Buying a home can move quickly. You tour a property, fall in love with it and suddenly the listing agent is expecting an offer within the hour. Everyone feels the pressure to get the paperwork signed before somebody else swoops in. But when financing is involved, moving quickly without first speaking to me can turn an exciting purchase into a very expensive headache.
A mortgage pre-approval is a starting point – not a blank cheque. The purchase price, property, closing date, conditions, deposit, incentives and even the wording of the Agreement of Purchase and Sale can affect whether a lender will approve and fund the mortgage. A short conversation with me before you sign anything can reveal problems while you still have the power to change the offer. After the agreement becomes firm, your choices may be fewer, more expensive and considerably more stressful.
In this article
A Pre-Approval Is Not Permission to Buy Anything
The Property Can Sink an Otherwise Strong Application
An Appraisal Shortfall Can Create a Cash Crisis
Removing the Financing Condition Too Soon
Setting a Closing Date the Lender Cannot Meet
The Down Payment May Not Be as Simple as It Looks
Seller Incentives Can Change the Mortgage
Income Can Look Different Through a Lender’s Eyes
New Debts and Financial Changes Can Derail Approval
Condominiums Can Bring Their Own Surprises
Rural and Unique Properties Require More Time
Bridge Financing Should Never Be Assumed
A Rescue Mortgage Can Be Expensive
A Story About the Call That Came Too Late
What I Can Check Before You Sign
A Pre-Approval Is Not Permission to Buy Anything
One of the most dangerous assumptions in real estate is, “The buyer is pre-approved, so financing is taken care of.”
Not quite.
First, a pre-approval shouldn’t be called a pre-approval because you are not pre-approved for anything. What it really is… is a rate hold. The lender saying under these circumstances, without looking too deeply into your situation, we’ll offer you this rate to you for say the next 60 or 90 days. So your pre-approval is on the mortgage rate, not on whether the lender will give you a mortgage or not. It essentially enables you to start shopping because you know what kind of rate you’ll be looking at.
A pre-approval usually considers the borrower’s finances based on information available at that time. It may help establish a budget and secure an interest-rate hold, but it does not necessarily include full underwriting. More importantly, it does not approve a property the buyer has not yet selected.
FSRA describes a mortgage pre-approval as a preliminary analysis. Once the buyer selects a property, the lender must still assess the complete application and determine whether both the borrower and the property satisfy its requirements.
If you call me before signing the offer, I can look beyond the headline purchase price. I can consider property taxes, condominium fees, heating costs, existing debts, the proposed down payment and different lenders’ qualifying rules. That quick check may reveal that the buyer’s maximum price is lower than everyone assumed – or that the buyer qualifies comfortably with the right mortgage strategy.
It is much better to discover that before the offer is signed than after the champagne has been opened.
The Property Can Sink an Otherwise Strong Application
You can have excellent credit, stable employment and a substantial down payment and still be declined because of the property.
The lender is not only financing the buyer; it is taking the property as security for the mortgage. Remember, a mortgage is collateral-based lending. If the lender believes the property will be difficult to insure, value or resell, it may decline the application, reduce the mortgage amount or impose additional conditions.
Potential property concerns can include:
- Major unfinished renovations;
- Significant deferred maintenance;
- Knob-and-tube wiring or other insurance issues;
- Foundation or structural problems;
- Illegal or nonconforming units;
- Mixed residential and commercial use;
- Excessive acreage;
- Leased land;
- Seasonal access;
- Private roads;
- Former grow operations;
- Environmental concerns;
- Rural properties with wells or septic systems;
- Properties that are extremely small or unusual; and
- A property’s use being inconsistent with its zoning.
This does not mean these properties can never be financed. It means you should not assume they can be financed through every lender or within an ordinary timeline.
Send me the listing before the offer is prepared. If something catches my eye, we can investigate it before your client becomes legally committed.
An Appraisal Shortfall Can Create a Cash Crisis
Suppose your client agrees to pay $900,000 for a property, but the lender’s appraiser supports a value of only $850,000. The lender will normally base its mortgage calculations on the lower of the purchase price or appraised value.
That $50,000 difference does not simply vanish.
The buyer may need to increase the down payment, obtain financing from another source, renegotiate the purchase price or find another lender. If the financing condition has already been waived, the buyer may have very little bargaining power.
An appraisal can also take several days to arrange. Access may be delayed, the appraiser may request additional information, or the report may require review by the lender or mortgage insurer.
If you contact me before signing, I can help assess whether the offer price appears likely to create an appraisal concern. I cannot guarantee the appraised value, but I can identify situations where additional caution, a longer condition or more available cash may be sensible.
Removing the Financing Condition Too Soon
In a competitive market, buyers often feel pressured to shorten or eliminate their financing condition. Sometimes that is a calculated decision. Other times, it is little more than crossing your fingers and hoping for the best.
A lender’s commitment can contain conditions involving:
- Income confirmation;
- Employment verification;
- Down-payment history;
- Gifted funds;
- Debt repayment;
- Appraisal;
- Default-insurer approval;
- Property insurance;
- Sale of another property; and
- Additional legal or property documentation.
Receiving a commitment does not automatically mean every significant condition has been satisfied.
Before your client waives or fulfills the financing condition, contact me and ask:
- Has the borrower been fully reviewed?
- Has the property been approved?
- Has the appraisal been accepted?
- Has the down payment been verified?
- Has mortgage-default insurance been approved, if applicable?
- What conditions remain?
- Could any remaining condition still prevent funding?
The decision to waive or fulfill a condition belongs to the buyer, with guidance from the appropriate real estate and legal professionals. My role is to provide an accurate picture of the mortgage status so the buyer can make that decision with eyes wide open.
Setting a Closing Date the Lender Cannot Meet
A short closing can make an offer look attractive, but it can also create a financing deadline that is impossible to satisfy.
Some lenders require the file to reach Broker Complete a specified number of days before closing. Broker Complete generally means the lender has received and accepted all required broker- and borrower-controlled documents and conditions.
If a lender requires Broker Complete 10 days before closing and your client agrees to close in 12 days, there may be only two days to:
- Submit the complete application;
- Obtain lender approval;
- Arrange and review an appraisal;
- Verify income and employment;
- Verify the down payment;
- Satisfy mortgage-insurer requirements;
- Return the signed commitment; and
- Clear all broker conditions.
That may simply not be realistic.
If I know the proposed closing date before the offer is signed, I can check the lender’s timeline and tell you whether the date appears workable. If it is too tight, you can negotiate a later closing while the offer is still being prepared. Changing the date after acceptance requires the seller’s consent – and the seller may say no.
The Down Payment May Not Be as Simple as It Looks
A buyer may say, “I have the down payment,” but the lender will want to know where the money came from.
Depending on the lender and transaction, the buyer may need to provide a clear history for funds held in:
- Chequing or savings accounts;
- TFSAs, RRSPs or other investments;
- Business accounts;
- Accounts outside Canada;
- Joint accounts;
- Gifted-down-payment arrangements;
- Proceeds from another property; or
- Borrowed-down-payment facilities.
Large unexplained deposits, transfers between several accounts, cash deposits or money arriving from another person can create questions. Missing pages and screenshots that do not display the account holder’s name may not satisfy the lender.
The deposit due under the APS is another consideration. The buyer might have enough wealth overall but be unable to access the required deposit by the contractual deadline without disrupting the planned mortgage structure.
Contacting me before signing allows us to confirm that the deposit and down payment are not only available but also properly documented and accessible when needed.
Seller Incentives Can Change the Mortgage
A seller credit, renovation allowance, rebate, cashback arrangement, rent guarantee or promise to pay the buyer’s costs may sound like a terrific deal. However, incentives must be disclosed to the mortgage lender.
An undisclosed incentive can create serious underwriting, valuation and compliance problems. The lender may reduce the recognized purchase price, change the mortgage amount, request additional documentation or reconsider the application.
This is especially important when the APS contains schedules, side agreements, furniture inclusions, repair credits or unusual adjustments.
Before adding a financial incentive to the offer, let me know what is being proposed. I can explain how lenders are likely to view it and whether it could change the buyer’s required down payment or mortgage qualification.
Income Can Look Different Through a Lender’s Eyes
Your client may earn an excellent living, but not every dollar of income will necessarily be accepted.
Lenders may treat income differently when the borrower is:
- Self-employed;
- Paid through commissions;
- Receiving bonuses or overtime;
- Working on contract;
- Recently employed;
- Returning from parental leave;
- Receiving tips;
- Working more than one job;
- Earning rental income;
- Receiving support payments; or
- Experiencing a recent career change.
For example, a commissioned salesperson may be on track to earn $150,000 this year, but the lender might use a two-year average from tax documents. A self-employed borrower may generate strong business revenue but report lower taxable income after deductions. A newly employed borrower may still be in a probationary period.
If you ask me to review the income before your client signs, I can identify which documents and calculations the lender will likely use. That can prevent you from building an offer around income the lender will not recognize.
New Debts and Financial Changes Can Derail Approval
Mortgage approval is based on a financial snapshot, but lenders may verify the borrower’s situation again before funding.
After purchasing, buyers sometimes:
- Finance a new vehicle;
- Lease furniture or appliances;
- Increase credit-card balances;
- Open a new line of credit;
- Co-sign a loan for someone else;
- Change employers;
- Reduce their working hours;
- Quit a job;
- Miss a debt payment; or
- Spend money needed for closing costs.
Any of these changes can affect qualification.
Even if the buyer received a commitment earlier, a material change may require the lender to reassess the file. That is why your client should contact me before making major employment or credit decisions between the pre-approval and closing.
The keys may be almost in their hand, but the deal is not finished until it funds.
Condominiums Can Bring Their Own Surprises
With a condominium, the lender may consider more than the unit itself.
Potential concerns can include:
- High or rapidly increasing maintenance fees;
- Special assessments;
- Major pending repairs;
- Litigation involving the condominium corporation;
- Commercial occupancy within the development;
- A low owner-occupancy ratio;
- An inadequate reserve fund;
- Insurance problems;
- Short-term rental activity; and
- A building that does not fit a lender’s policies.
A buyer may qualify for the purchase price but no longer qualify once the full condominium fee is included in the debt-service calculation.
Before your client signs, send me the listing with the maintenance fee, tax information and details of what the fee includes. The buyer’s lawyer should separately review the status certificate and advise on its legal implications.
Rural and Unique Properties Require More Time
Rural properties can be wonderful homes, but lenders may want answers about acreage, zoning, outbuildings, water, septic systems, access, heating and the property’s overall marketability.
A lender may lend primarily on the house and a limited amount of land rather than attributing equal value to every acre. A hobby farm, commercial outbuilding or income-producing use can change the lender category altogether.
Unique urban properties can present similar challenges. Laneway homes, mixed-use buildings, properties with multiple kitchens, co-ownership arrangements and nonstandard construction may require specialized lenders or additional documentation.
These are not necessarily deal-breakers. They are “call me before you sign” properties.
Bridge Financing Should Never Be Assumed
A buyer purchasing before the sale of an existing property closes may need bridge financing.
However, bridge financing is not automatic. The lender may require a firm sale of the existing property, signed agreements, proof that all conditions have been removed, sufficient equity and acceptable timing between the two closing dates.
Problems can arise when:
- The buyer’s existing property has not sold;
- Its sale is still conditional;
- The bridge period is longer than the lender permits;
- The same lender is not handling the new mortgage;
- There is insufficient equity after expenses; or
- The sale proceeds are needed for the deposit rather than only at closing.
Before allowing your client to commit to overlapping ownership dates, contact me. I can determine whether bridge financing is available and estimate the financing costs and cash requirements.
A Rescue Mortgage Can Be Expensive
When a firm transaction is only days from closing and the original financing fails, another lender may still be able to help. But rescue financing often comes with compromises.
The buyer might face:
- A higher interest rate;
- A lender fee;
- A brokerage fee;
- Another appraisal;
- Additional legal expenses;
- A shorter mortgage term;
- Interest-only payments;
- A larger down payment; or
- Less favourable prepayment terms.
An alternative or private mortgage can be a valuable temporary solution when it is suitable, properly understood and supported by a realistic exit strategy. It should not become necessary simply because nobody made a phone call before the offer was signed.
The cheapest mortgage problem to solve is usually the one we identify before it becomes a problem.
A Story About the Call That Came Too Late
Imagine that you are helping Mark and Priya purchase a renovated home listed for $950,000.
They have a pre-approval and believe they are in great shape. The property receives multiple offers, so they submit $990,000 with no financing condition and a 15-day closing. The offer is accepted.
The next morning, you send me the APS.
That is when several issues appear.
The lender requires Broker Complete 10 days before closing, leaving only five days to finish the file. The home contains a basement apartment, but the listing provides no information about whether the unit is legal. The appraisal comes in at $950,000, leaving a $40,000 valuation gap. Part of the down payment is coming from Priya’s business account, and the lender requires additional documentation before accepting those funds.
Mark and Priya do not have another $40,000 readily available. The original lender cannot complete the remaining review within the required timeline.
Now everyone is scrambling. You request an extension, but the seller has already committed to another purchase and is reluctant to move the closing date. A second lender is approached, but its mortgage carries a higher rate and additional fees.
The transaction may still be saved, but the buyers are now making expensive decisions under tremendous pressure.
Now rewind the story.
Before submitting the offer, you call me. I identify the risks associated with the closing timeline, basement unit, down-payment source and purchase price. You discuss a financing condition and a longer closing with the buyers. They decide how much additional cash they can access if the appraisal is low. The offer may be structured differently, or the buyers may decide the risk is simply too great.
The property has not changed. The difference is that your clients made the decision before signing, while they still had options.
What I Can Check Before You Sign
When you are preparing an offer, the process can be straightforward:
- Send me the listing. Include the proposed price, down payment, deposit, financing condition and closing date.
- Tell me what is unusual. Mention rental units, renovations, rural features, seller incentives, bridge financing or anything else that does not fit a plain-vanilla purchase.
- Give me time to review the financing assumptions. I can check the borrower’s qualification, lender timeline and known property concerns.
- Discuss the risks with your client. You can then structure the offer based on informed choices instead of assumptions.
- Send me the accepted APS immediately. Once the offer is accepted, the lender clock starts ticking.
I cannot provide legal advice or decide what contractual risks a buyer should accept. Those matters belong to the buyer, realtor and lawyer. What I can do is explain the mortgage consequences of the price, property, dates and proposed terms before those terms become binding.
Allen’s Final Thoughts
An accepted Agreement of Purchase and Sale is a serious contractual commitment. RECO cautions that a buyer does not automatically escape that commitment by failing to deliver the deposit, and a breach can lead to significant legal and financial consequences.
RECO: Deposits and binding agreements
That is why I want you to contact me before your client signs anything.
You do not need to wait until every detail is settled. Send me the listing, proposed purchase price, deposit, condition period and closing date. I can review the financing feasibility, identify lender or property concerns, calculate the Broker Complete deadline and explain what documentation will be required.
I can also help you prepare your buyer before showings begin, examine complicated income or down-payment situations, evaluate short-closing requests, coordinate appraisals, assess bridge-financing needs and monitor the lender’s outstanding conditions after acceptance.
Sometimes my review confirms that the proposed offer is entirely reasonable. Other times, one small adjustment – a longer closing, a financing condition, a different deposit structure or additional documentation – can prevent a major problem.
You negotiate the real estate deal. I help make sure the mortgage strategy can support it.
Before your client signs, call or send me the details. That five-minute conversation could protect the buyer, support your professional advice and save the transaction from becoming an expensive rescue mission.
