During the process of getting a mortgage approval, you broker may require you to get an appraisal. Many times, clients respond with, “but I already did a building inspection. Does the bank want that report?”

NO.

Appraisal and building inspection are two different things.

An Appraisal is the process whereby the bank sends in a qualified thirty party appraiser (usually with an AACI or CRA designation) in order to determine the LENDING VALUE of the property for the bank (at the buyer’s cost in most cases).

A building inspection is a third party inspector, hired and selected by the buyer, who goes in to look at the house’s structure, electrical, plumbing, drainage, etc… to determine how SOUND the house is.

Appraisal is for the bank. Inspection is for the buyer.

The bank will only ever want a building inspection if there are some comments in the MLS listing that makes it sound suspicious such as comments about structural issues, asbestos, vermiculite insulation, or some other chemical or mould issues. In my 10 years as a bank employee / broker, I’ve only had to show inspection reports to banks three times, and all three were for asbestos and vermiculite insulation.

Here is an example of when an appraisal will be required: if you are buying a house from a private seller for $450,000 the bank will want an appraisal done to make sure you are paying a fair market value. As a general rule, any time you borrow more than 50% of the purchase price, an appraisal will be required. However, there are “electronic appraisals” that get done when you put less than 20% down and involved CMHC. CMHC is the government organization that guarantees the bank will not lose money in the event you get foreclosed on. They have an internal system called “Emili” that does an electronic appraisal based on recent sales of houses in the area with similar criteria.

Times that an official (non-electronic) appraiser will generally be required (some exceptions apply, but check with me to determine what exceptions they are):

1. Private sales (not sold on the MLS with realtors involved)
2. Any mortgage requiring private financing
3. Any mortgage where you are financing more than 50% but less than 80% of the purchase price or value
4. Any “unique” or “oddball properties” for which the value is higher (or less)

The bank will indicate whether or not they want an appraisal conducted. Most lenders have an “approved list” of appraisers that they do business with and trust. Your broker will generally order appraisals from firms widely accepted so they can send it to multiple lenders if needed.

CONSOLIDATORS

There is a very disturbing trend in the industry right now: the insistence of lenders that brokers order their appraisals through a consolidator. By this, I mean a company that acts as a middle man between the appraiser and the broker. Here is why the banks want them to be used:

As a broker, I have to log into the consolidator’s online system and request an appraisal. Then, the appraisal is assigned to a firm, and as the broker I am unable to know what firm is conducting the appraisal. This is done so that I, as the broker, am unable to talk to the appraiser and affect their estimation of value. Once the appraisal is completed, it is sent to me through the online system.

Sounds fine and sounds safe (f0r lenders), right?

Sure…

It’s a colossal pain. The reason is that many times, getting an appointment set is difficult with sellers often elderly, foreigners, or what have you. Here is something that happened to me last week that was REALLY frustrating, and totally unnecessary, but is a common occurance when these consolidators are used:

I had a client whose bank needed an appraisal. I called up my preferred appraiser, and requested him to go and conduct the appraisal. The seller is an elderly man who is very very ill and bedridden. The appraiser called and called and couldn’t get an answer. Eventually a family member called him back and said the man was in the hospital, but if he wanted to come by, the son would make sure the appraiser got access. The appraiser went by the next morning and met the son (who didn’t live there) who provided access. The appraiser then did a walk through, took his photos, and left.

I then took a call from the bank telling me that they were declining the deal. I quickly switched gears to a lender that was willing to do it, but they wanted the appraiser ordered through NAS (the most painful of all consolidators to use). I called NAS and told them the situation with the seller unable to provide access, and that an appraiser (approved by NAS) had done a walk through and inspection but had not yet provided a report. I requested that they please send the appraisal to that appraiser (or at the very least to his firm – whether or not that specific appraiser does the report or not I don’t care). Their response? No. The reason? I am not allowed to know who is doing the appraisal. This is total B.S. because as soon as the appraiser calls the seller for access I can call the seller and ask him who it is. It’s such a load of garbage. When my client heard of this rule he told me to cancel the file with the new lender and find yet another – making me do the deal a third time…

When I try to cancel the appraisal with NAS? Already charged it on my credit card, and will take weeks to get it back. Then, even when cancelled, the new appraiser didn’t get notified by NAS and kept harassing the elderly seller until I found out about it and called him to get him to knock it off. If I had gotten the report through them and needed any adjustments it’s $75 per change even if it takes them 20 seconds.

Bottom line: I hate these companies. I dislike consolidators in general. All they are is a company that gets a cut of the appraisal fee for standing in the middle and clogging up the process for both buyer and seller. I understand why the lenders are starting to like them, but rather than making life difficult for everyone else (and getting the consolidator paid) lenders should just be choosier about what appraisers they deal with. One of my preferred lenders, Westminster Savings, only uses 8 appraisers (out of 200+), and thus doesn’t need to use a consolidator because they know and trust the judgment of the appraisers on their list.

Ok, this blog has taken me a little farther afield than I intended, but that’s what happens when I get fired up about these things (consolidators…)

Until next time, happy house hunting!

The Bank of Canada announced yesterday that they were holding their overnight rate steady. This means prime rate will remain at the ultra low level of 2.25% for a while yet.

What is more important is the bank’s commentary. They reiterated their commitment to hold rates at the current level until the end of the 2nd quarter in 2010 (July 2010 approximately). This is good news for anyone that opted for a variable rate mortgage in the past few months as they can be assured that their rate will remain at current levels, but will also allow them the right to convert to fixed rates if the fixed rates remain low or fall lower.

I’d like to share with my readers some of the “off the record” commentary I hear from lenders and market insiders.

One of my lenders was in SHOCK at what people were paying for houses in East Vancouver. Almost on cue, the local paper published an article saying that the East Vancouver market was the hottest in BC. While this sounds great, history has shown that by the time the mass media gets hold of what market is “hottest” it’s far too late to consider getting into that market. We’ve seen a massive run up in prices in East Vancouver in the past 4 months, and I would be very conscious of this fact if I were considering buying in this market.

My top realtor referral source and I were having a discussion a few days ago and I was saying that I couldn’t see the market continuing at this meteoric pace upward pace for long because EVENTUALLY there won’t be anyone else willing to pay more than the past buyer. This is the “greater fool” theory of markets, and Garth Turner does a great job blogging about the troubles that are becoming evident in our market. Look him up online. He has an amazing following and I agree with darned near everything he says.

Is this hard evidence that the market is slowing down or turning? No.

It’s purely anecdotal. However, I started hearing these rumblings in May of 2008, and that was just before a MAJOR pullback in the market. This isn’t conclusive evidence that would hold up in court, but it’s just an example of what market insiders are thinking. Again, by the time you hear it on the front page of the Vancouver Sun, you are about 6 months behind the market.

There are several people out there that claim I avoid talking about the “supply side” of the real estate market, and that it is just as important as rate and demand in the market. They are correct in this assumption, and I feel this way because I find that demand is far more prevalent right now in terms of what is determining sale prices of homes. Supply of homes for sale hasn’t vacillated as much as people like to think. The number of prices of sale rises at roughly the rate of population increase. It’s close enough to say that people aren’t RUSHING to sell their homes to get the maximum sale price.

Can deals still be found? Of course.

Will they be in North Vancouver, Coquitlam, Port Moody, or especially, East Vancouver?

My personal opinion is “No.”

If you think buying and flipping (even if you renovate a LOT) is a good financial move, you are assuming a VERY high amount of risk in thismarket. This isn’t a buy and flip market. It is likely a buy and hold market. I’m putting my money where my mouth is, and I’ve bought a property myself (in Langley) that I consider my “dream home.” In other words, I intend to live there for 20+ years, and for this reason, I don’t care what the market does or if I a paying a bit too much because ultimately, I need to have a home, and with the current historically low rates, I can do so and own the home I’ve always wanted.

If you feel similar about a home you are considering buying for your family, then you SHOULD buy and hold on, as real estate prices will always go up in the long term. If you are buying and thinking you’ll upgrade in next 1-2 years, then you should reconsider your purchase.

This is my opinion, and I’m sticking to it.

Please, I beg, someone post a comment.

Most of the public is unaware that no down payment or zero down mortgages still exist. On October 15, 2008 the rules passed by Canada’s finance minister took effect, and the existing no money down program was canceled. However, only that one program was canceled.

There IS another way…

There are a few banks that will “give” you 5% of the purchase price allowing you to get 95% financing. This program is called “flex down” and here is how it works:

1. You pay posted rates instead of discounted

2. The cash is given to you at closing allowing you to put it as the 5% down payment

3. You need to show cash assets of 1.5% of the purchase price of the home to prove you can afford to close on the transaction

4. Still need a deposit!

5. You pay higher CMHC fees

POSTED RATES:

In mortgages, as in all other elements of business there is no such thing as a free lunch. The 5 year posted rate is 5.49% as of today, with discounted rates in the 3.89% range. You will need to pay the higher 5.49% rate. This way, the bank recoups it’s 5% gift of money that it gave to you over the 5 year term. And yes, you MUST take a 5 year fixed term. It doesn’t matter if you only want a 3 year, or a variable rate, you MUST take a 5 year fixed term at posted rates. In this way, the bank is getting the 5% back from you spread out over the 5 years.

Think of it as forced savings of the 5%, but you get to live in the home while you save!
CASH GIVEN AT CLOSING

The 5% cash gets sent to the lawyer’s office handling the transaction. Then, the mortgage money shows up for the other 95% and the house is yours!
NEED TO SHOW 1.5% CASH ASSETS

The bank needs to know that if they give you the 5% that you can still put up some money to cover property transfer tax (if applicable), move in costs, utility transfers, etc… WITHOUT borrowing the money. You’ll need to show 1.5% of the purchase price of the home in an account in your name. How it got there isn’t an issue. It just has to be in your account.
STILL NEED A DEPOSIT

When you write an offer, you will still need to have money to give as a deposit. This is generally considered “good faith money” as it is non-refundable. Typically, it is customary for the deposit to be 5% of the purchase price. However, this is just CUSTOMARY. You need to tell your realtor that you need the deposit loan as low as possible ($1,000 or $5,000) and you need to be able to write this cheque! You can get it on a visa cash advance, borrow it from friends or family, or what have you.

Remember, you will get it back at the closing date when the bank’s 5% shows up but you still need it in the interim and this is an often forgotten element to no money down purchases.
HIGHER CMHC FEES

Whenever you put less than 20% down on a purchase you face CMHC fees. They are government mandated fees, and you can find out more about them and what they are by doing a search on my blog for “CMHC fees” as I’ve written several articles explaining them.

When you do a “flex down” purchase or no money down, the CMHC fees are 2.90% base instead of 2.75% base and they are BUILT INTO THE MORTGAGE – meaning you don’t have to write a cheque for them up front.

THAT’S IT!

I’m working on two of these deals for clients as I type this blog entry, and both are getting approved. So, if someone says zero down or no money down mortgage isn’t available, give them my contact info and I’ll get them set up!

Thanks again, and happy house hunting!

I have been doing some audio advertisements on the radio lately, and given the number of questions that I field about penalties.

Here is the audio file for your listening pleasure, and a copy of the script I used to record it:

AUDIO BLOG – Mortgage Penalty Calculation

HERE IS THE SCRIPT

Many clients have been calling me looking to sell in this market and upgrade their home find themselves faced with massive mortgage penalties. In many cases, the penalty may have risen in the past month by over 100% from a prior quote from their lender.

Most fixed rate mortgages have two types of penalties that can be invoked by the banks. Penalties on fixed rate mortgages are generally the GREATER OF a three month interest penalty or the Interest Rate Differential. The interest rate differential penalty is only invoked when interest rates fall by a significant amount putting the bank in a position to lose a lot of profit. Remember, you got a guarantee from the bank that you would not face an interest rate increase regardless of what the market does. In exchange for that promise, the bank has the right to charge you for their lost profit in the event you break the contract.

At the Mortgage Centre, we have lots of options to help reduce the effects of your bank’s penalties. Some of those methods include blended rates, cash back mortgages, and even porting your existing mortgage to your new home… penalty free.

If you face a large penalty to get out of your mortgage, and you want to look at your options, contact me at the Mortgage Centre.

This is Rowan Smith for Radio Real Estate.

This is a complaint that I hear from people from time to time. They pull their own credit score, see a number over 700 and assume that they have good credit. Then, when they talk to me, I tell them they likely won’t qualify for a mortgage due to credit history and they nearly fall off their chair.

The media has done a good job of getting out there what a good credit score is. 700 as a “beacon score” is, by all accounts, a very good score. However, there are two other elements to credit that need to be looked at other than the score:

1. Credit Depth

2. Credit Breadth

CREDIT DEPTH:
This is where a lender looks at an account and sees how long you have had a credit record. If you only have 4 months history with your only credit card, your score may be 750 but that is meaningless. We call this a “forced beacon,” and lenders want to see a long track record of good payment, not just a high number.

CREDIT BREADTH:
This refers to the number of credit accounts you actively hold. Having multiple accounts doesn’t hurt you! In fact, look at it this way: if you have 1 visa account, and you go on vacation and miss a payment, you are delinquent on 100% of your available credit facilities. However, if you have a visa, mastercard, and car loan, and you slip up on one payment, you still have other unblemished accounts to bolster your score. So, having multiple types of credit is also helpful: car loan, visa, mastercard, etc… Now, there is a limit here: too many, and you may screw up as management of the accounts becomes difficult, but too few, and one slip up will have that 700 score down to 530 before you even realize you are late.

Just having a high score isn’t enough, and people often get hung up on the number rather than the underlying credit, and you can be sure, the lenders look at more than just the number.

lot of people operate on the assumption that real estate loans are like car loans: if you walk away, and the lender takes the car (or house), then you are clear.

In real estate, this is WRONG!

Case in point: a former client of mine bought a place and subsequently lost his job and fell deathly ill. He owed around $275,000 on a property worth around $300,000. However, he was many months in arrears, and there was over $20,000 of legal bills mounting for foreclosure.

He wanted to know what would happen if he walked away? The bank had required him to have CMHC Mortgage Default Insurance when he bought the place so if the foreclosed, and took a loss, CMHC would cover the bank’s loss. He felt that his bank would not sue him for the shortfall as they wouldn’t have one!

However, I explained to him that if he walks away, yes, the bank takes no loss due to the CMHC insurance, but CMHC takes a loss, and they have the right to sue him for the difference. He felt this was very unlikely given that the shortfall was only going to be $20,000 when the dust cleared and CMHC was a government backed organization whose mandate was to put Canadians in homes, not sue them.

I wasn’t so sure. I counseled him NOT to walk away, and try and rent the unit out and take care of a small amount of the negative cashflow. I called CMHC and the confirmed that yes, they retained the right to pursue him, but didn’t always do it depending on the situation.

Well, he didn’t like my advice. He opted to walk away, and end the phone call, and our business relationship quickly after I told him to try and tuff it out.

I heard updates through the lender that they DID foreclose, and CMHC DID pay them out the loss.

So… the question becomes… will CMHC pursue him?

The answer after 9 months, is “Yes.”

The client called me up and gave me a copy of his letter he received from CMHC’s National Recovery Agency. The shortfall was around $25,000 and they are putting a hold on all future Revenue Canada tax returns as well as likely going after any wages he receives.

As proof of this, I’ve attached a copy of the letter he received (I’ve blanked out all identifying information to preserve his confidentiality).

So, will the lender, or CMHC come to get you if you walk away. The answer is “yes.” Just handing them the keys, and walking away does NOT guarantee you are off the hook.

Until next time, happy house hunting!

Here is a copy of the letter…

CMHC Collection Letter

I read an article today that really made my blood boil. It was an article that talked about the difference between buying a home through your bank, and buying a home through a mortgage broker.

If you want the direct link it is:

http://homebuying.about.com/cs/mortgagearticles/a/home_lenders.htm

Here is the quote that upset me as it talks about Mortgage Broker Compensation:

Mortgage brokers are professionals who are paid a fee to bring together lenders and borrowers. They usually work with dozens or even hundreds of lenders, not as employees, but as freelance agents.

Think of mortgage brokers as scouts. They find and evaluate home buyers, analyzing each person’s credit situation to determine which lender is the best fit for that person’s needs. The broker submits the home buyer’s application to one or more lenders in order to sell it, and works with the chosen lender until the loan closes. A good mortgage broker can find a lender for just about any type of credit.

The mortgage broker working to secure your loan is earning a fee for the transaction and the better deal they achieve for a lender, the more they are paid. Don’t be too anxious to disclose to a broker the interest rate you are willing to accept–let them tell you what terms they can secure. Shop around to make sure the terms are reasonable.

It’s the line that I have highlighted, bolded, and underlined that has me upset. It says, “the better deal they achieve for a lender, the more they are paid.”

This is completely FALSE!

In Canada, if a mortgage broker is working with a client, they have a fiduciary duty (duty to protect the financial best interests) to their client. Offering a higher rate, and getting paid more, would be a direct contravention of this rule.

In fact, the banks don’t allow it! If you are paying a higher rate, we don’t get paid more, as a general rule.

As a mortgage broker, I try to find the best mortgage rate for my clients. There are four reasons for this:

1. The lower the rate, the more affordable the payments, the better it is for the clients
2. I have a fiduciary duty to protect the financial interests of my client
3. If I don’t get them a great rate, they won’t be happy and refer future clients to me
4. I am paid the SAME at most financial institutions!!!!

As a Canadian mortgage broker, I am paid almost the exact amount from lender to lender regardless of the terms my clients accept. If they get a deal for 4.09% at one bank, I am likely getting paid the same (or damned close to it) at most other lenders for a similar rate and product. The difference isn’t substantial enough for us, as brokers, to go running around for an extra $50 here or there. In fact, we are more “service” driven that compensation driven. It profits a mortgage broker nothing to get 20% higher commission at lender A over lender B if lender A is unable to deliver fast approval and fast review of documents.

I am very open with my clients. If you want to know how I’m paid on a mortgage deal, I’m happy to tell you, and compare that to what I’d get paid at other institutions so you can rest assured you are getting a fair deal.

Until next time, happy house hunting!

I read an article today talking about the fact that Canada is facing the lowest inflation in 56 years, but analysts did nothing but yawn at the news. They claimed that energy costs were artificially driving the inflation numbers low. At the same time, every realtor I deal with calls me with a new set of clients that are going into an offer where there are multiple offers, and they are asking if the clients can write “subject free offers” without the financing clause so that their offer is more attractive to the seller.

What is going on? This type of crazy manic behaviour by buyers hasn’t been seen since the summer of 2007 (the height of the real estate peak), and it’s scaring me.

I think buyers are getting caught up in the “real estate never goes down” mentality that gripped the city of Vancouver from 2003 – 2007, and I think those same buyers should talk to people that bought from 2007-2008 and see if these 20% over asking price offers make any sense.

A couple of examples:

One of my well-to-do clients was looking at a fantastic house at $995,000 in Vancouver. It contained two suites that generated $1,950 of rental income in addition to the main floor that he intended to occupy. $995,000 seemed like a reasonable price, but he got word of multiple offers, and asked if he was pre-approved to $1.1M in the event that the bidding went higher. With that amount of rental income potential in addition to living space, it was likely it would go beyond asking price. So, what do you figure it went for?

He backed out at $1.1M and the place eventually sold for $1.2M… a full 20% over asking price.

TWENTY PERCENT!

Think about that for a second: 20% over asking price is downright silly, in my opinion.

“But with the rental income, it’s so much more affordable!” people yell at me.

Sure it is. With today’s interest rates a LOT of properties look affordable. However, if the borrowers would do the math at 5.50% and 6.50% (rates that were here only 1 year ago) they would see that when their term expires, this property might not be so affordable, and hence, not so valuable.

Now, I’ve been criticized by other brokers for being to “demand” focused. The truth is, I AM demand focused. While supply always plays a roll, it is NOT supply that is driving this market. It is crazed, manic, emotional buying by borrowers that are being egged on by the media which keeps saying that the “Canadian House Market is Back!” and no one pays attention to the fact that the stats used by the media are WAY out of date. By the time the mass media hears that the market is heating up, it’s usually WAY too late to get into that growth sate. Otherwise, wouldn’t everyone be doing it? Of course…

So, costs of living (aside from housing) are falling, interest rates are low, costs of all goods are falling, interest rates are low, energy prices are falling, and interests rates are low… anything sound odd about this? The Bank of Canada has their foot on the monetary pedal, and STILL prices of everything in the country seem to be falling EXCEPT real estate.

We are faced with two possible scenarios:

1. Real estate is somehow still undervalued (despite record low interest rates, and a meteoric rise in prices in the past 3 months)

2. Real estate is overvalued, but that historically low interest rates are making it appear cheaper than it is (or cheaper than it will be in in 5 years when most mortgage terms expire)

What appears most likely to you? That $1,000,000 for a house in Vancouver is “fair market value?” or that things are starting to get away from reality again?

“When the average family cannot afford the average home, trouble will follow!” I’ve been screaming this for 2 years, and no one listened until January-December when the pain was being felt. Now, all signs point to over-valuation again, and buyers are lining up.

If I could find a way to “short” the Vancouver real estate market, I’d do it in a heartbeat. Unfortunately, it’s not that easy.

Until next time, happy investing!

p.s. I’m getting out of this city for a week to get my bearings and see if the real estate market looks any better up in Alaska, and there will be no updates during that time. In the interim, read Garth Turner’s blog at http://www.greaterfool.ca Garth is a communicator, author, lecturer, columnist, TV personality, entrepreneur, MP and populist. Better yet, read his book “After the Crash.” Another source of great info that I read is the Daily Reckoning at http://dailyreckoning.com and these authors pretty much called the great collapse in 2008 and were crying for it for the prior 2 years during the run up in their book “Financial Reckoning Day.” Enjoy!

Many times I spend weeks, months, and even years working with clients to get them into a position to buy a home. They finally get an accepted offer, and I finally get it approved after countless hours of financial debt counseling, emails back and forth, lender discussions, and phone calls, only to have them get some advice from a friend that sends them into a tailspin of doubt.

How many times have I heard these statements:

“I was talking to my friend, and he told me that they did <insert solution here> and it saved them a lot of interest…”

or

“My mom, who was a realtor for 20 years, says that I should be taking <insert product here>…”

I counsel my clients that this type of advice, while always done with their best interests at heart, is usually uninformed at best. If I can think of a way to save a client money, closing costs, transfer taxes, or the like, I’ll certainly let them know! It’s my job! I have a fiduciary duty to act in my clients’ best financial interests, and I work very hard to do so. Also, this is my job. My ONLY job. I am aware of all the tricks of the trade for saving money, and if something is viable, I’ll pipe up and tell my client about it.

Here is an example I ran into recently:

I was working with some non-resident clients looking to buy property in Vancouver. The applicants were very solid: good jobs, good credit, and a solid net worth. When they were talking to friends, their friends (who were RESIDENTS of Canada) kept telling them not to do what I was telling them, and that they should be taking a different mortgage product. My borrowers then called me about it, explained the logical reason why they wanted that product (they were right!) but were disappointed and suspicious when I told them I couldn’t get it for them due to their residency status.

“But my friends said they’ve done this several times and their banker recommended it!”

To which I reply:

“Yes, but they are residents of Canada, and as such have greater access to many special programs, promotions, and favourable tax treatment.”

As non-residents there are many products and strategies that don’t apply simply due to tax treaties that Canada has with the applicants’ country of residence, and general conservativism of Canadian banks (how can they sue the borrowers if they are in Shanghai and not making payments?). When I explained this to the borrowers, they understood the limitations, and did some further research which showed dramatic differences in theirs and their friends’ financial situations rendering their friends advice, nothing more than a nuisance.

The bottom line is this: EVERY situation is unique. There are HUNDREDS of mortgage products, countless strategies and schemes to save money, and I guarantee I’ve seen every one of them in one form or another: both the good ones and the bad ones.  If I can see a way to save you money, and see a way that it can be done for someone in your unique financial position, I’ll be sure to tell you.

Even worse is the person whose friend says, “but ‘my mortgage broker got it done’ for me before…” when they are talking about ANY mortgage done before September 2008 when the financial markets were different and lenders has TOTALLY different programs available to them.

I hate hearing that: “… my mortgage broker got it done..” which says nothing towards providing proper, legal, appropriate advice that is tailored to the clients’ needs that saves them money now, and in the long term.

If I was getting some dental work done, I wouldn’t pipe up when my friend told me his dentist did his filling differently. After all, we have totally different mouths and problems!

The same is true for finances. When you engage the services of a professional mortgage broker, you are using them not just to get the best rate, but to provide unbiased guidance and well informed advice as to what the best way for you to proceed is given your UNIQUE FINANCIAL SITUATION.

Beware the armchair critic… or worse, someone providing advice that has never bought and sold real estate.

Given that rates were at the lowest point EVER back in May/June (around 90 days ago in some cases) several people are starting to face their pre-approved rates expiring. Today’s rates are around 0.50% – 0.75% higher than they were previously so, naturally, clients are asking me if they can extend the pre-approval period.

The answer: No.

The bank gives you 90 or 120 days (depending on the bank) where they will hold the rates for you. If rates fall, you get the lower rates. If rates rise, you get the lower rates. They put you in win-win situation. However, they will not extend that period of time by even ONE day. There is one lender in the market where exceptions can be made, but only my clients get to benefit from that info – I don’t publish it on the net.

So, if your broker tells you that you have 90 or 120 days to find a place, or for your rate to be held, you will need to actually close on the transaction by that date, not just write an offer.

I want to write this out again because it is important, and a cause for confusion amongst applicants regularly: you need to CLOSE (money changed hands) by the rate expiry date on your pre-approval, not just write an offer.

Notice that I didn’t make any mention of “possession” in that sentence. Typically, for example, completion will be on the 1st of the month, with possession on the 2nd. It is the “completion date” that matters for your pre approval. Many times, people complete on, say, the 1st, and don’t take possession (get the keys) until the 15th of the month. This can happen for a variety of reaons: have to honour their current lease, trying to close quickly to preserve the rate but the sellers don’t want to move that fast.

So, talk to your broker and realtor (they should be a pair that works together) about setting the completion date within your pre-approval rate hold period, and then set the possession accordingly. It may save you tens of thousands of dollars to take the time and go through the effort.

Questions? Email me directly at smith.rowan@mortgagecentre.com

Thanks for reading!