10 Top Mortgage Myths Debunked
October 21, 2019 | Posted by: Sherry Corbitt
While it is essential to understand the mortgage process, it’s also important to be aware of myths floating around. Unfortunately, dozens of mortgage myths exist, and it’s essential to know which ones are fake.
A PRE-QUALIFICATION AND PRE-APPROVAL IS THE SAME
Often the two are used interchangeably. Both are used to help estimate the loan amount you can likely qualify for. A pre-qualification is a quick estimate of how much income you can probably afford by providing information about your income, employment, and debts. A lender does not typically verify this information. However, there is a thorough investigation of your income, assets, credit history, debts, etc. When you are pre-approved, a lender verifies your proof of employment and income (letter of work, recent paystub, T4), credit score, bank statements, as well as any debts. This allows the lender to give you an accurate idea of how much you can purchase.
1. GETTING A PRE-APPROVAL GUARANTEES THAT YOU’LL GET THE MORTGAGE
No, it doesn’t. There are a lot of reasons why a mortgage can be denied after being pre-approved. Some of the most common reasons include changing jobs, adding additional debts, and issues with the appraisal.
2. A PERFECT CREDIT SCORE IS NEEDED TO GET A MORTGAGE
While your credit score is essential, it isn’t the end-all, be-all to getting a mortgage. Most lenders prefer a borrower to have over 680. That said, if you have a lower score, this doesn’t mean that you can’t get a mortgage. Yes, it makes it more difficult, but it just means that maybe we need to look into an alternative lender.
3. YOUR INCOME DETERMINES HOW MUCH OF A MORTGAGE LOAN YOU CAN GET
Yes, your income is essential and the main factor, but it isn’t the only thing determining how much of a mortgage you can afford. Debts can tell a bigger story about how you are spending that income. You may make $100,000 a year, but if you owe thousands in student loans and credit cards, and you haven’t paid your taxes in ten years, that tells the lender a lot about who you are. Of course, credit scores and down payments also play a part in your mortgage loan.
4. ALL MORTGAGE LENDERS ARE THE SAME
You may think that all lenders have the same products or offer the same interest rates, but no. Lenders vary in what they will charge, including their guidelines. These guidelines determine what kind of a rate you might be looking into. For instance, some lenders are stringent on Beacon scores. For example, if your beacon score is below 680 and your loan to value is 80%, you may get one rate, and if your loan to value is 70%, you may get another, and so on. This is why it is essential to talk to a broker who can look at these different factors. A mortgage isn’t cookie-cutter simple.
5. IF YOU ARE DENIED BY ONE MORTGAGE LENDER, YOU HAVE NO CHANCE WITH THE OTHER LENDERS
Like #5, just because you may get denied by one lender doesn’t mean you will get denied by another whose guidelines and products may differ. Lenders come from all different levels. If you get denied at the A level (banks, monoline lenders, etc.), there are alternative lenders we can look into.
6. IF YOU’VE HAD A BANKRUPTCY, JUDGEMENT, OR COLLECTIONS, YOU COULD NOT GET A MORTGAGE
Yes, it may make it harder, and you probably wouldn’t be able to get the best rates that A lenders might offer, but that doesn’t mean you can’t get a mortgage. There are plenty of alternative lenders who will work with your bruised credit. Some may even offer programs to help you rebuild.
7. MY BANK WILL GIVE ME THE BEST RATE
Banks are looking out for their best interest. You are already their client. They don’t need to try and win you because they don’t think you will shop around. As a result, they often will give you their posted rate, which is higher than what you could get for the most part. Remember, mortgage brokers usually have access to the same banks your mortgage may be with and can look into getting a better rate.
8. YOU NEED TO PAY A MORTGAGE BROKER
The lender pays mortgage agents/brokers a commission fee. Using a mortgage agent is at no cost to you for the most part. If a broker fee is required, you will always know upfront before you sign. Usually, a broker fee may be charged in complicated cases where a private lender can get the only mortgage.
9. YOU CAN’T BE IN DEBT AND GET A HOME
Just like if you have bankruptcies, poor credit, judgments, etc., it can be harder to get a mortgage if you are in debt. Lenders look at two ratios. Your gross debt service ratio and your total debt service ratio. These ratios look at your debts compared to your income and what kind of a mortgage you want and will spit out a percentage. Most lenders don’t want your GDS to exceed 32% and your TDS 40%. This means that your debt cannot exceed this percentage of your income. Every lender is different. Some will allow your GDS and TDS to extend beyond these ratios. Most times, if your GDS and TDS are high, it will end up being an alternative mortgage, even private.
Don’t believe everything you hear. While there can be some hard stops in getting a mortgage, those situations are few and far between. If you don’t know where you stand, talking to an experienced mortgage professional is always good. They will give you the best advice and help pinpoint strategies for your lifestyle and cash flow needs.
Please reach out to me if you have any questions on mortgages!
Sherry Corbitt, Mortgage Broker
