This week’s Real Estate Education video is a continuation of offer conditions. After discussing the home inspection condition and status certificate condition, we’re ready to take a closer look at the financing condition.
Usually, when I have a buyer client, the first thing I do is set up a buyer meeting in which I walk through the whole buying process and explain what to expect when buying a home.
The first question I ask during this meeting is, “have you met with a mortgage broker or specialist?”.
I do this to make sure we are looking in the right price range that the buyer is comfortable with and to ensure they can afford the payments. You would be surprised how sometimes my clients actually can afford more than they thought after meeting with the broker.
Once you are approved we go house hunting.
It’s important to keep in mind, just because you have a pre-approval for a certain amount, doesn’t necessarily mean that you will be automatically approved for that amount.
What do I mean? In order to qualify for that amount the lender has to agree with the amount you paid for the home, otherwise, you will have to pay the difference.
For example, if you are approved for $500K, and you buy a home that the bank has appraised to be only worth $400K, then if you want the home, then you would have to come up with that extra $100K.
A financing condition can be added to an offer to purchase a real estate property and it gives protection to the buyer that they can qualify for a mortgage and be able to make the mortgage payments. The condition is usually for 5 business days.
In a bidding war, it is very common to see this condition waived, which means the buyer is taking on the risk of qualifying. If you are doing this, make sure you know the value of the home that you are buying and are prepared to cover the difference if the appraisal comes up short.