Pre-approved financing may not be enough for home purchase
If you waive financing condition in your offer to purchase house or condo, you are in trouble if lender says you bid too high.
Many buyers get pre-qualified for financing before they start looking for a home. This means that they find out in advance the maximum amount that a lender will provide to them based on their income. The mistake is thinking that no matter what home you buy, the lender will just give you the money you need, provided that it is within your approval limit.
Buyers need to realize that just because a lender pre-approves you does not mean they will lend you all the money. The property you buy must, in the lender’s opinion, be worth what you paid for it.
Most real estate agreements are conditional for a few days on the buyer arranging satisfactory financing. In many cases, however, the buyer waives the condition before the lender conducts an appraisal of the home itself. Even worse, in most bidding wars, buyers do not even include a condition on financing, hoping that their pre-approval will be enough.
If the appraisal doesn’t match the proposed purchase price, the lender may cancel the loan. If the buyers already paid the deposits and are preparing to close, they may be faced with the possibility of losing their deposits and getting sued.
Sometimes its possible to arrange for an extension of the closing date or a mortgage broker mat be able to find the buyer a new mortgage, but that’s not a gamble one should count on.
Buyers, when you are looking at potential lenders to assist with your home purchase, ask in advance how long it takes them to do their appraisals. Many lenders can get this done within 3-4 days, so that you can have assurance that you will get all your money before you have to waive any financing condition.
Be very careful about bidding on a home without a financing condition, unless you budget an additional 10 per cent down payment in reserve, just in case the lender surprises you just before closing with a reduced loan. Being prepared will assist you in closing on time, and with the right amount of money.