Denis Le Marchant-Smith
If you not intend to pay cash for your home, you will make a purchase offer contingent upon obtaining acceptable mortgage terms.
At an early stage in your search for a suitable home you should go through the process of pre-qualification so that you can be confident that you will be able to get financing when the time comes.
When you are ready to do this you should approach one or two potential sources of financing - banks, mortgage lenders or mortgage brokers - who will work through the pre-qualification process with you.
Pre-qualification uses some basic calculations to establish the maximum percentage and value of mortgage that you are likely to get approval for. You provide the information that the pre-qualification is based on, and there are no checks to confirm that the figures you give can be verified.
This means that the pre-qualification process is of little value to the seller of the home, only to the buyer. It does not provide the seller with any assurance that the buyer will be able to get financining, as there are no checks on the validity of the figures used in the calculation.
This is different from the more formal pre-approval process, which is for a specific property, and which is a more detailed process, requiring documentation to verify the basic data.
Unlike pre-qualification, pree-approval does provide the seller with assurance that the buyer will be able to obtain a mortgage. Some sellers require that a potential buyer demonstrates that he has pre-approval for the value of the purchase before they will consider an offer.
Factors that are considered when pre-qualifying for a mortgage loan include your employment history, your credit history, and your monthly income and expenses. When you have chosen a home and I prepare an offer to purchase on your behalf, I will include a 'contingent on financing' clause. I will specify the following:
Down Payment: The contract will show the downpayment amount you will apply toward the purchase. This will give the seller additional evidence of your qualifications to secure a mortgage.
US buyers will have more flexibility with financing than overseas buyers, although the terms may still be less favorable for an investment property than for a residence.
Interest Rate: Within the purchase offer contract, it is possible to provide a safeguard against any dramatic change in interest rates between when the offer is made and when the loan is closed. The offer will not only be contingent upon you qualifying for a mortgage, it can also be contingent on a maximum interest rate.
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