Busted! Don’t Believe These Mortgage Myths!
When it comes to buying a home, most people can’t pay upfront with cash, so they choose to obtain a mortgage to finance their dream home. In these cases, they begin their quest for a new home with a mortgage pre-approval.
A mortgage is complicated, and as many people do not understand how it works, a number of misconceptions have been spread about mortgages and the process involved in getting one. These myths are so widespread that unfortunately, they are mistaken for reality, and believing them could lead you to turn down the best opportunity to finance your dream home.
To help you avoid falling prey to these misconceptions and get the best available mortgage options, I have debunked three myths about obtaining a mortgage.
Myth 1: Pre-qualification certifies that I will get a pre-approval.
Ever so often, clients come to us saying that they are pre-qualified for a mortgage and when they wrote an offer, they found out that their bank declined them. It is often believed that pre-qualifications and pre-approvals are the same. However, they are two different steps.
Pre-qualification is the first step in the mortgage process, and pre-approval is the next. With pre-qualification, you’ll supply an overview of your financial history to the lender, and it doesn’t require documentation of your financial history. While pre-approval is very similar, but it usually involves documentation and verification such as income documents and employment letters as well as a credit check.
To ensure you get pre-approved, there needs to be full disclosure of your income documents as well as a thorough credit check. To do this, a broker will pull your Equifax credit bureau report to guarantee that your credit score is where it needs to be and that they have included all of your liabilities that are reporting. For income documentation, a broker will ask for a recent paystub, an employment letter, and if you have had continued employment with your employer for two years, they will ask for T4’s for that period. As brokers, we ask for the letter of employment so we can ensure that we are using the right “gross” income.
Myth 2: Stating what you presently earn makes up your income report.
When it comes to reporting your income, there are two primary ways of doing so. If your last T4 is reporting an amount including commission or bonuses or overtime, a mortgage broker can only use that income if you have been working for that employer for two years or more. If you have been working for that employer for less than two years, then a broker can only use your straight wage or salary as your income on your mortgage application.
Your employment letter will clearly tell a mortgage professional what your base earnings are, and your start date. This will allow a broker to understand if they can use a two year average of your T4’s or not. During a pre-qualification process, your bank may ask you what your gross yearly income is, and knowing the difference between which policy you fit under could help you pre-qualify with ease as you will be able to provide the documents for a pre-approval.
Myth 3: You need to pay a mortgage broker.
At times, people are misled into thinking that they have to pay a mortgage broker. This is not true. There is no cost involved in using a mortgage broker, and with the wide variety of lenders that people have access to, they will always look for the lender that has the lowest rate or best mortgage options. One must keep in mind that the lowest price isn't the best choice.
A broker might charge a small fee in a seldom case, for example, the client was denied a loan due to bad credit thus forcing the broker to source through private lending and not a financial institution. Let a broker do the rate shopping for you, the bank will not always offer the best rate right away. Banks profit from customer loyalty because loyal customers “shop around” the least. Most lending institutions generally offer their “posted” rates first, which have compared to what they are willing to negotiate. Mortgage brokers are often given discounted prices due to the volume of business they bring to the variety of lenders.
For the most comprehensive mortgage service, reach out to Karen Pacheco. Whether you need help with a trade up home, first time purchasing, real estate investing, vacation property or debt consolidation, across Alberta, I will do my best to help you find some of the lowest mortgage rates and closing costs in the industry. I offer a wide variety of loan programs and lending options to fit the specific needs of my clients. To learn more about loan programs that I provide, please click here. If you have any questions about obtaining a mortgage, get in touch with me here.