“But I have perfect credit and I make great money, why wouldn’t you be able to get me a mortgage?”
There is a dangerous trend emerging in our real estate markets, particularly in Vancouver & Toronto. Buyers are thrown into a bidding frenzy and told the only way to have the slightest chance of an accepted offer is to go ‘all cash’, otherwise known as ‘subject free’.
Firstly, any real estate professional (mortgage or real estate broker) who advises a client who doesn’t have ALL of the cash to close in the bank to make an offer ‘all cash’ or ‘subject free’ is not giving sound advice.
Of course, no matter the advice, cash offers will still be made, and it can be a costly mistake.
I am not saying there is not a place and time to make a ‘cash’ offer but there is a lot you can do to both educate yourself and mitigate any potential risk before doing so.
What a lot of my clients quite often do not realize is that there are a lot of behind the scene factors that go into a mortgage approval. You can have the best credit and income in the world, but that doesn’t necessarily ‘automatically’ approve you or guarantee you a mortgage.
Even if you are fully qualified, the property itself can be the issue in proceeding with financing. For example, post tension cables, freehold vs. leasehold, owner occupied vs. rentals, size of parcel, size of unit, the list goes on and on. Your mortgage professional should be able to catch most, if not all of these prior to giving you a pre-approval.
I have seen it time and time again where a client makes an offer ‘subject free’ and then gets stuck in a situation where they may not be able to close. Not only does this put your deposit on the line but you can potentially be subjected to ‘liquidated damages’, meaning if the seller doesn’t achieve the same or more in terms of profits, you could legally be on the hook for any shortfall.
So what steps should you take before making a ‘cash’ or ‘subject free’ offer?
Again, I am not advising you to make a ‘cash’ or ‘subject free’ offer… but if you do, here are a few considerations you should make before even thinking about putting that pen to paper:
1.Get pre-qualified with an experienced broker.
No not your bank. A mortgage broker you know and trust will do a good job. A good broker has access to multiple lenders and specializes only in mortgage financing, not GIC’s, not term deposits or overdraft. If something does go wrong with one lender (and it definitely can) a broker can approach one of many other lenders. Banks are very limited to what they can offer, if you have to switch gears last minute, last thing you want to do is have another bureau pulled and have your deal re-packaged and presented a different way, get a good broker from the start and stick with him or her. Remember even a ‘pre-approval’ is not a guarantee, it is just a preliminary approval based on the information you have provided.
2.Provide all of your financial documents upfront.
A good broker should be asking to see ALL of your documents upfront. This includes your Notice of Assessments, T1 Generals if you are self-employed, leases, tax notices, and mortgage statements if you own any other property. No it won’t eliminate all risks, but it can help your mortgage broker identify and address any potential issues right up front.
3.‘Cash’ and ‘subject free’ does not mean waiving all due diligence
Even if you do not put any financing or inspection conditions in your offer to purchase, some basic wording is essential. For example; “subject to lender’s acceptance of property” is a very simple, basic and reasonable provision that you could insert into an offer to purchase to protect you in case something unpredictable pops up.
4.Always have a a plan B
A plan B could include private or ‘B’ type financing, a co-signer, additional money as down perhaps as a gift or leveraged against other real estate. Always have a plan B! Your mortgage broker should be able to assist you with this.
5.Your realtor is not your mortgage broker, your mortgage broker is not an appraiser
A lot of people call me up and say ‘but my realtor said it was worth XX ‘. Your realtor is not an appraiser, neither is the city assessor or your mortgage broker. Realize that each is a professional in his or her own respective field. If you want to know if you are qualified for financing and the best rates, call a mortgage broker, if you want advice on writing an offer or want to find a property, consult your Realtor. Each professional has a specific function. Relying on unqualified advice has the potential of landing you (and the professional) in hot water.
6.Don’t panic and don’t be pushed into making an offer
Making spur of the moment decisions are sometimes necessary but that does not mean the decision has to be rash or uneducated. Being prepared will ensure you make an informed decision with the comfort of knowing that you have taken all reasonable steps to ensure you are pre-qualified and that your mortgage broker has your back, so you won’t lose any sleep.
About the Author: Alex Khalil
Alex Khalil is a Dominion Lending Centres mortgage professional with over 15 years of experience in the mortgage lending industry. With a specialty focus on private lending, his product offerings include Bank “A”, monoline, Alt “A” and hard money mortgages. He is licenced in and services residential and commercial clients in both Alberta & British Columbia.
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Mortgage Trends - Real Estate - Finance 