Pre-approval request.....

[nodoubtguy]

I have a question, I bought a pre-construction unit and have just been asked for a pre-approval request by the builders. I told them that I won't be using any financing for the closing so they've asked for a letter from my bank stating that I have sufficient funds to cover the closing....is this normal??

They've already taken 5% down, and have cheques for another 10%. When I signed all the papers, they never mentioned anything about a request like this.

I have no issue giving it, it just sounds like an odd request. I could take all the money I have and blow it after they get the letter so what good is it anyways??

 

[Solaris]

yes its normal ... the builder wants some assurance that you can afford the unit by (a) sufficient cash in your bank account; or (b) that you have mortgage pre-approval, which indicates a bank has preliminarily assessed your financial situation and would be willing to give you a mortgage to cover to condo unit's cost based on your 'income potential'

 

[carturo15]

that building won't close before 3 or 4 years, what is the meaning of asking for a mortgage pre-approval? what kind of assurance they could have with a pre-approval? you can go to bankruptcy in 1 or 2 years or lose your job tomorrow, and then what?. that request does not make any sense, many well known builders in the city never ask for that

 

[Solaris]

mortgage pre-approval requirements are quite common now (not sure if it has anything to do with the sub-prime mortgate issue), I purchased with Tridel a year ago and they required one as well

yes although with your pre-approval you could lose your job or your bank can go out of business in 3-4 years time, to the builder it is a expression of your future financial status under normal circumstances (where no major catastrophies happen such as loosing your job or that you loose all your assets/money in a casino etc) ... its only a best guess estimate

 

[nodoubtguy]

that building won't close before 3 or 4 years, what is the meaning of asking for a mortgage pre-approval? what kind of assurance they could have with a pre-approval? you can go to bankruptcy in 1 or 2 years or lose your job tomorrow, and then what?. that request does not make any sense, many well known builders in the city never ask for that

yeah, thats why I don't get the point.....and anyways, if for some reason a buyer can't close, they get the deposit (15%), plus they can re-sell the unit.

 

[cmystikal]

Usually builders will ask for a pre-approval to allow you to put less of a down payment.

ie. 15% down, they would ask for a pre-approval for the other 85%
25% down, they may not ask or need a pre-approval due to the significant downpayment.

I have seen developers offer that at different projects from different builders.

 

[CGM]

The builder wants to make sure you are not just bluffing and avoiding a pre-approval... Yes, you can lose your job or gamble your savings, but this process will minimize the risk to the builder and the bank financing the deal

 

[Bloor West Villager]

yeah, thats why I don't get the point.....and anyways, if for some reason a buyer can't close, they get the deposit (15%), plus they can re-sell the unit.

That's like saying you shouldn't have to prove your income when applying for a mortgage... the bank can repossess your house if you default anyway right?

A pre-approval provides minimal assurance that the purchaser has the intention and means to close. Rarely does a development see 100% of its purchasers close - it's natural for someone's circumstances to change to make the purchase no longer feasible. If there was no pre-approval required, there would be even less certainty that the builder would be able to meet its financial obligations to its lender at the end of the project, which is why lenders ask the builder to provide them.

 

[rbt]

That's like saying you shouldn't have to prove your income when applying for a mortgage... the bank can repossess your house if you default anyway right?

To be fair, even the big 5 do not require proof of income when putting down 15% on the assessed value of a resale home.

They do, however, require proof you have the 15% and a blank statement that you do have an income -- not necessarily a taxable income either. Royal Bank will, from their "special" mortgages department, help you get a mortgage at a slightly higher percentage one day after you go bankrupt provided you have 15% down. They might not do it themselves, but all of the big 5 will work with secondary lenders and set it up so the mortgage may be purchased/transferred after a few years.

The reasoning is that they can, indeed, "power of sale" on your home with 15% being enough to cover their costs. The risk is minimal and the reward is they might get a good long term client.

 

[CGM]

Out of curiosity... What if your cooling off period has passed and builder has already deposited some cheques... then you find you can't get an approval.. technically you still have time before the building is registered... but can the builder back out of the agreement? If so, would you get your down payments back?

 

[T-Squared]

When I was told by the vender to provide a pre-approved mortgage, I didn't take it too seriously, until I read my purchase agreement, and this may answer some questions raised:

"At any time and from time to time prior to the Final Closing Date, the Purchase agrees to provide to the Vendor all financial and other information relating to the Purchaser as the Vendor may reasonably require in order to confirm the credit worthiness of the Purchaser and the Purchaser's ability to complete the transaction of purchase and sale contemplated by this Agreement"....and goes on to indicate that if the purchaser cannot provide the required information to the vendor in X amount of days, then the Agreement will become null and void, with all the deposits, interest accrued, and all amounts paid forfeited to the vendor.

I am sure this wording is similar to most agreements. So theoretically, a vendor can ask for financial information anytime til the final closing date, and be able to take all your deposits away. So don't gamble all your savings away until after closing!

Having typed all that though, I actually ignored their request for a pre-approved mortgage for several months, when they asked for it within 30 days, and nothing came out of it. I guess the enforcement of the agreement depends on the vendor.

 

[FSGIRL]

I don't know why anyone should be ignoring this request....it is in your best interest to ensure you can get financing....for your own sake. Providing this same info to the developer is not a big deal. An approval does not mean that you have locked in a loan, only that you qualify for one; wouldn't you want to have that assurance?

 

[rbt]

Having typed all that though, I actually ignored their request for a pre-approved mortgage for several months, when they asked for it within 30 days, and nothing came out of it. I guess the enforcement of the agreement depends on the vendor.

I believe this is a requirement of their financing. Big 5 bank who is going to fund the development of the project wants to make sure the customers are real, good, and committed.

Developer doesn't care so much.

Incidentally, if the market was still hot (particularly western cities 4 years ago), they would have already resold your unit for a higher price when your agreement was voided and simply not told you.

 

[Mercury]

"At any time and from time to time prior to the Final Closing Date, the Purchase agrees to provide to the Vendor all financial and other information relating to the Purchaser as the Vendor may reasonably require in order to confirm the credit worthiness of the Purchaser and the Purchaser's ability to complete the transaction of purchase and sale contemplated by this Agreement"....and goes on to indicate that if the purchaser cannot provide the required information to the vendor in X amount of days, then the Agreement will become null and void, with all the deposits, interest accrued, and all amounts paid forfeited to the vendor.

Really? My agreement said that if I am not able to provide evidence of my credit worthiness then the vendor has the right to cancel the agreement and will then return the deposit "without interest or deduction". I don't have the agreement any more or I'd check to make sure.

 

[T-Squared]

Really? My agreement said that if I am not able to provide evidence of my credit worthiness then the vendor has the right to cancel the agreement and will then return the deposit "without interest or deduction". I don't have the agreement any more or I'd check to make sure.

Yeah, that certainly sounds different alright. I am a 'property virgin', and I recently bought my first condo late last year. I wonder if imy agreement is reflective of more recent agreement wording for increased security to ensure the purchasers are legit due to past experiences. If this is not the case, then I guess this type of wording is not consistent across the board.

I brought this up because I was relying on info from previous purchasers of developments, that proof like a pre-mortgage wasn't needed. Knowing what I know now, I definitely would've provided my pre-approved mortgage asap.