Many clients think that once they are pre-approved, they can write an offer on a house without a subject to financing clause on their real estate contract. However, this is a big misconception about pre-approvals.
Going through the pre-approval process in itself is very important. It allows me to sit down with you and take a look at the big picture. I have calculators that allow me to input your income, assets, and liabilities, and it lets us know what you qualify for based on lending criteria at all of the major banks.
When I do a pre-approval for a client and submit it to a lender, it is nothing more than a rate hold for 90-120 days. Most lenders don’t underwrite pre-approvals as they take a lot of resources for them and typically don’t turn into a real purchase. In fact, less than 10% of pre-approvals turn into live deals (reasons being; the client goes with a different lender at a lower rate, they decide now is not the time to buy, they lose their job, or can’t find the property that they want etc.).
I can understand that most people are reluctant to write an offer on a property because they are not 100% guaranteed financing. Although this is desirable, the fact remains that the lender still has to review every related document to the purchase prior to giving the final OK (these documents include the Appraisal(s), Contract of Purchase and Sale, Property Disclosure Statement, updated bank statements etc.). This is true for every lender that I can think of.
Aside from all of these concerns, the lender still needs to approve of the property. Is there an age restriction on the property, is it on leased land, is the roof falling apart, is the property a former grow-op, is the economic life of the dwelling too short to meet the lenders guidelines, the list goes on and on.
All I ask is that you take away from this article is that perhaps you are pre-approved; but the property may not be approved. It’s best to talk to a seasoned mortgage expert to find out about all of your options, and so that they can address any concerns that you may have.
Thanks for reading.