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Many Canadians think their mortgage is in the bag once they have a mortgage pre-approval.
But the reality is that a mortgage pre-approval does not automatically translate into a mortgage.
The prospective lender needs to consider the property itself, approve all the terms and review the documentation before you transition from pre-approved to approved.
Going In Without Conditions
These days across much of Canada, residential real estate is such a hot commodity it’s more likely offers to purchase will be firm and without the condition of financing. But what if your financing doesn’t come through? Yikes!
Even when a full review has been conducted, and you are holding your pre-approval certificate, there are many things that could happen to compromise your home purchase.
No one knows what property you are going to buy when you are pre-approved. When it comes time for the lender to approve your mortgage, there are many ways the specific property can cause a hang-up in the approval process.
- Value of The Home
- Property Condition
- Property Specifics: For example:
· Homes on leased land, First Nations, government or private
· Properties containing asbestos, underground oil tanks, and/or aluminum wiring
· The remaining economic life of the property
- Location: If a lender feels the property you picked is too far from your workplace, they may assume you need to keep a second home or place to stay, and in such cases, they impose a “shelter cost” for you.
- Condos: Mortgage insurers keep lists of condo buildings they do not want to lend against. Their distaste may be based on size, maintenance cost, etc.
Your mortgage may not be approved because of something to do with you, the borrower. Either your circumstances have changed or new information has come to light to change the lender’s view of you.
Try to avoid any major changes during the home-purchasing process. A new car in the driveway or a new job might change how you look to a prospective lender.
It is definitely not a good time to defer loan payments. Even though mutually agreed payment deferrals do not affect your credit score, mortgage lenders might think twice about lending to someone who needs relief from their current loans.
When you and your real estate agent are fixing on a specific property, make sure to first circle back to your mortgage broker and ask them to input the property’s specs into your application.
Clarify and understand the strength of your mortgage pre-approval. What factors might result in a mortgage offer for a reduced loan amount, or worse, not being extended an offer at all?
An experienced mortgage broker can often tell whether or not your mortgage approval would be at risk and can help you assess when it is a risk worth taking. They can tell you the potential concerns so you can make an educated, informed decision about your offer.
At the end of the day, this decision is all on you, the buyer. You need to make a fully informed decision if you choose to go firm with your offer.
Thanks to Ross Taylor, an active contributor and recipient of the Mortgage Professionals Canada Financial Literacy Leadership Award, for his insights on this issue.
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