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Tuesday, 18 October 2011

Mortgage Myths and Misconceptions - the straight goods

There are several myths and misconceptions regarding mortgages that may have an impact on you. Seven of the more common myths and misconceptions are:

1) if you are self employed, you require complete income verification before you can get a mortgage.

False: self employed persons do qualify for mortgages even if formal income verification is not available. Although some lenders will demand up to three years of corporate financial statements and personal tax returns; other lenders will be satisfied with a Notice of Assessment for the most recent tax year. If you need greater flexibility, another group of lenders will base their decision on your self declared, not reported income.

2) if you let someone assume your hi-ratio or conventional mortgage, you are
responsible for the mortgage payments, no matter what.

False: Canada Mortgage and Housing Corporation (CMHC) has an exemption from the provincial legislation which could make you responsible for ongoing payments, if another person assumes your hi-ratio mortgage and subsequently defaults on their mortgage payments. In fact, CMHC has adopted a policy that if an assumption takes place and the mortgage payments are kept current for 12 consecutive months, you would no longer be liable in the event of a default after 12 months. In addition, there are other options available to you.

For example, GE Capital allows any Canadian to purchase a home with as little as 5% down and if another person assumes your GE insured mortgage, you will not be responsible for any payments. Additionally, you are also not responsible for mortgage payments if a person assumes your conventional (more than 25% down payment) mortgage.

3) If you went bankrupt you no longer qualify for a new mortgage, for up to seven

False: Some banks will let you re-borrow as early as one year from the date of discharge; so long as you have re-established your credit history for at least 12 months by way of a car loan, major credit or personal loan. Furthermore, high ratio insurers such as CMHC or GE will often approve a person for as little as 5% down, providing that two years have passed from the date of discharge and you have re-established credit.

4) If your income is too low to qualify for the traditional 32/40 gds/tds threshold,
you cannot get a mortgage.

False: Certain lenders in the market will approve you for a larger mortgage than others. It is often the smaller banks or trust companies who tend to be more flexible than the major, chartered banks. The reason why certain lenders are so flexible and others are not, is very simple: not every lender has the same risk tolerance and guidelines.

5) You must have at least 25% down to purchase a home.

False: There are lenders in the Canadian market who will finance your home purchase with less down payment. In order to qualify for this type of flexibility you must have excellent credit history, reasonable income and the home may not be a revenue property. Although you may pay a slightly higher interest rate because you do not have a down payment, you do get on the road to home ownership much faster.

6) If you are not a Canadian citizen or landed immigrant, you do not qualify for a

False: One lender in particular is willing to lend to a new Canadian providing that they have been in the country for at least 6 months, have clean banking history (ie: no NSF cheques), are gainfully employed and have at least 13.5% down payment. This is a big change considering that, most lenders historically demanded that new immigrants put down at least 25% to 35%.

7) If you have a non-conforming basement suite (often called a mother-in-law suite), you cannot use that income to help qualify for your mortgage.

False: Although major chartered banks may disqualify such income from your mortgage applications, there are a number of lenders who would contribute 100% of the extra income towards helping you qualify for a mortgage.

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