How early do I need mortgage pre-approval when buying pre-con?

July 20th, 2018 - by UrbanCondo Team

When you’re buying into a pre-construction condo project, you might be thinking over a dozen details that will make your new abode the perfect one for you.

Your attention can be split between picking the right layout and finishings, budgeting for your down payments, to trying to estimate just exactly when the condo will close and when you’ll be able to move in.

When you're buying a traditional home or completed condo unit, the closing date can happen anytime between one and three months. When you’re purchasing a pre-construction condo, however, that closing date can stretch anywhere between one and three years.

So, when should you get pre-approved for a mortgage?

The first pre-approval

The exact time when builders require the first mortgage pre-approval can vary in necessity. Regardless, getting pre-approved for a mortgage as soon as possible is an invaluable step up the pre-construction ladder. Further, it will give you some insight into your financial stability.

Developers will usually want to see that you’re pre-approved around the time you sign an Agreement of Purchase and Salebut this time can vary quite a bit.

Some developers will only require a pre-approval letter six to ten months before your closing, which can be considered the mortgage ‘re-approval’ phase we’ll talk about below. Alternatively, and again depending on the developer, real estate lawyers may request pre-approval confirmation a mere two weeks after you’ve signed the Agreement. This can happen even if the closing date is a two to three years down the line.

The sooner you’re able to get pre-approval the better, for one main reason: if you are unable to get a letter of pre-approval three years ahead of your intended closing (due to your income or credit), this is telling you that you may not be able to get a mortgage once closing actually happens.

Getting rejected from mortgage pre-approval this early on will save you lots of money in deposits and legal fees, while letting you know that your financial durability may need some attention.

The re-approval

Just because you get pre-approved for the mortgage three years before closing, it doesn’t mean that your pre-approval is binding for the next three years. You will need to apply again for a re-approval six to ten months before closing, to prove to your builder that you will be able to purchase the unit in full.

This is the point where you must re-qualify for the mortgage you have already qualified for previously (we know it sounds like a headache but stick with us).

Many things can change in a person’s life and finances over three years: you may change professions, go into debt, buy a new car, get a loan, max out your credit cards, get married, or even get divorced -- all of which tend to impact your credit report.

Before making any huge changes to your financial trajectory, it’s important to talk to your mortgage provider and find out what might be affected by these changes.

Stay proactive throughout the build

Pre-construction is a lengthy process, and its mortgage criteria will vary based on developer. However, there are people out there who may enter into the Agreement not realizing how serious the contract actually is, which is why getting mortgage pre-approval is extremely important, even before you sign on the dotted line. If you're unable to close the unit, you're on the hook for some serious legal fees and penalties. 

Most attentive buyers will want to get pre-approved for the mortgage as soon as possible, whether that is before or shortly after they start putting down deposits.

This type of attention and dedication will show buyers if they can indeed qualify for a mortgage in the first place, before they get their hopes up or waste any money in the interim.

Most builders, similarly, will value mortgage pre-approval because, at the end of the day, they want to ensure all of their units will close without any problems once that time comes along.

Consult your builder, mortgage provider, and/or real estate agent to understand the specifics that concern the pre-construction unit you’re interested in. Staying on the ball is the best way to secure the mortgage you’ll need, and the condo unit you want!