Pre-Approval

by Darrin DeRoches May 22 - 28, 2014

The infamous line that “my clients are pre–approved” holds a little weight in a typical negotiation and might sometimes help you win the sellers over, since you are truly able to buy their property. The funny thing in today’s market is that pre–approvals are a thing of the past and most people are not aware of it. A few banks still do pre–approvals, but most do not spend the time and effort to do so. In the past, you would provide the mortgage broker with all of your information and they would basically work the deal to get you the most money that a lender would “approve” you for. The lenders realized recently that they were doing all of the work twice and in a lot of cases, they would “pre–approve” you even though you would go with another institution. In today’s market, the pre–approval is more like a general over view of your income and major debts to give you a so–called ballpark rough idea of how much you can afford.     The problem arises when you ask the client to describe their income and debts and in most cases they leave out a couple of crucial items. It goes back to the old saying “buyers are liars” but this seems a little harsh. All banks have a tab on their websites that say “how much can I afford” where you list your basic information. The problem is that you want to buy a home that you probably cannot afford, so if you adjust things by a little — maybe you can afford it. You then get the idea in your head that you can afford a property in the $400 thousand dollar range and in reality, you cannot even be approved. So how can this be?     Everyone has different credit scores, issues and income so there is no secret sauce to figure out what you would be approved for until the broker inputs all your information. The problem is that this is only a general scope of what you can afford. If you are thinking of buying an income property or a second home, then other rules fall into place and you may not be approved. This is causing a lot of deals to fall through since you believe the client or the mortgage broker but the bank has the last word and they will not commit until you send them a “real deal”. So sellers have to be aware that the best deal on the table may not be the highest offer but the one where the buyer can actually close the deal. If you are considering buying in the coming months, make sure that your credit and debts are all in order so that you can get approved. Your agent will have to know even more information about your financial position to be able to sell your deal to a seller, since the phrase “don’t worry they are pre–approved” holds no weight in negotiations. V     Darrin DeRoches is a local real estate and mortgage broker. He can be reached to answer questions, comments or stories about real estate experiences through this weekly column at sold@uniquerealty.ca.