Why you need a financing condition

The real estate market is on fire right now, and with limited inventory and competing offers, clients and realtors are trying to make their offers more appealing to the sellers, I get a lot of questions about the financing condition, and if they really to include one in their offer. Here is why I tell my clients to include a financing condition.

1. But I've been pre-approved, why do i need a financing condition? There is a lot of confusion out there with pre-approvals and pre-qualifications. First off, most big banks and credit unions will just ask for your income and then "pre-approve" you for a certain amount. A mortgage broker (like me) will review your documents up front and make sure that your income, down payment, and credit history all check out prior to giving you an approval amount. However, that pre-approval amount does not take into account the property. The lender might not approve of the value of the home and may request an appraisal. If the home does not appraise for the value you bought it for, you will have to make up the difference with a larger down payment.. 
2. ​Insured mortgages (less than 20% down). In Canada if you are putting down less than 20% on a purchase, your mortgage has to be insured through one of the three insurers (CMHC, Genworth, CG). This means that not only does your lender need to approve your deal, but so does an insurer. Once a lender reviews the live deal and likes it, they will then send to one of the insurers for approval. In some cases the lender or the insurer may have concerns with the property, or perhaps want to make sure it is worth what you are buying it for and may request an appraisal, or may decline the deal based on numerous factors (the property, income, credit history, down payment history). If you do not have a financing condition and the lender or insurer are concerned with the applicant, the property, or the home's value,  they can choose not to insure the property, meaning you need to come up with a 20% down payment and find a lender that is okay with the property. In that case, if you don't have a financing condition you are on the hook for that house, and have to either find a lender that will do the deal, and try and submit to one of the other insurers and see if they will do the deal.

With all that being said, you can rest easy if you are working with me. I will review the history of your down payment funds and let you know if they are acceptable. I will also review your income, and look at your credit history and let you know if there are any issues to review or handle. I will discuss any judgements, bankruptcies, consumer proposals, divorces, child support payments, and make sure that we are presenting your file in a way that a lender and insurer are comfortable with you as a new client. If i pre-approve you, you can rest easy knowing that you are approved for the mortgage amount i have signed off on for you.

However, when it comes to the property, the approved value and the history of that home are out of my hands. In some cases, homes have been former grow ops, or have had significant structural issues that may not be visible to the eye, or that have not been disclosed on the listing (the sellers might not even be aware of the issues). This is why I always recommend a financing condition and home inspection. I can confidently pre-approve you, but not the property. 

Please reach out with any questions, and know that I will always do whats best for you.