Imagine your home is not your castle, you can’t invite people over and it’s absolutely depressing. Lee-Ann and Darin from Cambridge came to us after their lawyer put a halt to a private mortgage they had arranged. The client’s house was under construction with major renovations so when their bank turned them down for a mortgage they turned to a mortgage broker. But when their lawyer reviewed the mortgage broker deal he recommended that they shouldn’t proceed because the new private mortgage also encumbered their mother’s home. The lawyer called us to help. After reviewing we were able to agree with the lawyer that the mother’s house shouldn’t be part of the collateral because even in a state of disrepair the Cambridge couple had enough equity. So we went on and arranged a private 1st mortgage with one of our top private lenders and they were able to get enough funds to complete the house over the past year. We also advised Lee-Ann who had no credit to establish credit with a credit card and a small loan. She was a self-employed landscaper who like a lot of self employeds was writing her income down too low. With the recent federal government regulations, it is even more citical for homeowners who want new mortgages to tell their accountants not to write their income to ridiculously low levels just to avoid paying tax. This can mean the difference between getting a prime mortgage at the best rate and find yourself paying mortgage insurance fees or worse yet getting higher rates.

Lee-Ann heeded our advice and had her bottom line on her tax return increased. This year when we put together her new application she had a good credit score and a decent income we could use. With her house now mostly finished(what a difference 50,000 can make) her home appraised for almost double what it did a year ago. The Cambridge couple are now saying good-bye and thank-you to the private lender who gave them the much needed funds to complete their home and hello to a great 5 year fixed rate at 3.09% we have now arranged for them.

Lee-Ann said for 15 years she would come home dreading seeing the walls down to the studs, no flooring, not a proper bathroom. Now she finally has a stress free life with a beautifu home she is proud of to invite friends and family to come in and see.

Most people know it is wise to get preapproved before buying a home. Then you are good to go, right? What could go wrong?

A preapproval means you find out in advance the maximum amount a lender will give you at a guaranteed rate based on your income. However, the lender can change their mind or even cancel the deal in the following circumstances: employment or income turns out to be unacceptable, meaning the client says one thing and it turns out to be different; down payment is borrowed and not saved as client initially said; client misses payments before closing, credit suffers and lender backs out; client buys a car/truck, furniture etc., which shows up on credit just prior to closing and debt service ratios are then excessive… lender backs out, purchase if firm, conditions have been waived. We warn our clients about these pitfalls, and from what we are told, the banks do not.

Folks, in our business, we see it all. Fortunately most of the bad stuff comes from new clients who have gone to their bank for preapproval, only to be ‘ultimately’ declined.  A big part of the problem is that bank preapprovals are not worth the paper they are printed on. In fact, they are usually ‘verbal’ only. The bank has not verified employment, income and yes, even credit. Thus the client, without knowing it could be in peril. We always verify employment, income and credit, so with The Price Team you can count on your preapproval.

Except for one thing that no one has control over, and that is ‘overpaying’ for a property, which we are seeing happen more often than in the past. Here’s an example. You are preapproved for a $400,000 purchase price with 5% down. You buy at $400K but the appraisal comes in low. Your deal is firm. You must close or fear being sued. The appraisal came in at $380,000. So the maximum loan amount available becomes $361,000 versus $380,000. To close, you must come up with an additional $19,000. In fact, if the appraisal is correct, you are overpaying for the home and will have a ‘negative equity’ position until market value increases in future.  

Also please beware of homes for ‘private’ sale because the asking price is often inflated. This is one reason it is safer to buy with the assistance of a professional realtor. We can recommend some very good ones!

What’s the bottom line here? Don’t go to the bank for a preapproval. Come to us. And don’t buy private, buy through an MLS Realtor. A good Realtor who is acting in your best interests, exclusively for you, will advise you if the price is inflated, and point out the pitfalls.