CRITICAL INFO FOR BUYERS AND HOMEOWNERS: You're Going To Need "Two" Financing/Mortgage Approvals
Tuesday Apr 20th, 2021
Yes, there's more than one. And, especially, in this 'Seller's Market', it's critical to understand the details.
There are 2 different “Mortgage Pre-Approvals”: one is for you, personally and the other is for the property you're buying. I always want you to have a preliminary Mortgage Pre-Approval before we begin our search for your new home. This 1st type/preliminary one, is a personal financial pre-approval (not on a specific property), based on your income, asset to debt ratio, credit history/report, amount of your anticipated down payment and other criteria. This kind of pre-approval is determined by your credit worthiness and how much of a mortgage a financial institution is willing to give you. And once this is determined, we'll know how much we can actually spend to purchase a home: the total of the amount of the allowable mortgage plus the amount of your down payment.
Securing this 1st Mortgage Pre-Approval gives you a 90 day locked-in mortgage rate. If mortgage rates go down, you'll receive the benefit of the lower rate. If mortgage rates increase, your rate will remain the same as your already approved rate. Your mortgage rate won't go up during the 90 day locked-in period.
NOW is the time to get your pre-approval and lock-it in for the next 90 days. As of June 1st, 2021, the qualifying criteria may become more stringent.
You can have discussions with your own financial institution which may or may not offer you the lowest interest rate out there or I can refer you to one of my trusted Mortgage Brokers who actually get the financial institutions/banks to bid for your individual business. You, not only, want the lowest interest rate but the very best terms. This 1st Mortgage Pre-Approval is the initial major step towards buying a home or we could be out there blindly looking at properties that are too expensive for us. Or, maybe, we have greater buying power than we thought we did. Of course, we don't have to spend the highest amount you're approved for - I always want to find you the most real estate value for the least amount of money. But, with prices so high right now, we have to figure out what's financially in your comfort zone. It's not 'just' a mortgage payment you're committing to. We need to take into account your land transfer fees, moving costs, legal costs plus ongoing home maintenance, property taxes, and utility costs. And your lifestyle.
Now for the 2nd Mortgage Pre-Approval. This is approval for a specific property and takes place when you’ve found the home you want to purchase: we've made the offer and it’s been accepted by the Seller. Whenever possible, for your benefit, I include a Financing Condition in our offer. This condition states that we have a certain number of days (usually 4-5) to ensure that we can get the required amount of mortgage for the particular home that we've just purchased. During these 4-5 days, your financial institution will conduct an appraisal of this home to ensure that it’s really worth what we’ve agreed to pay for it. And, in my 20 years as a Realtor, I've never had a financial institution tell one of my clients that the home they’ve just purchased isn’t worth the amount they’re spending. Why, you ask? It’s because I am absolutely diligent in advising you if you’re offering more than the property is truly worth. I always want that appraisal to agree with our purchase price. Once the bank appraisal reports that, indeed, at this sale price, you will get the mortgage you were approved for in the 1st Mortgage Pre-Approval, we can waive the financing condition towards firming up the purchase of your new home.
We are in a Seller's market where there is not enough inventory for the number of Buyers ready to purchase. Homes are listed and sold in pre-emptive (bully) as well as multiple offers, in a day or even less. It's even more crucial that my expertise and experience, guide you to the right purchase price. More often than not, we don't have the luxury of making our offer conditional upon financing.
Maybe you're thinking of refinancing your current mortgage or your mortgage is coming up for renewal. You want to shop around for the best rate available, right? Did you know that if you don't renew with your current financial institution, you and your home will be subject to completing both the above Pre-Approvals again? It's true. You're a whole new application to a new Lender and you have to pass their and the Government's stress tests. If you're in the midst of your mortgage and current rates seem more attractive, you may be able to save thousands by switching,. Even if there is a penalty to get out of your existing mortgage. But let a professional Mortgage Advisor or Broker explain your options and possible outcomes/benefits. I'm very happy to refer you to my trusted Strategic FInancing/Mortgage Partners if you want to explore what's in your best interests.
One phrase: “Mortgage Pre-Approval” – 2 different meanings/scenarios. If you want more details, give me a call. I'm here to continuously educate my Clients as much as I can. No real estate question is too small or too large. It's absolutely critical you know what I know.