Recently we had a buyer come to us and say "I believe there is too much
emphasis placed on getting a mortgage pre-approval. If a buyer has a good
job and a reasonable track record with the bank, is it necessary to have everything
in writing before an offer can be made?".
The short answer is "Yes you do!".
Many well-intentioned house and condo buyers go to their banks before purchasing
but often get the brush-off. Now, this is not deliberate on the part of
the bank person but is just a function of how busy they typically are.
The banker will usually just ask some basic questions such as "What is
your gross income?" and "What are your debts?" and punch those
numbers into their keyboard. Up on the screen comes a number that the
prospective home buyer 'could' be approved for. At that point in time,
most buyers are told to go and find a home and then come back to see the lender
with their accepted offer.
The problem with that is the home buyer still doesn't know FOR CERTAIN how
large a mortgage they can be approved for OR even if they could really get a
mortgage at all! This in itself can cause serious problems in certain
home buying situations such as multiple offers.
Recently we had an offer come in on one of our Team listings and I always make
it a practice to ask the buyer agent "Has the purchaser been pre-approved
for a mortgage?". In this case, the buyer agent enthusiastically
said "Definitely. In fact, they were refered to me by my mortgage
broker".
How much better could it be? Problem was, 4 days later the same buyer
agent came to me very apologetically and said "We can't get the financing".
So what happened? It turned out that the mortgage broker had only taken
down some verbal details from the buyer, ran their numbers and came up with
an approximation of how much the purchaser could qualify for. No back-up
paperwork was asked for or provided by the buyer and no credit bureau was done
to firm everything up.
The result... when the broker did a credit bureau, and checked the buyer's
stated income numbers against actual pay slips and employment letters, it turned
out that they did NOT qualify for that large a mortgage after all!
The
purpose of getting what we call a FULL Mortgage Pre-approval in advance is actually
to save you the buyer time, and needless heartache.
I
can’t tell you how many times we, in the old days, had buyers who had their
hearts set on a property only to be extremely disappointed because either they
couldn’t get a mortgage at all or they couldn’t get as large a mortgage as they
were told by a well-intentioned banker who didn’t have all the facts at his
disposal (ie proof of income, proof of down payment and had done a credit bureau
search).
Now,
we have our house and condo buyers do all the prepatory work up front.
They supply our lender with proof of income (an employment letter PLUS one of
the following - a current pay stub, a T-4 or the Tax Assessment form from Revenue
Canada), proof of down payment (copy of GIC or Term Deposit, copy of their RRSP
statement if that's where the down payment is coming from, a print-out of their
bank account if that's where the cash is or a Gift Letter from a family member)
and our preferred lenders do a credit bureau check.
I
reiterate... since you have to supply all of this information anyway, there
is NO time lost. Imagine the time wasted if you did all that looking,
found the home of your dreams, negotiated an offer and then were NOT able to
get the mortgage. This happens all the time in our industry… twice in
the last 4 months on 2 of my listings where the buyer was brought by another
company’s agent!
You
the buyer are simply protected that much more by knowing in advance, without
question, how large a mortgage you will be approved for.
In
fact, with our lender, if you supply the information ahead of time, the unconditional
pre-approval letter we receive is just like you having a credit card to go out
and purchase a home. It IS that secure. You have the comfort and
security of knowing that whatever property you choose, within the bank’s pre-approval
guidelines, financing will not be the issue to hold you back.
Isn’t
that comfort worth a lot?