August 19th, 2019 | Buyers

Real Estate In A Nutshell: The Financing Condition

Have you bought a home or are in the process, but not sure what happens after you sign on the dotted line?

You’re not the first one! We are here to teach you about what comes next, so you can handle the aftermath like a pro!

Last week, we discussed home inspections, if you missed this post, no worries, just click, The Home Inspection, now get ready to learn about mortgages and the financing condition!

Mortgage Pre-approval vs Firm Approval

Before you even start property hunting, you should have got a mortgage pre-approval which looks at your credit score, your outstanding debts and how much income you’re making. By looking at these factors, your mortgage broker will give you a house hunting budget.

Now, that you’ve actually found a property and bought it, you need to get what’s called a firm approval. That’s going to entail the bank verifying:

• The actual income you stated you’re making.
• Looking at the property and making sure they like it and think it’s worth what you bought it for.
• Did you stay within your pre approval budget.

If all of the above requirements are met, they will agree to give you the money to proceed with the purchase.

The Appraisal

An appraisal is very common these days and is nothing to be afraid of. There are several different ways that an appraisal is conducted.

• It can either be done through their an evaluation model on the banks computer.
• They could also do a drive-by appraisal which is exactly what it sounds like.
• Another option is the full appraisal, where the appraiser actually goes inside the property, takes some pictures, makes note of any improvements and renovations and some measurements. That lasts about 15 minutes or so.

In most cases, the banks do cover the costs of the appraisal, but there are some instances where it’s not covered and it’s passed on to the homeowner. So expect to pay around $250, if it’s not covered.

Now that the appraisal is out of the way and your bank has approved you, you’re good to go.

But what if you put less than a 20% down payment?

If you do have a high-ratio mortgage (less than 20% down payment), you will also have to get a firm approval from the insurer. The common mortgage insurance companies are either CMhC or GenWorth. Unfortunately, there are instances where the bank does approve you and the value of the property, but the insurer does not. So, if CMHC doesn’t approve you, you may go to GenWorth and, hopefully, you can get an approval from them.

Once you’ve gotten approval from both entities, you’ve gotten yourself a firm approval! Now you can go ahead and waive your financing condition.

 

What else?

There are instances in an appraisal where the value may come in lower then what you purchased the home for. So, your option is to get another appraisal done. But remember, if you covered the cost the first time, then you’ll have to pay the cost again.

However, if you keep getting appraisal after appraisal and the property value is not the same as your purchase price, then in order to close on the deal you’re going to have to come up with the difference.

If the above happens and you have a financing condition in place, you can either decide to come up with the difference and proceed with the purchase, or not.

If you’ve gotten yourself into a multiple offer scenario where you waived your financing condition and have no choice but to close on the property, you will have to come up with the difference between what the bank is willing to lend you and the shortfall, on top of your down payment.

Again, nothing to be afraid of as it does happen rarely, but it’s something to keep in mind.

That’s about it from us! We hope this has been informative, and make sure you come back next time where we are going to be discussing the Buyer Visits.

 

And of course if you have any questions, make sure to ask them in the comment section below!

If you missed any of our previous blog posts of the series, check them out here. We’ll see you back next week.