 | Pre-approvals - The Naked Truthposted by AndrewLibby , GoldFriday, July 17th 2009 @ 9:42 AM (not yet rated) |
With all the recent changes in the lending industry over the last 9 months, I thought it would be the appropriate time to explain pre-approvals; how they work and how they can be declined.
Most realtors will want you to be pre-approved for a certain amount before making an offer. Don't misunderstand me, I think it is a great idea. Both you and the realtor will be able to narrow down your search within a certain price range. It also saves everyone a great deal of time and heartache should you not be able to obtain financing.
When a bank or a broker tells you are pre-approved, please be careful. If you have less than 20% down and require CMHC approval, you are not approved yet. A pre-approval only goes to a lender, not CMHC. Once you have a completed purchase and sales agreement with a specific property, price, and closing date, only then does it go to CMHC. CMHC will then approve both you and the property.
But Andrew, I was pre-approved already, why the decline now? Lenders will issue a pre-approval to lock in the rate for 90-120 days. They will approve the mortgage as long as they have the CMHC approval. If CMHC declines the application, there is nothing the lender can do unless you have a 20% down payment.
My intentions of this post isn't to cause everyone to be paranoid of their pre-approvals, but to caution you on their limitations. Since many lenders no longer issue pre-approvals, the banker or broker has to make the decision on what they tell you. If you are dealing with either an inexperienced banker/broker, or they are unwilling to tell you the truth, find someone else.
There is nothing worse than believing you are buying a new home, give your notice where you are or to sell your current home, only to be declined at the last minute. There is a small percentage of clients this happens to. I don't want it to happen to you!
