I Got an Approval. Am I Protected?
When you receive an accepted offer and have all the building documents, you are issued an Approval. Most of our clients prefer an Approval and like to skip the phase of getting a Pre-Approval because of the lack of certainty we mentioned in the last blog.
The Approval is a document that in fact does not guarantee a mortgage. It starts by stating the rate, term, amortization, monthly mortgage payment, and the mortgage amount. Nothing is set in stone – these values can change significantly during the mortgage process.
An Approval becomes guaranteed when all conditions in it are checked off. For instance, if the Approval is for 80% of the purchase price and the appraisal came in 50K lower than the contract price, the lender will use the lower number and the mortgage will go down by 40K. Clients will be asked to show an additional 40K for the down payment, and the lender might not accept the additional funds as an approved form of down payment. This itself can void a client’s Approval.
The same goes for income – if the lender examines the client’s income for the first time at the time of Approval and after an accepted offer, there is a risk. We have multiple clients that came to us last-minute after discovering that the Approval from their bank was not safe, and that the bank declined their Approval because their income was composed of a base salary and a bonus, or that the building had not been approved by the bank and/or the insurer. These clients require a quick shift to a lender that will approve the deal as is and can still provide them with an excellent mortgage package.
Since an Approval is not guaranteed until the last condition is removed, going subject-free is very risky when a mortgage is needed to finance a purchase. To go around this, clients must put in the work during the Pre-Qualification process and help their mortgage brokers lead a comprehensive preparation process of their file.
What is the Difference Between an Approval and Pre-Qualification Process?
The Pre-Qualification is the only process that can maximize the level of protection clients have in the purchase process. When clients get an Approval, their documents are only first viewed at the time of purchase. In today’s market, there may be only two days to commit to the deal. Within this time frame, every document must be approved and confirmed – it’s almost impossible. This is where the Pre-Qualification process comes in.
After the first phone conversation with our clients, we draft a customized plan. Every client’s mortgage will be different, following different plans to suit their abilities and desires. Once a path is chosen, we send a long list of documents to prepare. We’ll review it, sometimes sending it to the potential lenders for review. The same is done with the chosen property before an offer is submitted. This process usually incorporates the realtor’s input, the insurer’s advice, and sometimes an appraiser’s view to guarantee a successful mortgage approval.
Once all documents are reviewed and approved, we can indicate which lender will give a fast and straightforward Approval. The submission of a client’s file will include all the prepared documents. With this thorough preparation process, surprises and risks are avoided, and clients get exactly what they need the first time. Although it takes lots of hard work upfront, it pays off big time in the long-run to ensure a stress-free, protected mortgage process.
Many times, we have seen people who would have been capable of buying their dream property fall because of the validation the Pre-Approval or Approval seems to give them but does not. Our Pre-Qualification process can help our clients achieve their goals by thorough and comprehensive preparation.