Mistakes to Avoid in Financing Pre-Construction Condos Posted on Nov 05, 2013
With all of the upcoming and current new condo developments happening in Halifax, we thought it would be prudent to have Igor Geshelin, our trusted Mortgage Market Professional partner with The Bentley Group at Premiere Mortgage Centre, offer some insight on financing a new condo purchase. Here is what Igor had to say:
Buying into a new construction condo project can be a very exciting opportunity to take advantage of if you don’t accidentally ruin it for yourself. Here is what I mean:
You are buying a pre-construction, or under construction condo… pretty exciting stuff! Between picking out the backsplash and keeping an eye on the constantly changing closing date, one important detail can fall through the cracks: the financing.
When you put together your purchase agreement, you have to meet a financing approval clause, same as if you were buying a regular, already existing and move in ready home. The difference of course is the timeline – instead of closing in 1-3 months, you are looking at 1-3 years. A common misconception is that once you are approved for your mortgage today, that approval is binding through to closing, which is NOT the case as you have to re-qualify if a significant period of time passes before your actual closing date. This means that the mortgage approval that you receive today is essentially worthless in 2 years when you finally close on your new downtown loft.
Why is this important? When it comes time to closing, the lender will have to re-approve you based on market conditions at that time. But the potential issue is much more important than a change in interest rates. If you had made any material changes to your personal financial picture while waiting for your condo to close, you may no longer qualify for a mortgage. This means you wouldn’t get to actually close on your condo; you would lose your deposit and potentially face legal action. If you are under contract to buy a condo that doesn’t fully exist yet, and you decide to change jobs, become self-employed, buy a new car, get an investment loan, max out your credit cards, get married, get divorced, etc., you MUST first talk to your mortgage provider to ensure that you don’t shoot yourself in the foot and end up homeless by virtue of one of these decisions causing you to no longer meet the mortgage qualification criteria.
This is an important consideration when buying any property, but becomes a much more prevalent concern when the timeline between purchasing a property and actually closing on it is quite lengthy as is the case with a new construction project. Many life events can certainly fit into that window of time, and some of them may negatively impact your ability to borrow money.
Purchasing a new construction condo is exciting and has many benefits. By no means is this article saying that you must put your life on hold while you are in this process – just make sure you consult with your mortgage professional before making any decisions.
To learn more about financing strategies for your condo purchase, or any other mortgage questions for that matter, give Igor a call (902-441-6493) or shoot him an email (firstname.lastname@example.org), he is always happy to help.