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Real Estate Talk:
Pre-approval or proof of cash

The importance of having your financing in place

By Joseph Marovitch

Updated October 31, 2018

When purchasing a property, one must either obtain a mortgage or pay cash in full. To save time and avoid finance issues, it is both wise and a must to either provide proof of cash or a pre-approval, with a promise to purchase. These items assist in achieving the best price possible for the buyer and provide an advantage to a buyer over another buyer who does not have financing in place. Sellers want buyers who can pay.

Proof of Cash

This is easy to obtain. The buyer simply requests from their financial institution a letter stating they have sufficient funds to purchase the property in question. The letter does not have to state a specific amount of money. With this letter the seller is much more at ease and confident the sale will go though.

Sellers are more willing to accept a lower offer from a buyer with a pre-approval than a buyer with a higher offer but no financing in place.

Pre-Approval

A pre-approval from a recognized financial institution is an extremely useful tool when searching for a property. In a promise to purchase, with a pre-approval, a buyer states seven to ten days from acceptance, to attain proof of financing. It takes approximately 30 minutes at the bank with a mortgage broker and determines the following:

– How much the bank is willing to lend you
– An interest rate that can be secured for up to 120 days

The pre-approval provides several advantages including:

A secured interest rate, which insures that:

– If rates increase, you will still have the lower secured rate
– If rates decrease, you receive the lower rate

Sellers are more willing to accept a lower offer from a buyer with a pre-approval than a buyer with a higher offer but no financing in place.

Budget

With the knowledge that the bank is prepared to lend up to a specific amount, you are aware of the budget you must work with and this allows the broker easier negotiation with a seller.

Process

Step One

– Meet with mortgage broker
– Provide social insurance number
– Identification
– Last pay statement, if possible
– Proof of assets
– Mortgage broker checks your credit history and rating
– Mortgage broker then indicates if they can lend and how much

A document called a Mortgage Pre-Approval is provided to you stating you are approved for a specific amount and at what rate for what period of time (used in an offer).

Step Two

– Once the offer is accepted, the bank will perform an evaluation to determine that the property you are purchasing has the value stated by the vendor.
– Upon completion of a successful evaluation the bank will provide a document titled Final Mortgage Approval.

Upon receiving the Final Mortgage Approval, the condition of financing is deemed satisfied.

Next article: Inspection

Should you have questions or comments, please refer to the comments section at the bottom of the page. As well, to view past articles, go to the search link and type in Joseph Marovitch.

Have a great week!


State of the market

The bank of Canada has raised interest rates .25% as anticipated. This brings the overnight lending rate up to 1.75%. Mortgage loans will rise across the board for new and refinanced loans. That is the not so good news.

The good news is that according to the Canadian Mortgage and Housing Corporation (CMHC), the housing market is not at risk of crashing. The CMHC stated that the housing market has shown weak price acceleration, overheating, over evaluation or over building, probably due to the fact there are so few places left to build on the island of Montreal. Even though the CMHC says the market is not accelerating and prices are not rising as fast as they thought, there is still an increased demand for homes and less and less inventory, mainly due to the fact that buyers would rather stay put than sell high but have to buy higher.

It appears to continue to be a seller’s market however the new trend is moving towards high end-rentals. The opportunity, currently, is income property. If people want to sell high but not buy higher, what is better than to save all the money from the sale and rent. People must live somewhere and when the market inventory is low and single home prices are high, the trend is to rent.

Image: Andrew Burlone

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Read also: Real Estate Talk: The Purchase Process


Joseph Marovitch - WestmountMag.ca

Joseph Marovitch has worked in the service industry for over 30 years. His first career was working with families from Westmount and surrounding areas, hosting children between the ages of 6 to 16 as the owner and director of Camp Maromac, a sports and arts sleep away summer camp established in 1968. Using the same strengths caring for the families, such as reliability, integrity, honesty and a deep sense of protecting the interests of those he is responsible to, Joseph applies this to his present real estate broker career. Should you have questions please feel free to contact Joseph Marovitch at 514 825-8771, or josephmarovitch@gmail.com

 



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