Getting pre-approved is a very
important, first step in the home
buying process. Regardless of whether you are experienced with the process or a
first time buyer it is very important to know exactly where you stand
financially before considering a new purchase. Mortgage lending guidelines are
constantly changing, and due to the economic instability over the last few
years, mortgage lending has changed drastically. There are also issues that may arise on your
credit of which you are unaware. Most errors can be rectified easily, but it
will take time for the reporting to be updated. It is best to deal with any
errors prior to having committed to a specific timeline.
Although pre-approvals are extremely
important, they should not be relied on 100% at the purchase time. It is
important to have a full approval of both the applicant and the property before
considering the financing to be secure.
Once you are pre-approved it is
important to be aware of the different factors that may change your
pre-approval. Here are a few examples:
- The information given in your pre-approval application is not correct
- For example – wages, down payment ext. All information given must be provable
- Your employment changes
- This is also if you go from full time to part time or seasonal
- Your debt ratios change
- This would happen if you have made any significant purchases or have increased your current debts
- Your credit changes
- This would happen if you miss payments or have debts go into collections
- Your marital status changes
- If separated or divorced, the lender will want a copy of the agreement
- If you are required to pay child support, that will be counted as a monthly debt in your debt servicing ratios
- Property taxes for the new purchase being higher than average
- Your mortgage professional will use an estimated average for the pre-approval based on the value of the property. If you are close to the maximum mortgage allowable for your income, be aware that higher property taxes will increase your monthly debts
- Properties that are unique. Some properties may have specific attributes that some lenders will not allow. Here are a few examples:
- Post grow-ops
- You will generally need an environmental assessment done as well full remediation
- Many lenders will not accept
- Preserved wood
- Some lenders will not accept
- You may need an engineer’s report
- Log homes
- Some lenders will not accept
- You will want to get a quote for home insurance as it can be increased
- Mobile Homes
- Some lenders will not accept
- If it is on it’s own land, the lender may want proof of it being affixed to the ground
- If it is in a park, the lender will need a copy of the tenancy agreement and potentially a site map
- You will generally have posted rates and shorter amortization periods based on the home’s current condition and estimated remaining life expectancy
- Foreclosures
- You will generally need to do an appraisal
- Some lenders will not accept
- Private sales
- You will generally need to do an appraisal
- Some lenders will not accept
- Water wells / septic tanks
- May require water potablity test (some lenders will allow title insurance to cover this condition)
- May require additional documentation
- Rural properties
- Some lenders have minimum population requirements
- Some lenders have minimum distance from a major center
- Some lenders will not accept
- Acreages
- Most lenders will only take the value of the house plus 5-10 acres
- Some lenders will not accept
- May require an appraisal
- Most lenders will require that there is no income derived from the land in order to be a residential mortgage
- Properties where there is substantial value in the outbuildings
- The insurers (and most lenders) will not consider the value of the outbuildings in the overall price
- Bare land
- Some lenders will not accept
- You will generally need a minimum of 20%-30% down payment, possibly more
- Alternative sources of power or heat (ex. Generator, wood stove ext.)
- Some lenders will not accept
- The insurer may not insure the property (CMHC, Genworth Canada Guaranty)
- You will want to get a quote for home insurance as it may be increased
- Multi-unit housing
- Most lenders will not allow more than 4 units per purchase
- If using rental income, the lender will require a copy of the tenancy agreements
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