A Mortgage Pre-Approval is Not What you Think
Although going through the pre-approval process is more important than ever, the term ‘pre-approval’ is often misleading as it addresses very few variables that may arise once an actual offer is made. The process should really be treated as a pre-screening of the client.
What do clients expect?
The pressure in many markets has never been greater to write a condition-free offer, yet due to changes in lending regulations over the last few years a financing condition has never been more important. Often clients are reluctant to write an offer on a property without feeling they are 100% approved. This is completely understandable. There are no guarantees when it comes to financing which it why you should speak to a trusted Mortgage professional to understand the best way to proceed and minimize your risk.
Lenders will offer a locked in interest rate for 120 days. This is typically what is referred to as a “pre-approval”. It is important to know that it is very unlikely these are underwritten by the lender. Underwriting takes place in order to secure financing; a lender will need to review a client's personal documents, the appraisal of the property and all the other documentation that pertain to the purchase of a property. This does not happen until you have conditionally or firmly bought a property.
Why won’t a lender underwrite your pre-approval?
Lenders do not have the staff or resources to review ‘maybe’ applications. Essentially, they will not spend time considering setting money aside for you until you are actually asking for it in a ‘live’ application. Your details may change by the time you write the offer. The stress test takes into account the property taxes, heating costs and condo fees (if applicable) of the property you purchase. Approval amounts can go up or down based on these details which are not confirmed at the time of pre-approval Any documents over 4 weeks old are considered out-of-date and they will need new ones by the time you purchase anyways. Less than 10% of pre-approvals turn into actual purchases so it is unlikely they will see any benefit from allocating resources to reviewing all these pre-approvals that are unlikely to fund.
How do you know what you can buy then?
My team will do a full assessment of your documents, application and credit bureau. We will assess you as a borrower and give you a clear guideline of the price range you will qualify to purchase in. We can highlight if there are any issues or any items that would need to be resolved before proceeding with an offer. We can make an educated assessment based on hundreds of files of experience. We can also help you understand the risks if you decide to buy with no conditions and there is an issue with the property or the lender does not support the value (low appraisal)
When will you get that 100% confidence?
We cannot predict when lender guidelines or government regulation will change. We also cannot predict if a lender will be willing to secure a particular property. That information would only be confirmed once the appraisal has been completed and reviewed by the lender. Typically the appraisal is completed during the financing condition, this way if there are issues with the property you have the ability to walk away from the deal with your deposit money