You’re in the market for a home. First thing you do is get your financing in order. No sense shopping around for a place if you can’t qualify for it right? Plus, you want to have an idea of how much of a home you can get. You meet with your mortgage broker who examines your paperwork and provides you with your prequalification. With the amount you can qualify for, you are on the lookout for a cute little condo. With the help of your Realtor you find a place quickly, your DREAM home! You now have a contract of purchase and sale in hand, so the only thing remaining is to confirm the financing.
You might think that is a given since you already got prequalified. However there are things that could disqualify your financing. As I’ve mentioned before, the property is a big part of the mortgage qualifying scenario. And with a strata property, there are even more things that are considered as opposed to a detached property. Let’s delve into those things a little further.
Lenders want to ensure that the property is marketable, which means that in the case they have to sell it, there is nothing, or little, that would hinder someone from buying it. So to start, the top 3 rules of real estate apply which are: Location, Location and Location. The location of the place you buy is very important to the lender. Is it in a remote area? If so, you might have a tougher time getting financing for it. The more remote the area, the less people that are interested in buying the property. Therefore it would be tough for the lender to sell if needed.
They also want information on the building’s condition. One of the documents that can be requested and provides the desired information is the depreciation report. This report is drawn-up by a 3rd party company and gives details on the condition of the property. It will describe things like the plumbing or the balcony and state whether it is fine, needs repair, and/or when in the future it will need repair. It also discusses costs for each item that are needed now, or in the future to fix or replace them. If the reports states that there is a major cost that is required in the near future, chances are the lender would not provide financing.
Some much less detailed documents that are requested are the strata minutes. Usually about 6 months worth of minutes are reviewed by the lender. In the minutes will be issues pertaining to the building. They will look to see if there are any negative discussions in them like a leak in the roof, or balconies that need replacement. Again, if anything with huge dollar signs are evident, then financing is not likely.
Another source of information is the property disclosure statement. This document is signed by the seller and states their knowledge of different aspects of the building and unit. If there are changes to the unit that they are aware of, details of those changes are required here. As with the previously discussed documents, if anything is seen here that reflects negatively on the property, you may have to look for another property to buy.
“Well if the location is good and the property is in excellent condition we must be fine for financing, right?” Maybe not. If there are age restrictions in the complex, that too can be an issue for you obtaining financing. If it’s a 55+ building or 19+ building your chances of financing dwindle dramatically. With those designations comes a limited number of people that can buy the property. And we now know how lenders feel about restrictions on properties…Not good. Is it a self managed strata? If so, then there’s another strike against your chances of financing. There are some buildings that don’t have a strata management company running the complex but are self managed. BC has around 275 Brokerages and 1,200 property managers licenced to look after a strata property. When a building is self managed, and without the security of licenced individuals taking care of the property, that leaves the lenders uncertain of the capabilities of those in charge of running the strata. And when there’s uncertainty, there is a small chance of money being given for your purchase.
So the next time you’re out shopping for your new home with your pre-qualification in hand, remember who holds the trump card. The property has the final say.