Financing: The crucial step before finding the perfect home

(October 25, 2016 )

The road to homeownership is not always smoothly paved, especially in the Vancouver Real Estate market. One crucial step to lower the stress the journey entails is getting your financing together at the front-end of the process. 

This allows you to know what is the appropriate prince point of homes to be looking at and provides a basis for household budgeting. These reasons might well be commonsense for buyers everywhere, but there is another one that applies specifically to our real estate market: Greg Pearson, our North Shore real estate expert, points out that in the fast-paced, multiple offer climate we have seen at times this year, many offers have been written with no subjects. “There is no way a buyer can write an offer with no financial subject unless they know how much financing they qualify for. Period,” he adds. 

Susan Lee, a Mortgage Broker with Origin Home Financial Partners, agrees with Greg and thinks doing the mortgage pre-qualification process right at the beginning is the way to go. “People know about getting preapproved, but it is really being prequalified that matters. For a client to know how much they can qualify for is based on their income, down payment, credit score and other liabilities,” she says.

Susan explains banks don’t want to invest time on the assumption that someone is going to buy a property, so they don’t really do a detailed review of clients’ documents and their score credit until there is a contract in place. “Pre-qualification is what we, mortgage brokers, usually do. We do a detailed documentation. If there are any issues with our clients’ credit score, we address them up front and give a heads up of what sort of documents they will need to provide. For example, there is a lot of misunderstanding around nature of income. It is not uncommon for clients to tell me they have a full-time salary and then I find out they are contract workers, which completely changes the requirements asked by lenders.”

On the other hand, preapproval is basically a rate hold from the bank, which is the amount of time that a lender will guarantee a loan's interest rate. Once you have locked in the interest rate on a loan, the lender will guarantee that rate for a certain period of time. But it is not uncommon that when the time comes to process the mortgage and current documentation is provided, the lender realizes the client doesn’t actually qualify for the mortgage.  “Frequently, I get clients that tell me they have been preapproved by their banks for a certain amount of dollars and when I do the whole application, I see they only qualify for half that amount. This just means there was a very loose preapproval based on verbal information and not on current documents.” Greg notes being prequalified avoids the avoidable mistake of realizing you don’t actually qualify for a mortgage when you have already found your dream home, which can be heartbreaking.

Once there’s a contract of purchase in place, the lender reviews your documents and the property information. At this time, the property appraisal takes place. “It is at this time when the client can decide if they are happy with the rates they are getting, the terms of financing and if they are comfortable with the mortgage they are going to receive,” Susan adds. 

For more information about getting prequalified for a mortgage and taking the next step to homeownership, visit Susan Lee’s website:http://asksusanlee.com/