Securing a mortgage is an important part of a homebuyer’s journey when purchasing a home.  It’s a good idea to educate yourself when it comes to financing your home so you can stay on top of the different options available. A great thing to do is to remove some of the common myths surrounding mortgages and financing before you start the process of purchasing a property.

Myth: You Must Have 20% Down To Purchase A Home

Your down payment can be any size you like as long as it's above 5% of the property value and you qualify for the remaining amount to be mortgaged. Properties that fall below $500,000 CAD only require a down payment of 5% of the purchase price. Properties that fall between $500,000 and $999,999 will require 5% of the first $500,00 and 10% of the remaining amount. If the purchase price is higher than $1,000,000 you will be required to provide a 20% down payment unless you are able to secure a private lender who allows a higher loan to value but likely this is a much more costly option.

If a large down payment is currently out of your grasp there are multiple payment assistance options and grants you may be able to utilize. Ask your mortgage expert about the options available to you depending on your location and circumstances. For those who are in the market for their first home, there is a program called the First Time Homebuyers incentive. Buyers who qualify for this program can get an approval to receive 5% - 10% of the purchase price towards a down payment on their first home.

Coming up with 20% is not always required but it does lower your overall monthly payment and helps you pay your mortgage off faster.

Myth: Pre-Approvals And Pre-Qualifications Mean The Same Thing

These two titles sound like they mean the same thing yet are very different in nature. Pre-Qualification is quick and takes place before your pre-approval. The length of this process is usually a simple call involving the borrower and the lender. The lender gathers basic information regarding the borrower’s income, credit score, debt status and roughly assesses whether or not the borrower is eligible for a mortgage substantial to their home buying goals.  When you begin with a pre-qualification conversation you aren’t required to submit documents to prove any of the information you are providing which makes this much less concrete than a pre-approval. It is a good suggestion to view a pre-qualification as a vague quote that can change significantly once proper documentation is provided and actual numbers are evaluated.

Acquiring a pre-approval is much more accurate and reliable. Here you will sit down with your mortgage expert, run the actual numbers surrounding your financial situation, and provide documentation that supports these numbers. Often, they will run a credit check, review your income, and run a standard stress test so that they can provide potential lenders with the information they need to present you with a pre-approval. This enables you to know and predict what type of mortgage you can qualify for and the maximum amount you are able to receive given no major changes take place from now until you close on your purchase.

A pre-approval is always going to be worth your time and effort. Pre-qualifications are preformed with zero evidence of your current financial situation which creates a lot of room for error.

Myth: You Won’t Be Able To Secure A Mortgage Without A Perfect Credit Score

Credit is definitely a very important part of getting approved for a mortgage and many borrowers expect their credit to be much better than it is. Credit scores can range from 300-900 in Canada, but many Canadians are led to believe that your score needs to be in and around the 800 mark to get a mortgage approval. Many lenders will approve a borrower with a score as low as 640. There are some lenders who will allow someone with a score lower than 600 to qualify but are usually in the alternative lender sector. Where an approval may be a piece of cake, it is common for your borrowing terms to be affected by your credit score. The rates and fees will quite often be increased when working with an alternative lender. Alternative lenders use the increase in fees and rates to secure themselves because of the added risk associated with a lower than desired credit score.

There are several ways you can rebuild your credit score and it is often better to spend the time to rebuild your score before you apply for a mortgage. Regardless of your circumstances it is always advisable to consult with your mortgage expert who will help you see your current financial situation with clarity and help you come up with a fool proof plan that will reduce you overall cost of borrowing. We look forward to hearing from you!