bank pre-approval - preconstruction

effervescent7000 wrote: ↑ Hi everyone,
I am looking for preconstruction detached homes in the Stouffville/Durham/East Markham region.

It appears now that buyers are required to have a pre-approval to buy preconstruction? When did this changeover happen? It wasn't always the case....especially with condos where the mortgage process happens closer to the closing date.

Has anyone had experience with this? I currently have a mortgage now already, I doubt I would be approved for a second mortgage at this point for a house that will be closed in a few years.

Also if there are any agents or anyone who has potential preconstruction for sale / upcoming, feel free to private message me or PM here...Thanks!

The pre-approval letter from a schedule 1 bank is now a requirement for most pre-con projects. And it is just that, a pre-approval letter. The builder is looking to see if you are capable of getting a mortgage at this point in time, who knows what's going to happen in a few years. Just speak to your bank's mortgage rep to go over your finances, and if you were to sell your current home could you qualify for a mortgage on the unit you are interested in. Most reps would write you the letter provided that you qualify with today's conditions.

IMO it's kinda silly. Market conditions could change in a couple years and the government might impose more stringent mortgage rules. A lender can't hold a guaranteed rate for more than a few months let alone years, you might not have the same income (maybe not even be employed) by the time you are ready to apply for the mortgage for closing.

@trebmember Mortgage lenders can hold rates for more than a year. We had our rate held for 18 months or something ridiculous. Of course when we were a few months away from closing we renegotiated the rate to get a better rate. But if rates skyrocketed we were locked in.

It's just a confidence letter for the builder, apply for the mortgage assuming you sell your current house as trebmember said.

not all require tier 1

Spiritwalker2222 wrote: ↑ @trebmember Mortgage lenders can hold rates for more than a year. We had our rate held for 18 months or something ridiculous. Of course when we were a few months away from closing we renegotiated the rate to get a better rate. But if rates skyrocketed we were locked in.

It's just a confidence letter for the builder, apply for the mortgage assuming you sell your current house as trebmember said.

I guess in an environment where rates are dropping like it has for the last few years I could see a lender hold for that kinda time frame, but definitely not common in the broker space. @Spiritwalker2222 curious, who was your lender?

trebmember wrote: ↑ I guess in an environment where rates are dropping like it has for the last few years I could see a lender hold for that kinda time frame, but definitely not common in the broker space. @Spiritwalker2222 curious, who was your lender?

TD

trebmember wrote: ↑ I guess in an environment where rates are dropping like it has for the last few years I could see a lender hold for that kinda time frame, but definitely not common in the broker space. @Spiritwalker2222 curious, who was your lender?

Many of the big banks offer pre construction mortgages. Basically, they lock your rate at something astronomical high in comparison to today’s rate to hedge it. However, come closing you would get the posted rate. If rates go up too high, well you’d be safe.

Thanks everyone, I'll speak to my bank and go through the process. It seems strange to me that the bank would issue a pre-approval letter for a 2nd mortgage at that point in time. My current salary wouldn't support a 2nd mortgage but yes I guess it's based on the condition that I would sell my existing place at that time in 2-3 years. Again I appreciate everyone's responses

As everyone has said before its kind of stupid to get it now but thats apart of the stupid stress test the government set up.

If your real estate agent is good they should have connections with mortgage brokers which can provide you with the documents. My friend recently purchased a precon while being on CERB. Its easy to get it done since the pre-approval is for many years in the future.

trebmember wrote: ↑ The pre-approval letter from a schedule 1 bank is now a requirement for most pre-con projects. And it is just that, a pre-approval letter. The builder is looking to see if you are capable of getting a mortgage at this point in time, who knows what's going to happen in a few years. Just speak to your bank's mortgage rep to go over your finances, and if you were to sell your current home could you qualify for a mortgage on the unit you are interested in. Most reps would write you the letter provided that you qualify with today's conditions.

IMO it's kinda silly. Market conditions could change in a couple years and the government might impose more stringent mortgage rules. A lender can't hold a guaranteed rate for more than a few months let alone years, you might not have the same income (maybe not even be employed) by the time you are ready to apply for the mortgage for closing.

Not true at all, I have a rate guarantee from CIBC till 2024....though like someone else mentioned its at a high rate...which shouldn't matter either way as it will be negotiated at the time of final closing, but at least you have a "worse case scenario" covered.

deal_with_singh wrote: ↑ Not true at all, I have a rate guarantee from CIBC till 2024....though like someone else mentioned its at a high rate...which shouldn't matter either way as it will be negotiated at the time of final closing, but at least you have a "worse case scenario" covered.

what did they guarantee the rate capped at?

They have very little value, most mortgage brokers with experience will make one appear out of thin air ; ). Builders won't verify your pre-approval, it has no value because by the closing time it wont be valid.

With this new requirement, what is the actual pre-approval amount required? If pre-con is $1M, does pre-approval has to be for $800K, or can one say I will DP $500K and get pre-approval for $500K. Also, what if someone just intends to pay full cash and maybe without income to get mortgage?

NCR-Manchester wrote: ↑With this new requirement, what is the actual pre-approval amount required? If pre-con is $1M, does pre-approval has to be for $800K, or can one say I will DP $500K and get pre-approval for $500K. Also, what if someone just intends to pay full cash and maybe without income to get mortgage?

Builders like to see the mortgage pre-approval because it is a validation from a reputable financial institution that you can fork up the cash in 4-6 years. Although if you intend to pay with cash or perhaps if you don’t want to get a mortgage pre-approval, you can get a letter from your bank (assuming they are willing), that states you will have the appropriate amount of funds to close.

I have gotten mortgage pre-approvals before and I have also got a bank letter stating I have the money to close. But many builders will only take a mortgage pre-approval from a big bank. Talk to a broker.

joepipe wrote: ↑ what did they guarantee the rate capped at?

We had a rate of 2.49% (when we bough 3 years ago), and had a guaranteed rate of 3.5% for 18+ months. I can't recall how long it really was before, but recall my first impression when buying the house was that they indicated the wrong year for the move in date. So it was probably closer to 2 years.

joepipe wrote: ↑ what did they guarantee the rate capped at?

I got one done a few years ago capped at 9%, you know for sure that wont happen LOL

kangarooz wrote: ↑ As everyone has said before its kind of stupid to get it now but thats apart of the stupid stress test the government set up.

If your real estate agent is good they should have connections with mortgage brokers which can provide you with the documents. My friend recently purchased a precon while being on CERB. Its easy to get it done since the pre-approval is for many years in the future.

The good ole stress test. You can get the pre-approval from literally anyone. Doesn' thave to be a tier 1 bank. Could be from a credit union that doesn't use the stress test.

kangarooz wrote: ↑ I got one done a few years ago capped at 9%, you know for sure that wont happen LOL

Exactly, anyone can guarantee a rate they are 99.99% comfortable to give out knowing that rates will not rise to that level for the pre-approval time frame. Even at lower rates of 3%+ the lenders have done their forecasts and know they will probably be approving a lower rate when the time comes.

worldpositive wrote: ↑ They have very little value, most mortgage brokers with experience will make one appear out of thin air ; ). Builders won't verify your pre-approval, it has no value because by the closing time it wont be valid.

Many builders (especially on projects in high demand) have wised up to this and no longer accept pre-approval letters from anyone except certain schedule 1 banks. They even go so far as to give a list of the banks they will accept. This happened to couple of deals for clients for 199 Church by CentreCourt and JAC Condos by Phantom Developments. The builders rejected my clients' letters from their broker and gave them a list of the banks they will accept. Afterwards they also contacted the bank rep to verify.

trebmember wrote: ↑ Many builders (especially on projects in high demand) have wised up to this and no longer accept pre-approval letters from anyone except certain schedule 1 banks. They even go so far as to give a list of the banks they will accept. This happened to couple of deals for clients for 199 Church by CentreCourt and JAC Condos by Phantom Developments. The builders rejected my clients' letters from their broker and gave them a list of the banks they will accept. Afterwards they also contacted the bank rep to verify.

Oh no, the approval letter does not come from mortgage brokers. Mortgage brokers obtain pre-approval through their connections with people working inside big banks and it always comes from a reputable bank. You could never hold the bank or the individual that signed accountable as the pre-approval would have been expired by the time closing arrives.