Be house pre-conditioned, not just financing pre-approved

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Good realtors do not like to disappoint home buyers or home sellers by working on offers for people who will not be able to get home financing for the price range they are looking.  For that reason, they ask potential buyers to get pre-approved.

But, with a pre-approval, the mortgage broker should also pre-condition a potential home buyer for the kind of home they will be looking for.

For example, let's say you are looking at neighbourhoods that are closer to the city core.  You have seen the new construction in the farther reaching suburbs and really like the newness, but want closer in.

The mature neighbourhoods are closer in, but the homes are older.  That means when you get a home inspector looking at the home, there will probably be some issues.   Roof, furnace, hot water tank, concerns with handy-man basement development or above grade re-modelling may come out.

Many of these homes in the mature neighbourhood are sold by savvy realtors who understand these issues will come up, and prepare their listings for sale with exclusions for home inspections.

For example, let's say the furnace is 23 years old.  It may work just fine now, and who knows, may work fine for years.  But, a home inspector will say because of the age, it would need replacing sooner than later.  The seller and their realor understand this but do not want the furnace to be an issue for delaying a purchase because they know the furnace will be a home inspection issue.  If your realtor makes an offer saying that a condition is a home inspection and the maximum cost to cure deficiencies is $ "Capital X", expect a counter-offer.  The seller and their realtor typically say in their offer, home inspections ,excluding the furnance, maximum cost to cure deficiencies is $"lower case x".

In some cases, the realtors propose that a compromise be made.

The offer is $400,000 before the furnace issue comes up with the inspection.   The furnace replacement has quotes of $7,500 to fix the issue.   The seller offers a credit to the purchaser of $7,500 at the time of closing.

For the sellers' point of view, they sold for $400,000 less $7,500 to net $392,500.00.   For the buyers' point of view they are buying for $400,000 and getting the money for the furnance replacement.

But, from the default insurance company and lender point of view, at the time of closing the house value is only $392.500 because that is the actual money changing hands between buyer and seller on the date of closing.

If they see the seller credit to the buyer, financing must be done on the basis of the reduced price.  If they do not see the seller credit to the buyer because it is hidden- that is fraud.

There is a method of financing that provides buyers and sellers with the money they intended to give and receive, without causing a sale to collapse or be a fraudulent transaction.

Obtain financing on the basis of the $392,500 price plus the $7,500 quote for the furnace to equal $400,000.  The furance expense will be paid out the the mortgage proceeds once the furnance is installed.

Moral of the story:  anticipate issues that may come up with a home inspection on a mature property as part of your pre approval process.