Mortgages are not a subject we learn about in high school, although I wish they were. Credit, interest rates and qualifying for a mortgage are all things that will greatly affect your lifestyle going forward. Some hear about them through friends, family or the Internet. My concern with this is the mortgage market is a changing and evolving model and it can be a challenge to ensure you’re getting accurate information. I’ve been working in the mortgage industry for over 30 years and I’m still learning new things every day. That being said, there a few mortgage ‘myths’ I hear regularly that I want to take to time to clear up as I think the more you know about the biggest debt of your life, the better!
- You can get a mortgage even if you have a low credit score
Your credit score is only a small piece of the mortgage approval puzzle. In addition to income, downpayment, assets and property details, a potential lender will also closely view your credit report, which includes debt levels and repayment history. While there are some lenders who have strict minimum credit score requirements you must meet in order to qualify with them, other lenders are not as demanding. Though be aware if you do have some credit issues you may be charged a higher interest rate or could be asked to make a larger downpayment. Another option is to ask for family support in having a relative co-sign with you until such time as your credit improves enough for you to qualify on your own.
- If you went bankrupt, you can apply for a mortgage the day after being discharged
Now that we know a low credit score won’t stop you, how about a bankruptcy? It is a common belief that if you have a prior bankruptcy or consumer proposal you have to wait for many years before you can qualify for a mortgage. That is kind of true if you’re looking for best rates. We all know bad things happen to good people and as long as you do all of the right things after your discharge date, there may be the option of qualifying for a reasonable rate after only 2 years from date of discharge. Having said that, you would likely have to put a minimum of 10% down and you would have to demonstrate a minimum of 24 months of satisfactory NEW rebuilt credit, good job stability and some pretty good savings habits. If you’re willing to put down a large downpayment and pay a slightly higher interest rate, you can apply for a mortgage a day after you have been discharged from bankruptcy.
- You can still get a 30-year mortgage amortization
The amortization is the time it could take to pay off your mortgage in full. The term you choose will determine the interest rate you will be charged and what your minimum required payment would be. A shorter amortization means a higher payment amount. Some lenders still offer a 30-year amortization as long as you have enough of a down payment to avoid the requirement of high ratio mortgage insurance. The longer amortization will lower your mortgage payment and allow you to qualify for a higher mortgage amount. However, depending on the lender, those benefits could be offset by a higher rate.
- Your bank is not obligated to give you the best mortgage rate just because you have been with them for years
Maybe they will, maybe they won’t, and either way it doesn’t hurt to have a look around. I have had a numerous inquiries where someone will ask what my best rate is and could I put it in writing for them to take to their long time banker who told them they will match it. If it were me and I had been loyal to one bank for many years I would expect them to give me their lowest rate without making me spend my valuable time shopping around. If a low rate is your number one and only priority, compare the rate offerings of a few different sources before you start negotiations with your bank. Having said that, there are other features of mortgage financing that should be considered such as trusting the individual who you have chosen to work with, pre-payment privileges, payout penalties and post-funding servicing options.
- You do not have to pay to use an Independent Mortgage Specialist
The great news is you can benefit from our experience free of charge as we are paid a commission by the lender who we take you to for your mortgage. The only exception to that rule is when the services of a private lender are required due to some issue with your ability to qualify. A mortgage specialist may charge a fee in that scenario, as the private lender does not pay a commission for placement services. In the province of Alberta, all licensed Mortgage Specialists are required to disclose any fees we are charging the borrower and the borrower then has to sign a consent acknowledging this. If you are being charged a fee you feel is unfair, don’t be afraid to shop around.
- If you miss a mortgage payment, you will not be foreclosed upon immediately
The foreclosure process is a costly measure and most lenders will work with you to resolve mortgage repayment issues rather than foreclose. The important action is to do everything you possibly can to address the issue before it becomes a problem. Contact your mortgage lender as soon as possible if you think you may have trouble making your mortgage payments to see if some acceptable arrangements can be made for you.
- You are not locked into the mortgage for the whole length of the term
The majority of mortgage products available these days do allow you to break your term early in exchange for paying a payout penalty. The penalty is based on the time left when you break your term and the remaining balance owing on your mortgage. Some mortgages include unique payout restrictions in exchange for a deeply discounted interest rate that you should be aware of before you choose that term. Talk to your existing lender to obtain a payout penalty figure.
- You can still save money by refinancing your mortgage, even if you have a payout penalty
Refinancing your mortgage allows you to access equity in your home, lower your mortgage payments or reduce debt. Whatever your reason for a refinance, don’t let a pesky payout penalty keep you from looking further into it. Your mortgage professional should be able to create a few amortization scenarios to determine if it is financially beneficial to include your payout penalty in your new mortgage amount and still come out ahead.
So there you have it, eight mortgage secrets that everyone should know, and that is just the tip of the iceberg. There is so much to know about credit, interest rates and mortgages that I could write a book. The best way to ensure you’re receiving accurate and current information quickly is to speak with an experienced mortgage professional about your financing needs.
If you’re looking for a mortgage broker, contact the MortgageGirl at 780.433.8412 or firstname.lastname@example.org. Stay in the loop by following on Twitter @mortgagegirlca.