I recently had the pleasure of interviewing Jessi Johnson, a Mortgage Broker in Vancouver about mortgages and presales.
Most people buying pre sales get mortgages on these properties when they complete several months or years later. Getting a mortgage is a fairly straightforward process and for most buyers occurs with very few issues.
That said, very few buyers of presales realise that there is no guarantee that when they buy a presale condo there is a chance they may not be able to get a mortgage in a few years time when the property completes.
No Guarantee You Can Get Mortgage on a Presale?!
Yes! A bank or lender will pre-qualify a Buyer based on the prevailing interest rates, lending rules, and borrowers financial situation at the time Buyer purchases the presale. BUT, they will not guarantee to give a mortgage at some time in the future.
Why is there No Guarantee of a Mortgage on a Presale?
A bank or a lender cannot predict what will happen a few years from now in terms of:
- Mortgage Lending Rules – Department of Finance Canada controls the regulations on lending money in Canada and has in the past and could very well continue to change mortgage lending rules. The changes to these rules can never be predicted with 100% accuracy and may have an effect on the Buyer of a presale condominium’s ability to get a mortgage.
- Interest Rates – The Bank of Canada and the bond market to a lesser extent control interest rates in Canada and again it is next to impossible to predict where interest rates will be in the future. With mortgage interest rates at historic lows payments are widely affordable. If and when rates go up, the level of affordability may go down, which may affect pre sale Buyers ability to get a mortgage.
- The Buyers Individual Financial Situation – The Buyers personal financial situation may change and (Job loss, Investment Reversals, Taxes owing, etc) can have a major effect on the Buyers ability to get a mortgage.
- Real Estate Market Volatility – The property may not be worth as much as was expected. Lenders will only loan money on properties based on the LENDER'S conservative calculations of market value and market value is constantly fluctuating. Upon completion, if a presale condo is worth less than what a buyer paid for it, the buyer may not be able to get the mortgage amount they need to complete on the property.
So therefore banks and lenders cannot guarantee a mortgage on a presale condominium completing a few years down the road.
How do you maximize your chance of getting a mortgage on a Presale?
Here are some great ways to keep the chances of getting a mortgage on your presale condo as high as possible
- Get Pre-Qualified! Speaking to a mortgage broker before you buy a presale will give you a clear idea what you can and cannot afford.
- Keep in Touch with Your Mortgage Broker – Keeping in touch with your lender and keeping them posted on your financial situation, ESPECIALLY if you’re having financial difficulties!
- Buy Only What You Can Afford – Only buy a presale condo that you know you can afford to complete on if it was built now. There is no guarantee a presale condo will be worth more in the future.