Thursday, 6 April 2017

Making an Offer that is Conditional on Financing

Making an Offer that is Conditional on Financing

Pre Qualified or Pre-Approved?

By Tracey Davies, Sales Representative, ABR, CRA

Re/Max Centre City Realty Inc & Tri County Appraisal

March 31, 2017


Home buyers don't really want to spend time figuring out what to do for a mortgage.  They would rather be out looking at new listings or visiting open houses! Getting a file folder of important documents ready now will make the mortgage application process a breeze. Get it started today!

The access to the internet, pre qualification apps, mortgage calculators and easy access to competing mortgage companies has changed the way buyers shop for a mortgage.   In fact, even using the term "shop" for a mortgage is a relatively newer concept....buyers prior to 1990 would more than likely use the phrase, "ask" for a mortgage.

This change in how buyers interact has resulted in the financial industry also making changes to their normal procedures. 

It is really tough these days to get a preapproval for a mortgage. A pre-approval takes time and documents and signatures.  The buyers don't want provide the documents required and they don't want to wait for a week for a pre-approval to come back from the head office. The financial industry has had to come up with a way to get good information in front of their potential borrowers quickly.  They need to offer something of value to potential buyers who are window shopping.  The lenders came up with a new concept ...."pre-qualification". 

The pre-qualification will ask a buyer a list of basic questions.  Many buyers will soft shoe the truth when answering these questions. They want to make sure the banker only has good news about them.  And in turn, the banker does not want to lose them as potential clients, so the really tough questions are not asked at this pre qualification stage.  Unfortunately, like a first date, the skeletons stay in the closet....for now.....

Get out a file folder today and start filling it with your important documents.  This information is going to be needed eventually.  The pre-qualification may seem easy but it is just the first date.  Before the bank will really lend you any money, they will know everything there is to know about your finances -- past and present.  Even financially established parents who co-sign for their children will need to provide documents.   It is not hard work but it is time consuming; and you might as well get started.  They are not going to make an exception for you --- even if you are a VIP with your local bank.  

Sooner or later you will need the following information:

·         Photo ID (photo copy your driver's license, Ontario ID Card, or Passport ---- not a health card)

·         A record of employment income such as a paystub, T-4 slip or a personal income tax return

·         if you are self-employed, at least two years of Personal Income Tax Returns and Financial Statements.  4 years is likely better to show consistency in your income.

·         A letter from your employer stating the length of employment and current salary  (3 years minimum at your current employer is best but exceptions are made when an employee switch companies but doing the same work or promoted to a higher level in the same field of work)

·         If you are on a contract, have your employer include in the letter that it is normal hiring practices for your company to maintain a certain number of positions through contract employees.  The contract employment situation is becoming more common and lenders are starting to adjust their lending policies to recognize that it is an employment model typical for certain sectors and industries.

·         The account numbers and locations of your bank accounts and investments

·         Proof of assets (photocopies or pictures of ownerships, statements, insurance records, deeds)

o   Vehicles

o   Boats

o   Investments and interest income

o   Retirement savings accounts

o   Collections Such as Jewelry and Art

o   Other real estate holdings --- cottages, shared real estate, inheritances, etc

·         Proof of liabilities (statements, invoices,

o   Existing mortgages

o   Credit card balances

o   Car loans

o   Student loans

o   Lines of credit

o   Co-signed or guaranteed loans

o   Liens

o   Child support

Today's real estate market is competitive and many buyers are making offers with no financing conditions or very short conditional on financing clauses because they are competing against other buyers plus they think they are pre-approved and don't need a financing condition.  However, they find out that they do not have a mortgage secured yet when they take their accepted offer to the bank. Had they known they were going to have to do all of this paperwork and finding stuff, they could have started working on it before the stress and panic that comes along with trying to get an offer accepted.  Get it started today. You will be so glad you did.

My best advice in regard to getting your mortgage approved in a timely fashion is to go prepared and go early!  Get your documentation ready before you make your appointment.  Be the buyer that shows their banker that they are on the ball, well informed, motivated, organized, and ready to buy real estate.  Tell the truth now and let your lender come up with solutions while there is lots of time to figure it out.  Give you lender time to do what is best for you.

There are many mortgage options available and it is overwhelming trying to decide which is the best for you.  Asking family, friends, realtors, and coworkers who they have had good results with is a tried and true method of narrowing down your choices. 

Tuesday, 10 January 2017

By Tracey Davies, Sales Representative, ABR, CRA

Re/Max Centre City Realty Inc & Tri County Appraisal

January 6, 2017 

So, you have an accepted offer on your house and in your mind it is


Woot Woot. Good Days Ahead!!!.

However the offer you accepted is conditional on financing. That condition gives the buyer a few days to make sure the bank is going to lend them the money.
The buyer said they were preapproved?

The preapproval given to buyers from many banks is a preliminary tool to help buyers decide what price range they can shop in. However, most often, the questions asked by the lender at the preapproval stage are not detailed enough to get a true picture of the financial situation of the buyer. The buyer only hears the bank say "yes, you are preapproved to borrow $275,000". But the banker also says a lot of other things like:
subject to a credit application, employment verification, and appraisal

The buyer is excited and happily takes their accepted agreement of purchase and sale into their bank and they are anticipating that the bank will simply have them sign a couple forms and write them a cheque for $275,000. But the bankers work has just begun.

An Appraiser Calls You
The seller or buyer gets the call from an appraisal company requesting an inspection appointment for the buyers mortgage application. The consumers first step should be to ask the appraiser to book the appointment with their Realtor. This will give your Realtor the opportunity to sell the highlights of the property to the appraiser. Ideally, the Realtor can be at the property for the appraisal and provide details that an appraiser might need to do the work efficiently and accurately.
The Realtor will be able to point out features that might not be obvious, like neighbourhood attributes, school boundaries, hidden upgrades, marketing history, etc. The best opportunity for a smooth transaction at the appraisal stage is for the Realtor and Appraiser to have a short discussion on the marketing and features of the property.

Get the Realtor and Appraiser in the Same Room!
Too often, the Realtor does not take this perfect opportunity to communicate what is best about the property. Depending on the financial situation of the buyer, this could be the most important sales pitch your Realtor needs to pitch.

Why does the bank needs an appraisal of the home?
The buyers banker wants to lend the money and wants to have a happy client but the banker has to get permission to proceed from their underwriting department. The underwriting department will protect the bank from lending more money than they should. Part of this review will be based on an independent appraisal. The bank wants a second opinion from an appraiser they trust.
What happens if the accepted offer is higher than the appraised value?
The only purpose of the appraisal is for the bank to know how much money they can lend to the borrower. If the buyer has a large down payment and the buyer was applying for a small mortgage then the appraised value being lower than the sale price will not become an issue.

Congratulations! Multiple Offers!
You got more for the house than the appraised value!
Win! Win! Win!..... but will the deal close????
Before accepting the highest offer, make sure you know details of the buyers financial situation. It does not cost a buyer anything to over shoot on an offer because they can back out if the bank does not lend the money. In multiple offers and prices exceeding the list price, it is critical to a successful sale to know that the buyer has a very large amount of cash. If the buyer was borrowing the maximum permitted, and has very little cash, and the appraised value is less than the sale price, then the bank will have to tell their borrower that they can not lend him all that they have requested.

The buyer finds out their preapproval was subject to appraisal
The buyer then has to make some decisions. The buyer can borrow less and pay a larger portion in cash, the buyer can decide to cancel the deal, or the buyer can ask the seller to give them a second mortgage for the shortfall, the buyer and seller can agree to reduce the sale price by some or all of the shortfall, or....can something be done to change the appraised value estimate?

"The Appraiser Killed The Deal *&&*$#@%!!!"
The seller will always want a second opinion or reconsideration if the bank tells the buyer that the appraisal is the reason the deal is not going together. When a buyer finds out the appraised value is less than the sale price the buyer will want the seller to reduce the price. The buyer will begin to feel they have been taken advantage of and may not be interested in proceeding with the purchase. The buyer and seller may have to revisit the negotiations to see if both sides still agree on the price. If both sides think the appraisal was lower than it should be, the buyers lender can ask for a reconsideration or review.

The appraiser might be asked to review or reconsider
With your Realtors help and experience with the market and discussion with the banker regarding potential areas where the appraiser may have missed value added features, the appraiser may be asked to reconsider a certain point in the report that affects the value. Perhaps a neighbourhood property sold that wasn't in the report or perhaps the square footage of the house was measured incorrectly. The Realtor may be able to talk to the appraiser about the marketing of the property, previous offers rejected, or the other properties that the buyer looked at before choosing this property. An experienced Realtor will keep the lines of communication open with the appraiser and will not coerce the appraiser but will openly discuss the market.


Realtors are not just knowledgeable about the market. They have spent years building relationships with the other professionals in the industry and have seen and professionally handled all the missteps that happen with every transaction. Choosing a Realtor to represent you in the sale or purchase of your home is the best way to keep the deal together through to the closing date.

By Tracey Davies, Sales Representative, ABR, CRA

Re/Max Centre City Realty Inc & Tri County Appraisal

January 6, 2017