When we purchase a property, we tend to leave the preparation of the purchase agreement to the realtor. Understandably so because the contract comprises of pages upon pages of mostly legal and technical stuff that we entrust our realtor to review with our interest in mind. But there are some things in the contract that may inadvertently affect your mortgage approval that you need to be aware of. Here are some of them:
Furniture included in the purchase – If there is a value associated to these items then lenders will take these values into account and if there is zero value then it needs to be stated in writing. It might be a good idea to have a separate agreement on the furniture that go with the property purchase.
Changes on the contract – If you have made price changes in the contract after you’ve done your due diligence with the property, the lenders will adjust your mortgage amount accordingly.
Property size – Most lenders have a minimum square footage on properties they will finance. Generally, lenders tend to shy away from properties smaller than 700sqft for single detached houses and 500sqft for condos.
Cash Back – Although we are seeing less and less of this product, lenders will normally reduce your mortgage amount accordingly.
Illegal activity that had taken place on the property – Anything that had happened in the property that is noted in the seller’s Property Disclosure Statement, or through lender’s own research on the property, would be a factor in the approval. Some of which may be that the property is a former grow-op or a meth den.
Appraised value of the property – The appraisal itself may cause the lender to take a second look at the condition of the property. If the appraisal comes too high or too low compared to the fair market value in the area, the lender may want an explanation on the discrepancy.
Physical condition of the property – For single detached properties, lenders may limit their review on the appraiser’s report. However for condos or apartments, lenders will review the state of the whole building including the projected repairs or upgrades in the future. They will look at the finances of the property strata management to make sure that there is or will have enough funds to cover ongoing and projected costs.
The above are some of the factor reviewed by the lender before they issue a firm mortgage commitment. After you have spent time and effort looking for that dream home, the lender will in turn review their investment in the property based on their set criteria. This concerted effort between you and the lender is beneficial to ensure the solidity of property you are purchasing.
Mylene Lim is an experienced licensed mortgage broker at Dominion Lending Centres – Clear Mortgage. She specializes in arranging very competitive residential and commercial mortgages for her clients. For more information, please contact her at Cel: (604) 783 9097; Email:mylene.mortgage@gmail.com; Web: www.BestOptionMortgages.ca; FB: Mylene Lim, AMP