiction. While we’re not saying your Uncle Jack isn’t a wealth of knowledge, below are a few common mortgage myths that even your savviest of relatives may not know.
1. You’ll Never Get a Mortgage With Poor Credit
While it’s true that having poor credit can make getting a mortgage more difficult, it’s not impossible! ‘B’ and ‘C’ lenders are generally private and work with prospective homeowners with less-than-great credit. You can absolutely still get a mortgage with these lenders, however, you may have to come up with a larger down payment or pay a slightly higher interest rate.
2. Getting Pre-Qualified and Pre-Approved Are The Same Thing
While both are important in the mortgage approval process, there are some chief differences between the two. A pre-qualification is essentially taking the first step in getting an idea of what you can afford. A mortgage pre-approval on the other hand, means you are actually approved for that amount.
3. You Can Afford Your Pre-Approval
Just because the lender says you can buy the largest, fanciest house on the block doesn’t mean you should. While it’s nice to have the more expensive home, you won’t be able to enjoy it if it’s eating up all of your income. In fact, home buyers should spend no more than 39% of their monthly earnings on their home. This includes utilities and taxes in addition to the mortgage.
4. Your Own Bank Will Give You The Best Rate
Mortgage-seekers often assume that because their financial institution is familiar with them and their finances, it’s the best place to go for their mortgage loan. Not true! Lending services are huge revenue for banks and the major banks account for over half the Canadian mortgage market. Make sure you shop around.
5. Fixed Rate Mortgages Are Always Better
Before settling into a fixed-rate mortgage, you’ll want to consider your future plans. A fixed rate mortgage may be best if you’ll be living in your new home for a long time. However, if you know you’ll be moving again in five years, choosing a variable rate mortgage will save you money. This is because the longer the rate is fixed for, the higher the rate will be.
6. You're On Your Own When It Comes to a Down Payment
While it’s true you’ll have to do some saving to come up with a down payment, there are first-time homebuyer resources to help you. For example, the RRSP Home Buyer’s Plan lets you borrow up to $25,000 tax-free from your RRSP to help you fund your down payment. Keep in mind, you will be required to pay mortgage insurance on a down payment less than 20%.
7. Working With The Builder’s Lender is a Bad Idea
There are huge benefits in working with a builder’s preferred lender. In addition to streamlining the process and getting you into your new home faster, they may also provide you with wiggle room when it comes to your down payment, cash-back incentives, waive additional fees and much more. So, while you’ll still want to shop around, don’t discount the benefits of working with the builder’s lender.
8. You Only Need To Qualify For The Negotiated Rate In Your Mortgage Contract
In order to protect homebuyers and lenders, the Canadian Government recently announced mortgage-seekers will have to qualify for the Bank of Canada’s posted five-year fixed rate in addition to the rate listed in their mortgage contract. For this reason, you’ll want to ensure you can afford the higher rate, even if you’ve received a lower one.
Don’t be led astray when it comes to mortgage matters. In addition to keeping these few debunked myths in mind when you go hunting for your first mortgage, be sure to do your research ahead of time. Get an idea of current interest rates, shop around and talk to different lenders, get pre-qualified and/or talk to a broker. Not only will these things make you more confident in the process, but they’ll help you get a great mortgage.