3 Myths About Mortgages
#1: The minimum required downpayment amount is 20%
- The minimum required downpayment depends on the purchase price of the home.
- The minimum downpayment is 5% on an amount less that $500,000.
- On amount between $500,000 - $999,999, the minimum downpayment is 5% on the first $500,000 ($25,000) and 10% on the remaining amount over $500,0000.
- The minimum downpayment with a purchase price of $1,000,000+ is 20% Pros:
- This gives an advantage to potential homebuyers to help purchase their first home.- Less amount upfront is needed to purchase a home
- Less downpayment will affect the overall purchasing power, and have higher monthly payments to the potential home buyer
- The homebuyer will have to purchase mortgage insurance for the property. Although it does not have to be paid off at the time of purchase, it will accrue interest as it's added to the mortgage itself.
#2: The maximum amortization time is 25 years
- 30 years is the maximum amortization for an uninsured/insurable mortgage. 25 Year amortization is the maximum for an insured mortgage.
- With an uninsured/insurable mortgage, the homebuyer typically has put down a 20% downpayment
- With an insured mortgage, the home owner has put down less than 20% downpayment Pros:
- By increasing the amortization, the home buyer will have more purchasing power and lower monthly payments
- Since you have a longer amortization period, you'll be paying more interest over time
#3: Pre-Approval means you're guaranteed a mortgage
- A pre-approval shows the maximum you're able to afford, and how much your monthly payments will be.
- Pre-approvals are important. It's a good estimation on how much a home buyer is able to afford but it doesn't guarantee a mortgage.
- With a pre-approval, most lenders will allow you to lock in the rate (Or lowest rate if it drops) for 90-120 days
- Pre-approvals can be very accurate if you're working with an experienced mortgage broker, but it isn't guaranteed because it doesn't take into consideration financial documentation, home appraisal amount, and changing policies/rates.