5 Biggest Mistakes When Purchasing a Pre-sale and How to Avoid Them by Kyle Green
When purchasing a pre-sale, it is crucial to confirm that you are able to get a mortgage on the property, even if you plan to assign the unit before closing. Planning ahead is very important in order to avoid being in a position where you are unable to complete on your contract and/or risk losing your deposit.
3. Changes to your financial profile
Here are the 5 biggest mistakes people make when purchasing a pre-sale property:
Buying a pre-sale can come with a lot of risk. Between the time that you write the offer and the time that you close, your personal circumstances can change. Changes that can affect your ability to qualify for the mortgage include starting a new job, losing your job, purchasing a car or another property, retiring, applying for credit, etc.
1. Changes in the real estate market
4. Rising interest rates
When the time comes to close on the unit, the bank will typically ask for an appraisal. If the appraisal is lower than the price you are paying, you will need additional down payment to make up that difference. It is important to be prepared with more down payment funds than you originally expected.
In the event interest rates rise during the course of the construction, you may find that you are unable to afford or to qualify for the mortgage by the time that the construction is finished. It is important that you understand the worst case scenario for interest rates and get a long-term rate hold.
If the value is lower, it will be harder to find a buyer to assign the unit to for the same price you paid, making it more likely you will need to complete the purchase yourself.
5. Restrictions regarding your ability to assign the contract to another buyer
2. Changes to lending guidelines Lending guidelines with banks change all the time. Even if you think you are a strong borrower, you may experience challenges fitting inside of a bank’s “box�. Regardless of your situation, it is very important to confirm your ability to qualify for the mortgage. 16
Whether you intend on assigning the contract or not, it is important to review the contract and know your options. Many developers either do not allow assignments or will charge a fee for an assignment; however, these terms can be negotiated when you are writing the offer. Always aim for the most flexible terms possible to allow for more options when closing approaches.
