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What to Look Out For in Your Property Purchase Contract
MYLENE LIM , AMP Licensed Mortgage Specialist
When we purchase a property , we tend to leave the preparation of the purchase agreement to the realtor . Understandably so because the contract comprises of pages upon pages of mostly legal and technical stuff that we entrust our realtor to review with our interest in mind . But there are some things in the contract that may inadvertently affect your mortgage approval that you need to be aware of . Here are some of them :
Furniture included in the purchase – If there is a value associated to these items then lenders will take these values into account and if there is zero value then it needs to be stated in writing . It might be a good idea to have a separate agreement on the furniture that go with the property purchase .
Changes on the contract – If you have made price changes in the contract after you ’ ve done your due diligence
with the property , the lenders will adjust your mortgage amount accordingly .
Property size – Most lenders have a minimum square footage on properties they will finance . Generally , lenders tend to shy away from properties smaller than 700sqft for single detached houses and 500sqft for condos .
Cash Back – Although we are seeing less and less of this product , lenders will normally reduce your mortgage amount accordingly .
Illegal activity that had taken place on the property – Anything that had happened in the property that is noted in the seller ’ s Property Disclosure Statement , or through lender ’ s own research on the property , would be a factor in the approval . Some of which may be that the property is a former grow-op or a meth den .
Appraised value of the property – The appraisal itself may cause the lender to take a second look at the condition of the property . If the appraisal comes too high or too low compared to the fair market value in the area , the lender may want an explanation on the discrepancy .
Physical condition of the property – For single detached properties , lenders may limit their review on the appraiser ’ s report . However for condos or apartments , lenders will review the state of the whole building including the projected repairs or upgrades in the future . They will look at the finances of the property strata management to make sure that there is or will have enough funds to cover ongoing and projected costs .
The above are some of the factor reviewed by the lender before they issue a firm mortgage commitment . After you have spent time and effort looking for that dream home , the lender will in turn review their investment in the property based on their set criteria . This concerted effort between you and the lender
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is beneficial to ensure the solidity of property you are purchasing . Mylene Lim is an
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