5 Things to Do If You Absolutely Have to Waive the Financing Condition

1. Realtors and Buyers: 5 Things to Do If You Absolutely Have to Waive the Financing Condition

2. Real estate market is hot in 2020 throughout Ontario. Low inventory, multiple offers and bidding wars are happening literally on every listing. However, there is only 1 buyer that gets the property. Due to such strong competition, it becomes very tempting for buyers and realtors to waive the COF (aka Financing Condition) when making an offer, in order to increase the chance for the offer to be accepted. It can be a great strategy, but it certainly comes with major risks. If you absolutely have to do so, here are 5 practical tips that can help you to get the mortgage. 1. Pre-approval does not mean Approval. Getting a mortgage pre-approval is great, as it does tell how much you can afford, how much down payment you will need to have and how much the monthly payments are…But pre-approval is not a commitment from the lender, it’s more of the estimate. Typically, pre-approvals are valid for 90-120 days and can be renewed. But, if your personal financial situation changes, lenders have rights to cancel the pre-approval. For example, unexpected job loss or reduction of hours or an unexpected expense that you have to pay with a credit card. All these sudden changes impact your affordability and can jeopardize your mortgage approval. Fortunately, there are still lenders that can give you a mortgage without considering your income or credit, but you do need to pay more for using their mortgages. That being said, try to minimize changes during this house hunting period. 2. Stay with the same Employment A common reason for lenders to deny a mortgage after giving a pre-approval is change of employment. From the perspective of the lender, change of employment means less stability for the borrowers to repay the loan. Mortgage is likely the biggest yet cheapest loan most people have, so lenders would like to give it to people who can definitely repay it. So to ensure borrowers’ ability to repay, most mortgage lenders consider previous 2 years’ income and experience in the industry to qualify. Although employment changes are not favourable for mortgage application, there are exceptions to this rule. If you are switching employers but keeping the same career and greater income potential, lenders might still be interested in giving out the mortgage. But in general, avoid changing employment during the house buying process. After closing, you have all the power to change jobs.

3. 3. Avoid buying on credit cards Another common reason for lenders to back out is the new debts on credit cards. Lenders measure your ability to repay by using Debt Service Ratios (commonly called Ratios). The lower the ratios, the easier it is for you to repay the mortgage. We understand sometimes life gets in the way, and you will have to tap into credit cards to make payments. But try to refrain from using credit cards for any un-necessary item before you close. The reason is, once you incur a new debt on your credit facilities, your Debt Service Ratios will go up. If the Ratios exceeds the lenders’ guidelines, lenders have rights to deny the mortgage, because most lenders package mortgages receivables and sell them to investors, so they don’t have much flexibility on accommodating higher-risk applicants. If you do have to a major expense to pay, speak with us. I have tools to help you pay the bills while keeping your credit report clean. 4. Avoid moving funds too often Moving down payment won’t necessarily lead to a mortgage denial, but this might lead to longer turnaround time for approval (which you might want to avoid if your purchase or offer is time-sensitive) Lenders have to follow strict anti-money laundering rules from the regulatory bodies, therefore they have to trace where the down payment comes from and how it’s accumulated or gifted. Most lenders ask for 90 days bank statement of the down payment. Tracking down payment can be quite a bit of work and might delay your approval from the lenders, because bank statements take time for you to prepare and take time for lenders to review. One of the best things you can do, is to park your money in one account and let it sit for 90 days. 5. Act fast once you have a pre-approval Once you have a pre-approval, start looking for properties, because lenders can change their guideline anytime to meet their operation target. Once their policy is change, your mortgage application has to change with it. For example, if their minimum credit score changes from 600 to 620, and you have 610, then unfortunately this lender won’t lend to you. Good news is that we have access to over 40 lenders, so very likely you will still have options, but there is also a chance that no lender can entertain your mortgage needs. So once you have approval, start looking for properties.

4. Summary: In today’s market, although more and more people are waiving the Financing Condition in order to have their offer accepted, it is still encouraged that you include it to make sure you can back out with minor loss. If waiving the Financing Condition becomes an absolute necessity, speak with us to see how possible you can get financing. If you do run into a situation where you went firm but couldn’t get financing, fortunately we can still help you close the property. If you need any help for mortgages, give us a call at 647-869-1058 or send an email to us at info@mortgagemojo.ca, we are always happy to help.