By Christopher Robinson - Mortgage Architect's Inc.
March 7 2022
Lets say your income documents are verified, you make enough income to qualify for the mortgage and your credit is impeccable. And on top of that you have enough down payment for what you plan to buy. With this information in hand, you should get approved so why not go in with no conditions? Are we leaving anything out? What about the property?
That’s right the property. What if you put in an offer on a $700,000 property and the lender or insurer requires an appraisal and the appraisal comes in at $650,000? The lender will only lend on the $650,000 value and you will need to provide extra funds for down payment. So for example, if the lender is lending you $655,000 on the $700,000 property value, you would have to bring in $45,000 of down payment. Now with the appraised value at $650,000, the lender is only prepared to lend $610,000 instead of $655,000. You would need to have $90,000 for a down payment instead of $45,000 to purchase the $700,000 property.
Another thing to take into consideration is the condition and history of the property. What if the property has asbestos siding, old asbestos pipes, mold? What if there is a crack in the foundation or the roof shingles need replacement? What if this property was a previous grow-op? These are all good reasons that the lender could decline based on the property condition.
And finally, you need to take into consideration the location of the property. What if you put an offer on a rental property that’s right beside a university? Most prime lenders will consider this as a student rental and they will probably not lend on it. You might have to purchase using an alternative or private lender with higher interest rates and possibly additional down payment.
So back to the first question of: should I add a finance condition in my offer to purchase? Yes I recommend you should as you never know how the appraisal or inspection could turn out, and this could lead to a decline from the lender.
However, If you plan on going in with no conditions, as some of you I’m sure are willing to take your chances, just make sure you take all of the above into consideration before you put the offer in. Make sure your preapproval is rock solid from a mortgage brokerage instead of a bank as the banks don’t always verify all documents upfront. Make sure the property is in good livable condition with no structural repair required and that the property is in a prime location with proper zoning. Ask your realtor to conduct a C.M.A to make sure the property is being purchased at market value. And finally make sure you are prepared to come up with additional down payment if required.
Comments