Test Your Knowledge
There is no denying the fact that our mortgage market is always changing and evolving. I thought a quiz would be a fun way to test your knowledge of mortgage options currently available to you. After the quiz, I’ve provided both an answer to the question, as well as an explanation to give you a bit more information about the mortgage product. Keep in mind a quiz does not replace personalized advice from an experienced mortgage professional; it is only a conversation starter.
1) You can still get a 35-year amortization on a mortgage? True or False
2) Which payment frequency helps you reduce your mortgage principal faster? Monthly, Bi-Weekly or Weekly
3) The minimum downpayment required to purchase a second home or vacation home is 10%? True or False
4) Can you include renovations into your mortgage on a new purchase? True or False
5) Can you get a mortgage if you have been self-employed for 1 day? True of False
6) As a general rule, 50% of your gross income needs to cover all your housing costs and other minimum monthly debt obligations in order for you to qualify for the mortgage? True or False
7) Do you always get the best interest rate from the financial institution you do your banking with? True or False
8) When applying for a mortgage with 2 borrowers, will the lender average your credit scores in order to determine application strength?
True or False
9) You must be discharged from bankruptcy in order to obtain mortgage financing? True or False
10) If you have a mortgage pre-approval, are automatically approved for mortgage financing when you chose a home you want to buy?
True or False
1. True. You can still obtain a mortgage with a 35-year amortization as long as your mortgage is not insured. That means you need to have a downpayment larger than 20% of your purchase price or more than 20% equity available in your home. Or, if you’re mortgage is up for renewal, you want to change lenders and you have 35 years left in your mortgage amortization, you can still keep your extended amortization as long as you are not increasing your mortgage amount.
2. Weekly and Bi-Weekly. A monthly payment frequency works out to 12 monthly mortgage payments in a year. With a bi-weekly payment frequency for instance, you are applying 26 partial payments within a year (monthly divided by 2), which effectively works out to making 13 monthly payments in a year. You are basically applying one full monthly mortgage payment directly onto your mortgage principal each year without much noticing it which reduces the interest you are charged which helps to pay off your mortgage faster. The results from making weekly payments are pretty much equivalent to the bi-weekly. Do be sure to request ACCELERATED payments.
3. False. The minimum downpayment requirement for the purchase of a second home or vacation home is 5%, though the lenders will be looking for a strong financial profile in order to purchase with the minimum 5% downpayment.
4. True. As long as the renovations add equivalent value to the property. There is a specialized product called a “purchase plus improvement” mortgage which allows you to finance the renovations you want to make to the property you are purchasing right into the new mortgage. Be prepared to provide quotes for the renovations upfront and once the work has been completed, in order to release those funds to you that were held back, you will be required to provide paid invoices for the work or an inspection will be required by an appraiser. Talk to you mortgage professional about the lenders specific document requirements for this niche product.
5. True. Though most lenders offering best mortgage rates require you to have a significant income history in the same industry in order to make it work, you can pursue mortgage financing through an alternative lender who has less requirements when it come to employment and income confirmation. Be prepared for higher rates if you are going to take this route.
6. True and False. In order to go to a lender that offers best interest rates you need to keep costs at 40% of your gross income in order to qualify for the mortgage, though there are small exceptions to that number if you have good credit. Alternative lenders can offer a bit more leeway on the 40% if you’re willing to pay a higher interest rate and maybe an upfront fee.
7. False. While some banks offer rate discounts to their loyal customers, it is unlikely you will get the best rate just because you bank with them unless you specifically ask! I suggest you look around a bit to compare rates before settling with the lender of your choice.
8. False. Your mortgage lender will evaluate both credit scores independently. The credit score of the majority income earner will be used to determine risk assessment and rate pricing.
9. True. You must be discharged from bankruptcy in order to obtain mortgage financing. Most lenders require re-established credit before you can apply for a mortgage approval. Talk to your mortgage professional about specific re-established credit requirements you must meet in order for them to find a lender that can facilitate financing for you.
10. False. A mortgage pre-approval does not guarantee mortgage financing. The mortgage lender must approve the property you are purchasing as well as your supporting documents before mortgage financing is guaranteed.
The process of obtaining a mortgage can be stressful, however, you can reduce some of those worries by learning more about mortgages so you know what to expect during the process. Keep surprises to a minimum by working with a trusted and experienced mortgage professional who can walk you through the steps to a successful mortgage approval.