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.