Financing – The Most Fun Conversations !!

Everybody loves to talk about money right? WRONG! Nobody really enjoys getting into the nitty gritty of talking about money. But in real estate, purchasing your home is usually contingent on having these conversations. 

Let’s go over the basics first. You’ve probably heard terms like financing, pre-approvals and condition of financing, here’s what they mean: 

Pre-Approval: A preliminary evaluation of loan borrowing by a buyer and a lender (usually determines a ball-park budget for your home search). 

Financing: The literal definition is “to provide funding for (business or person)” essentially, this is the bank giving you a loan that needs to be back usually within 15 – 25 years.

Condition of Financing: Usually when buyers purchase a home they put in a condition of financing. Meaning that they will not be legally bound to buy the home until they receive confirmation of financing or before the date they agree on– whatever comes first.

What happens when you buy a home with someone rather than on your own? We alway recommend that if you are purchasing your home with another party, you should get pre-approved together. This makes the process easier and allows the lender to calculate borrowing amounts all together. 

If you have been on the sidelines for a little bit, first waiting for prices to come down, and now waiting for rates to come down, the past few years may feel like they have been dragging on. If you still feel that affordability is out of reach for you in today’s housing market, consider these options. 

1. Private Lending: Banks don’t like risk. They are also not in the business of owning real estate. If they feel there is even a fraction of a chance you might not be able to afford your home it will make them wary of lending to you. Banks do not enjoy foreclosures. If you are able to find someone in your circle to lend to you like your parents, or another relative you could use the option of private lending. This option is certainly not for everyone, and we highly recommend you talk to your lawyer in depth about this option if you are looking to go this route. However it can be useful at times. Additionally, you don’t need to finance all 20+ years with your private lender. When you eventually qualify for your mortgage through a bank, you can always switch your lending!
2. Buy with a partner (or a few partners): We’ve seen it a few times where young couples may buy a home with another young couple, or siblings may buy a home together. While it may not be what you originally envisioned, it’s very resourceful. We must add, an in depth conversation with your lawyer should be had once again, however if everything is done properly and legally, these situations can work! Having an escape plan or succession plan is always a good idea in the event one of the parties wants to exit the deal down the road. 
3. Partial Funding: this is similar to the first option. This is where you get a traditional mortgage from the bank in addition to funding from a second lender (like parents, relatives, investors etc.) If you only qualify for 75% of funding that you need from your home you can get the additional 25% from another party. It’s important that the second party understands that the bank gets paid first in the event of a foreclosure, which can make it risky for people to offer you a loan. It is also important to be upfront with both lenders about there being a second mortgage involved.

Figuring out your best financing option for you, starts with a conversation. There is no magical way of knowing just how much you can or cannot afford if you don’t start the process. Having a conversation is the first step to pre-approval and eventual qualification. At Your Niagara Home Team we have a number of lenders as well as lawyers who are able to answer your questions on all things financing. If you want to learn more about how much you can afford in today’s market. Contact Your Niagara Home Team and we will put you in touch with financing experts!