A Mortgage Preapproval Is Not A Loan Guarantee. Find Out What Could Affect Your Final Approval Befor
A Mortgage Preapproval Is Not A Guarantee For Final Mortgage Approval. Since we are in a fast paced market, it is important to sit down with a mortgage professional who will take the time to explain the mortgage approval process as well as what the lender expects before jumping into a purchase.
Rosanna Younan from Premiere Mortgage has put together some scenarios Buyers should be aware of based on her personal experience:
What are pre-approvals?
Preapprovals provide the borrower and their real estate agent a guideline of how much the buyer can afford for their home purchase, and the purchase price he/she should be working with.
Some lenders offer full underwriting whereas others are automated. In most cases, the preapproval includes a 120 day rate hold.
Preapprovals are recommended as the first step for anyone considering a real estate purchase; however it is very important to understand that the preapproval is not a guarantee of a final mortgage approval.
Here are some examples:
Material changes: these include: changes in employment, increased debts, credit bureau derogatory entries etc. The lender’s preapproval is based on the application; credit bureau they reviewed; any changes can affect the final approval. Consult with your mortgage agent before making material changes to determine whether it will affect your approval.
For example, a new employment offer might mean an increased salary or promotion, but if there is a probationary period, the lender might not be able to proceed until probation is completed; or buying/leasing a car having higher monthly debt payments.
The Property: the borrower(s) is preapproved – but the property is unknown. The lender’s collateral for the mortgage is the real estate and the property must meet their criteria. If the lender feels the subject property will be hard to resell should the borrower defaults, the lender might limit the fianancing options: micro-condos, former grow-ops, knob & tube wiring, location (ie: not usually a concern within GTA).
Property valuation: the maximum the lender can lend is 95% of the property value
Scenario 1: What happens if the appraisal comes in lower than the purchase price?
Accepted offer is $400K, and you need 95% financing, and your available down payment is $20K. The property appraises at $390K; lender will lend up to 95% of appraised value; in this case, $370,500. You will need a down payment of $29,500 ($400K - $270,500). The increased down payment may not be an issue for some buyers but others may not have additional funds available.
Even if you are armed with a mortgage preapproval, it is strongly recommended to include a Condition of Financing in your offer to purchase. This condition gives you time to finalize the mortgage approval before the purchase contract is firm. The condition of financing is a protection for YOU, the buyer. Including this contingency in the current competitive real estate climate might prove difficult. If you
decide to waive this clause, please be aware of the risks.
Let me know how I can help you with your preapproval or mortgage financing!
Mortgage Agent License # M08004328
Verico Premiere Mortgage Centre Inc. #10317
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C: 416 729 9210
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