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pre-construction re-financing?

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Penny L. | 26 Jan 2015, 09:14 AM Agree 0
I've had some of my clients ask about refinancing for their condos - even though it's still under construction! I'm not sure what to tell them - is that even possible? One of them was just pre-approved, but another one doesn't have a mortgage at all. What should I tell them?
  • EddieN | 26 Jan 2015, 10:43 AM Agree 0
    How can you "re-fanance" something that hasn't been financed? If they are looking to borrow against their deposits, they are out of luck. They can only get financing once they are informed by the developer that the building has been registered. Your clients will have to get their conventional financing based on the project and their deposits. After closing, they can be refinanced. I wrote a business case for financing such deposits and tried to find backers. I went to see some big boys but got turned down at every corner. Good luck to your clients. The only people who should buy pre-construction condos are the ones who can afford it, and steer people away from large expensive units.
  • | 02 Feb 2015, 07:15 PM Agree 0
    Refinancing is only possible when a mortgage exists. In this case, as the closing has not yet taken place and no mortgage has yet been registered, refinancing is not possible. Refinancing basically means replacing an existing loan with a larger loan. If your client is asking about the possibility of "refinancing" now (which is not possible anyways), chances are they need money ---- in which case, they could consider reducing their down payment when the mortgage funds so that they can keep some funds in their pocket and have more financed. i.e. If the total builder's deposits requirements worked out to about 20% of the purchase price (which is quite common today, especially in Toronto), they could ask their Mortgage Broker to see if they can qualify for financing up to a maximum of 95%, which would allow them to get a good chunk of their deposits given to the builder back upon closing. I would advise them to speak to their mortgage broker to go through the details. Hope this helps!
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