Financing for a Pre-Construction Condo

[Klieg]

I have some questions about how one goes about financing the purchase of a pre-construction condo, so I was hoping the experts here could clarify things for me.

Let's say a purchaser wants to buy a condo for 300K, with the builder requiring a deposit of 60K (over time). Would the builder require the purchaser to pre-qualify for a mortgage covering the remaining 240K when they sign the PSA?

What if the purchaser qualifies for less, but they have enough cash to make up the difference (or anticipate that they will over the 2-3 years it will take for construction to take place)? Are some builders pickier about this type of situation than others?

Thanks for your help!

 

[Torontotony]

The builder is only looking for confirmation you will have the total funds available to close, regardless of where the $$$ is coming from. You are on the hook, however, for the total amount of deposit $$$ required from the developer, and your phantom mortgage (occupancy fees) will be based on that.

Hope this helps.

Tony

 

[Observer Walt]

You may be required to show a preapproval for a mortgage from a financial institution. This may be a requirement imposed on the builder by their lender. They not only have to sell 60% to 70% of their units before qualifying for their financing, but their lender will try to verify how solid these sales are, and that the deals won't just evaporate as closing date approaches.

 

[Klieg]

The builder is only looking for confirmation you will have the total funds available to close, regardless of where the $$$ is coming from.

So, if part of the cash will be coming from a source other than a mortgage (ie. savings, family, etc.), is the purchaser required to prove to the builder that they have access to this extra cash? What sort of proof would they need?

 

[cdr108]

So, if part of the cash will be coming from a source other than a mortgage (ie. savings, family, etc.), is the purchaser required to prove to the builder that they have access to this extra cash? What sort of proof would they need?

it's highly unlikely unless banks have tightened financing requirements drastically, but i notice they are still lending ppl $$$ 4.5-5.0x income.

proof of deposit funds to show that it's not borrowed are typically financial statements such as bank pass book, brokerage account statements, savings bonds receipt, etc.

proof of ability to finance the mortgage typically are your last 2 months pay stubs and letter from employer, past years income tax return, etc.

 

[Torontotony]

it's highly unlikely unless banks have tightened financing requirements drastically, but i notice they are still lending ppl $$$ 4.5-5.0x income.

proof of deposit funds to show that it's not borrowed are typically financial statements such as bank pass book, brokerage account statements, savings bonds receipt, etc.

proof of ability to finance the mortgage typically are your last 2 months pay stubs and letter from employer, past years income tax return, etc.

Cdr, please don't dispense this type of advice. It confuses people, and there is little foundation in fact.

Let me clarify. Firstly, there is little or no relation between an income multiple (ie. 2x/3x/5x etc.) and ability to qualify for a specific mortgage amount. General qualification calculations using multiples do not take into account whether or not a client is leasing a car, or carries credit card or other debt. For example, someone can be making $100k a year, but only qualify for a $150,000 mortgage, because there is a high level of "outside debt".

Secondly, when a purchaser gets approved for a mortgage, the bank takes into consideration the available downpayment or the expected downpayment as at the date of closing, and issues a firm commitment based on this info. The purchaser can then take that firm approval to the builder as evidence financing is in place, and subsequently waive the condition on financing. Once the condition on financing has been waived, no further proof is required for the builder.

On closing, the purchaser must prove to the mortgage lender the deposit funds have been in his/her possession for at least 90 days, or have been sitting with the builder in trust. If the downpayment funds are being gifted, a simple gift letter will satisfy the lender. Downpayment can also be borrowed, provided it has been disclosed to the lender and the mortgage has been approved accordingly.

Employment and income verification is reserved for the lender. The builder cannot/does not request this information.