Lending Policies Change

Bill and Shirley sold a home they had owned for 2 ½ years, netting $100,000. Unable to fin a home to buy, they decided to temporarily rent. Within months, their realtor found a home that Shirley fell in love with.

Bill insisted on making a cash offer. They had been approved 2½ years ago by their bank for a mortgage on a home purchase for the same price, and saw no reason for not being approved again. Besides, they now had a larger down payment.

Offer is Off - Then On - the Table

A stalemate on price caused Bill to discontinue negotiations. A week later Shirley could not stop thinking about the home. They were then informed that if they resubmitted their final offer, the seller would agree to it.

This time Bill called his bank and was told to go ahead and submit the offer. This emboldened Bill and the cash offer was again put forward and accepted.

Within a day of making formal application for the mortgage, the bank informed Bill and Shirley that they could NOT be approved (!) That their credit had been flagged due to a gas bill in arrears from three years prior.

Bill argued that the flag existed when the bank approved their mortgage on their previous home purchase

Tightened Lending Policies

According to the loan officer, given the change in market conditions, the bank had tightened lending policies. Bill and Shirley were stunned, especially after talking to the bank and being told to go ahead before submitting their offer a second time.

The sellers reluctantly agreed to amend the purchase contract to include a mortgage condition. Bill and Shirley shopped other lenders, and received approval for 1% higher than the prime mortgage rate quoted.

This was totally unacceptable to Bill. By now, the mortgage condition expired, and the seller chose not to sign an extension to the purchase contract.

Bill’s father agreed to fund the mortgage and had his financial planner write a letter to that effect. The seller, however, wanted a letter personally signed by the father. Bill’s father had his lawyer draw up needed paperwork, and the transaction closed.

Lessons Learned

Lending policies change. To play it safe...

  • Make sure the lender has qualified your credit and mortgage amount before making an offer
  • Include a mortgage condition in your offer (The seller can still receive cash)

Eugene Pilato is broker of record at Century21 Today Realty Ltd. in Fort Erie, ON.

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