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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 January 13, 2021

When purchasing a property, one must either obtain a mortgage or pay cash in full. To save time and avoid financing 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 help achieve 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 and necessary if the buyer is paying in cash in full. The buyer simply requests from their financial institution a letter stating they have sufficient funds to purchase the property in question. Another option is to provide a recent bank statement. 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 through.

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 indicates partial 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

Note that there is a second step to a pre-approval – the bank will want to know that the property being purchased is the same value or higher than the purchase price via an evaluation. Always check a buyer’s pre-approval for conditions as well. Banks will provide pre-approvals based on verbal information without verification. Therefore, pre-approval without verification may not be very useful.

Pre-approval provides several advantages

A secured interest rate, which ensures 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, allowing the broker easier negotiation with a seller.

Process

Step 1

  • Meet with mortgage broker either in person with precautions or via Zoom
  • 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 will then be provided to the buyer, stating the buyer is approved for a specific amount and at what rate for what period of time (used in an offer).

Step 2

  • 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.

Should you have questions or comments, please refer to the comments section at the bottom of the page. As well, to view past articles, click here.

Next article: Inspection


State of the market

For the past year, many of us have been confined to our homes. With the winter cold, we are even more tied to our homes for work, exercise, and play. For this reason, gyms have been created out of living rooms, and investment in larger TVs and streaming on Netflix, Amazon Prime and Apple TV has taken place. Children who moved out have moved back home, not to be segregated in a quiet bubble, causing crowding in the house. The busy market has been the suburbs and countryside.

‘Supply is still less than demand but demand is powerful with low-interest rates and less negotiation as buyers put their best offers forward.’

However, for the city dwellers, space has become a commodity to be cherished. With a want for more space in the home, demand for larger single homes has increased, causing sales to rise across the country. Supply is still less than demand but demand is powerful with low-interest rates and less negotiation as buyers put their best offers forward.

Have a great week and stay safe!


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Other articles by Joseph Marovitch


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 for, 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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