YVR REMO Show EP. 11 - 15 COMMON MORTGAGE MYTHS
This week's podcast we go over 15 of the most common myths we hear when it comes to mortgages. At one point some of these myths may have been true but with regulation changes and an evolving market some things have changed. Let's get to it!
1. I CAN'T BUY WITH LESS THAN 20% DOWN
This is not true. You can buy a property with putting less than 20% down. There are a few occasions where this would apply. They include buying a property worth over $1,000,000 or an investment property.
2. I MUST BE A FIRST-TIME BUYER TO PUT DOWN LESS THAN 20%
This is also not true. If you qualify, you can buy a second home for less than 20% down. This second property must be a vacation home. You could also achieve this by renting your current home and moving to the second property.
3. YOU CAN'T HAVE TWO PROPERTIES WITH LESS THAN 20% DOWN
Tying into #2, as long as you rent the current property, you can put less than 20% down on the second. You can use the rental income to help you qualify for that second home.
4. YOU HAVE TO HAVE TWO YEARS OF TAX FILINGS TO GET APPROVED IF YOU ARE SELF-EMPLOYED.
This is false. In the past we have helped clients who have only been in business for 6 months by using an alternative lender. It's case by case.
example: We helped a client who worked for a software company for 9 years. He just became a contractor for that said company and is now running the income through his personal business. He had only been in business for 5 months and we were still able to help him. He still makes the same amount of money and works with the same company and we were able to show that.
5. YOU CAN'T GET A MORTGAGE ON BARE LAND
You can get a mortgage on bare land. The qualification process is the same. If unserviced, you typically need 50% down. If you are planning to build a house on the property you can get away with as little as 25% down. Servicing includes water, power, sewer, or anything you would need to build a house.
6. DEPOSIT IS THE SAME AS THE DOWNPAYMENT
What is a deposit? This is what you place when you have a seller who has accepted and wants to move forward. The deposit helps form the downpayment. A deposit gets held in a real estate trust account and is then wired to the lawyer. When you meet the lawyer, you bring the remainder in the form of a bank draft. They use that plus mortgage money to buy a property. What commonly happens when someone is selling and buying a home is we offer a deposit loan against the equity of your property.
7. YOU CAN WALK AWAY FROM A PROPERTY WITHOUT REPERCUSSIONS
You can walk away but there will be repercussions. If you walk away you'll likely lose the deposit. This could range from $15,000-$100,000. In the sellers shoes, if the market has dropped after closing, you can enforce that legally to get the difference back. If you are planning to purchase you should plan on closing on that deal. Its best to get a pre-approval and figure out your situation now.
8. YOU MUST BE PAST PROBATION TO GET A MORTGAGE
You don't need to be past probation but there are a lot of variables here. How long is your probation? Do you have a co-signer? What type of property are you buying? Whats your experience? Do you have credit? Whats your downpayment? We have gotten mortgages for people who haven't started their jobs yet. This applies if you're taking a raise and going for a jump up in a similar line of work. A lot of lenders will still consider your application in this situation. One option we can use it taking two year average of your previous income. If you're switching professions there is more risk. Lenders will want to see if you maintain in that new field. You could talk to your employer to see if they would waive probation in order to help.
9. DOING A CREDIT CHECK WITH DRASTICALLY HURT YOUR CREDIT.
Credit scores start at 300 and go to 900. The average we see is high 600 or low 700.
Pulling credit wont drastically affect your credit negatively. The more established your credit is, the less it affects your score by us doing a check. If you have zero credit you may see a small hit. For example, if you're going to buy a car and you go to multiple dealerships in a day to do credit checks, that may be a flag for a lender looking at all those credit denials.
10. THE LOWEST RATE IS THE MOST IMPORTANT FACTOR WHEN GETTING A MORTGAGE
The lowest rate is not always the cheapest solution. we try to understand our clients long term goals. We try to achieve the lowest total cost and the rate is just one of those factors that play into that. We try to figure out everyones personal situation to find you the best product. If you are buying a property to sell in one year, your bank may not recommend a variable rate. They will suggest the cheaper five year fixed rate. Taking that product may trigger a massive penalty when selling early. Have a flexible product in the event you know you are moving. All products are not alike and you are most likely getting what you pay for.
11. YOUR INTEREST RATE WILL BE BETTER IF YOU PUT DOWN A LARGER DOWNPAYMENT
If you put down 5% you will get a better interest rate. If you put down 20%, you will see a slightly higher interest rate. When you hit 20% there is no mortgage insurance premium. That premium ranges from 2.5-4%. CMHC is insurance for the lender in case you miss a mortgage payment.
12. IF I PUT DOWN A LARGER DOWNPAYMENT I WILL QUALIFY EASIER FOR A MORTGAGE
That is not the truth. You still need to qualify based on your income for the amount being mortgaged. Mortgage qualification is based on income. If you do have a large amount down, you can easily get a mortgage but it may not be with a traditional bank.
13. A CO-SIGNER WILL HELP MY APPLICATION
Your co-signer will be looked at just like the others on the mortgage. We look at their income and debt and if those aspects are not good it could actually hurt your application. They need to have enough income to service their own debts as well as enough to help service yours.
14. DO YOU PAY FOR THE SERVICES FOR A MORTGAGE BROKER
No. We are paid by the banks and lenders and this is built into their total cost. Our services have no cost to you. When do you pay for a mortgage broker? These are situations when we're working with alternative lending source or a private institution where they don't cover our cost. There are never surprise fees, its always talked about in advance. We have seen over 90% of clients not pay a fee. If you're working with a real estate agent to buy a property, they are paid by the selling party.
15. I WON'T QUALIFY FOR A MORTGAGE BECAUSE MY PREVIOUS YEAR'S INCOME WAS LOW
example: We had a client who travelled for 6 months last year. They were hesitant because their 2019 t4 was low. We just look at your current income source. If we can prove you have full time work, it will help your case with the lender. If your past years income was low we just need the story. Where does it matter? If you have a variable type of income such as commission based work. If you are self employed this could also affect your application. The vast majority of the time we can get past that.
There you have it! the 15 most common mortgage myths!
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