Your Complete Guide to the Mortgage Approval for Presale Real Estate
Presale condos are becoming a very popular housing option for first time home buyers, specially in the Metro Vancouver area.
Along with the convenience of being close to the city, condo projects also offer a modern living standard that many dwelling in metropolitan cities now expect.
But buying a home is a big investment and financial preparedness is crucial to make sure your home buying experience is not marred with unwanted stressors.
Most of these condo projects are pre-sold either before the construction begins or during the development.
Pre-construction condo projects work a little differently than usual as the project is usually 2-3 years away from completion. In such cases, it is hard to predict financial stability of home-buyers into the future.
In this blog, we will share some crucial information on mortgage financing for presale condos in British Columbia. So, without further ado, here are some important and frequently asked questions on pre construction financing.
Do I need to get pre-approved to buy a presale condo?
When you’re buying a presale condo, you do not start paying the mortgage until the project is completed. Because the completion dates are so far into the future, you would most likely require a pre-approval for the mortgage.
This pre-approval can come in the form of a letter of intent from a mortgage broker, where they assess your finances and based on the interest rates and lending rules, sign off that you qualify and can comfortably obtain a mortgage at the time of completion.
Presale Condo developers in British Columbia expect this mortgage pre-approval to be provided within 30-60 days of purchase.
How do I start on getting a Mortgage?
Just like any other mortgage, your main options with a mortgage for presale condos is to either go to a traditional lender (like Canadian banks or credit unions) or go to a mortgage broker.
In most cases, a mortgage broker can get you a better rate than traditional lenders. A mortgage broker that knows the industry well and has ample experience in the market makes a whole lot of difference when it comes to the mortgage rates you would be paying at completion.
This is why at ipresalecondos.com, we work with mortgage experts to get you the best deal possible for your next presale condo investment.
What are some factors that can affect my mortgage eligibility for Presale Condos?
Just like any other financial service, there are certain factors that can affect your eligibility for getting a mortgage or even the mortgage rate that you get approved for. Following are some of these factors:
1: Credit Score
Credit is extremely important because it shows your financial history over the years. It shows the lenders that you have the spending capacity and have a good track record of paying off your debts.
A credit score of above 700 is a great score to get a good mortgage rate. But even a score of below 700 can get you approved by B-lenders, so talk to your mortgage broker for your options!
2: Income to Debt Ratio:
This is a simple ratio that compares your total debts to your income as a percentage. This tells companies how much capacity you have to take on more debt in the form of mortgage payments.
For example: Let’s say you earn $10,000 per month, and you have $1,000 in car loan payments and $2,000 in mortgage payments, then your debt to income ratio would be 30%.
Meaning that of your total monthly income, 30% goes towards your debt payments.
So, what is a good debt to income ratio to have for mortgages?
All banks and lenders are different, but in general a debt to income ratio of under 30% is recommended for residential mortgages. Do keep in mind that a debt to income ratio of 43% is typically the highest that borrowers can have and still get qualified for a mortgage.
3: Income History:
A good stable income is the sign of good financial health and tells lenders that the borrower has regular cash inflow and has good spending capacity.
Although it’s not a hard and fast rule, the general standard for banks in British Columbia is to see 2 years of job history with the same employer to figure out your annual income.
One thing to keep in mind is that lenders just need to know your financial situation, so even if you have changed jobs recently, don’t worry, as mortgage brokers will look at many other factors to assess your mortgage qualification.
When Do Mortgage Payments Start For a Presale Condo Unit?
Your mortgage loan payments start on the final closing of your unit. This means that the building is fully finished by the developer & registered with the city, and the unit’s title is transferred to your name.
It should be noted that the occupancy dates may or may not coincide with the closing dates. In the case your occupancy dates are before the closing dates, then instead of the mortgage, you have to pay the building occupancy fees from the time of occupying the unit to final closing.
It is a good rule of thumb to give yourself at least a couple of months before final closing to sort out your mortgage rates with an experienced broker.
When you buy a presale condo with ipresalecondos.com we connect you with leading mortgage brokers and even notify you on time so that you are on track for closing your presale condo purchase.
Does mortgage pre-approval guarantee that I will get a mortgage for a Presale Condo?
No, a pre-approval does not guarantee presale condo financing.
The reason is quite simple: a bank or any lender cannot predict your financial stability 2 or 3 years down the line. A mortgage pre-approval is usually valid for a 90-120 days maximum and after this time, the terms of pre-approval need to be re-negotiated.
Another reason for this is that interest rates and mortgage lending rules change all the time. When a mortgage broker pre-approves you, they do so based on your current financials at that point of time compared to the rates and rules of lending. Since both of these can change over time, pre-approvals need to be re-negotiated to make sure you can still afford the property you are aiming to buy.
Down-Payment vs. The Deposit for a Presale Condo
When you’re buying a presale unit, you’re buying an intangible property that is usually slated to be finished in 2-3 years. In this case, instead of putting a down-payment towards the purchase price, you usually start with deposits. In the presale market, a down-payment is made up of multiple deposits.
Down-payment is a lump-sum amount you pay towards the final purchase price of your presale unit. Although you can contribute as much as you want as a down-payment towards your condo, a typical down-payment is 20%.
In this case, for example, the deposit structure can be something like this:
- $5,000 with the offer
- 5% Balance due in 30 Days
- Another 5% due in 90 Days
- Another 5% due in 180 days
- Final 5% at Occupancy
This is quite important as your deposits and down-payment determines how much your mortgage and rates will be. On the final closing of the purchase, you pay the remaining balance typically through a mortgage.
Mortgage can seem like a very stressful task to deal with, but when you’re starting the purchase process of your next presale condo, you only need to worry about one thing – to get pre-approval from a mortgage lender.
Next, only when you are getting closer to the final closing of your presale condo, is when you need to get your actual mortgage in place. This should be done 2-3 months in advance so do keep an eye out for these important deadlines.
Also keep a close eye on your credit score and your income history especially if you’re planning on purchasing a presale condo in the coming years. A good credit history can make sure you have a hassle free mortgage process.
At ipresalecondos.com Our goal is to provide you with an enjoyable and seamless experience. To that end, we’re constantly working on improving accessibility to latest presale projects in the city of Surrey, Vancouver, Burnaby, Richmond, port coquitlam , New Westminster and the rest of the lower mainland.
We have a dedicated team of realtors, lawyers, notaries and even in-house property managers that guide you throughout the presale buying process. ipresalecondos.com members enjoy exclusive access to brand new listings and front-of-the-line access to the top presale projects in town. With a team like ours, you would not have to worry about the high strata fees surprising you, because we empower you with information so you can make wise buying decisions!
If you want to learn more about what strata fees include and how they are important to you, get in touch with Ravi Bhindi, who has 18+ years of experience in real estate and pre-sale condos.