10 Things to Look for When Buying a Home — and How They Can Affect Your Mortgage Funding
Long before mortgage approvals, appraisals, and home inspections, my great relatives were working the land and getting the hay off the fields with heavy horses. This old family photo is a reminder of how much work has always gone into building a home, a property, and a life for your family. The tools may have changed, but buying a home is still a major decision — and today, part of protecting that investment is making sure you understand not only what to look for in a property, but also how the property itself can affect your mortgage financing.
When you're walking through a potential home, it’s easy to focus on the kitchen, backyard, or whether you can picture your family living there. But there are several less-obvious things that can affect whether a lender is willing to fund the mortgage.
Buying a home is exciting, but finding the right property involves more than deciding whether you like the kitchen, backyard, or neighbourhood.
One thing buyers sometimes overlook is that mortgage approval isn't only about the borrower — the property has to work for the lender too.
Even if you've been pre-approved, your lender will still need to review the property once you have an accepted offer. CMHC specifically notes that buyers with a pre-approval still need final mortgage approval during the conditional period.
Here are 10 things to pay attention to when buying a home, including several that could affect your ability to get the mortgage funded.
1. The Overall Condition of the Home
A home may look great during a showing, but pay close attention to the major components:
Roof
Foundation
Plumbing
Electrical system
Furnace and heating system
Windows and doors
Signs of water damage or mould
A professional home inspection can help identify issues you may not notice during a showing. Alberta also requires home inspectors to be licensed, and an inspection condition can give you an opportunity to reconsider the purchase or negotiate depending on what is discovered.
How could this affect your mortgage?
Serious property deficiencies can sometimes create concerns for a lender, mortgage insurer, appraiser, or home insurance company.
If a property requires substantial repairs before it is considered suitable for normal residential use, additional conditions could potentially be required before a lender advances the mortgage.
Mortgage Tip: Your financing condition and home inspection condition protect you in different ways. Don't assume that passing one automatically means you've passed the other.
2. The Appraised Value
You might agree to pay $600,000 for a house, but that doesn't necessarily mean the lender will value it at $600,000.
An appraisal considers factors such as the home's:
Location
Size
Age
Condition and construction quality
Features
Comparable recent sales
Property value is an important part of determining how much mortgage financing a lender is prepared to provide.
How could this affect your mortgage?
Imagine you purchase a home for $600,000 but the appraisal supports a value of only $575,000.
Depending on the mortgage and lender, you could potentially need to increase your down payment, renegotiate the purchase price, or explore another financing solution.
This is one reason an aggressive offer in a competitive market should be made carefully.
3. Whether the Home Can Be Insured
Home insurance isn't something to leave until the night before possession.
Look at things such as:
Age and condition of the roof
Electrical system
Previous claims
Older plumbing
Wood-burning appliances
Previous water damage
Other unusual property features
CMHC notes that property insurance needs to be in place on the day the purchase closes.
How could this affect your mortgage?
The property is security for the lender's mortgage.
If you're unable to obtain acceptable property insurance, it could create a major issue at closing.
Mortgage Tip: For older or unusual properties, consider speaking with an insurance provider early in your financing period instead of assuming coverage will be available.
4. Renovations, Additions and Alterations
That beautiful basement suite, converted garage or huge addition might look like a great feature — but it's worth finding out how the work was completed.
Consider asking about:
Building permits
Electrical permits
Plumbing permits
Development permits
Whether additions comply with local requirements
Whether a secondary suite is legally recognized
Not every renovation automatically creates a mortgage problem. However, unusual or significant alterations can raise questions during an appraisal, insurance review or lender assessment.
How could this affect your mortgage?
A lender bases its decision partly on the property being offered as security.
If the actual property is materially different from how it was represented, or there are significant questions regarding its condition or use, additional documentation or review could be required.
5. Property Type and Intended Use
A standard owner-occupied detached home is different from:
An acreage
Rental property
Multi-unit property
Condo
Manufactured home
Leasehold property
Seasonal property
Property with commercial use
Home with a rental suite
Different properties can have different lending rules.
For example, CMHC's insured mortgage requirements vary depending on the number of units and whether the property will be owner-occupied or used as a rental. Eligible insured properties generally must also be suitable and available for full-time, year-round occupancy.
How could this affect your mortgage?
A mortgage approval structured around an owner-occupied home may not work the same way if the property turns out to have a different use or classification.
Tell your mortgage broker exactly how you plan to use the property from the beginning.
6. Condominiums: Look Beyond the Unit
When buying a condo, don't just inspect the inside of the unit.
You're also buying into the condominium corporation.
Pay attention to:
Condo fees
Reserve fund
Planned repairs
Special assessments
Building insurance
Major maintenance projects
Condo bylaws
Overall condition of the building
CMHC recommends making the review of appropriate condominium documentation part of the purchase process for a resale condominium.
How could this affect your mortgage?
Condo fees form part of the carrying costs used when qualifying for a mortgage.
Major issues affecting the condominium corporation or building may also require additional lender or insurer review.
A $350,000 condo with high monthly fees can therefore qualify very differently from a $350,000 property with significantly lower monthly expenses.
7. Rural Properties, Wells and Septic Systems
A country property can offer incredible space and privacy, but rural properties can come with additional considerations.
Look into:
Well water
Water quality and quantity
Septic system
Property access
Outbuildings
Acreage size
Agricultural use
Zoning
CMHC recommends checking well water and having septic systems inspected when applicable.
How could this affect your mortgage?
Some rural and unique properties require additional appraisal work or lender review.
The value of a large parcel, outbuildings or agricultural component may also be treated differently depending on the lender.
If you're thinking about buying an acreage, getting the property details to your mortgage broker early can save a lot of stress later.
8. Property Taxes, Condo Fees and Other Carrying Costs
Don't judge affordability based only on the mortgage payment.
You should also consider:
Property taxes
Condo fees
Utilities
Home insurance
Maintenance
Repairs
These expenses can make two similarly priced homes very different financially.
CMHC's home-buying guidance specifically identifies costs such as property taxes, insurance, condo fees, repairs and other ownership expenses that buyers should consider beyond the purchase price.
How could this affect your mortgage?
Certain housing expenses are included when lenders calculate how much mortgage you qualify for.
A home with particularly high property taxes or condo fees can reduce your borrowing capacity compared with another property at the same purchase price.
Purchase price and affordability are not the same thing.
9. Location and Marketability
You've heard it before: location, location, location.
But location isn't only important for your lifestyle. It can also influence the lender's assessment of the property.
Consider:
Nearby comparable sales
Accessibility
Neighbourhood demand
Proximity to major infrastructure
Property use in the surrounding area
Whether the property is highly unique
Location is one of the factors that can influence a property's appraised value.
How could this affect your mortgage?
Mortgage lenders are lending against the property as well as assessing you as the borrower.
A very unusual property or one with limited comparable sales could require a more detailed appraisal or lender review.
Unique doesn't necessarily mean unmortgageable — it simply means it's worth checking before removing your financing condition.
10. Don't Remove Your Financing Condition Too Early
This may be the most important mortgage-related item on the list.
A mortgage pre-approval is not the same as final approval of a specific property.
Once you have an accepted offer, the lender may still need to review things such as:
Purchase contract
Property details
Appraisal
Income and employment documentation
Down payment verification
Credit
Property insurance
Mortgage insurer approval, when applicable
Any other lender-specific conditions
CMHC recommends including mortgage financing approval as a condition of an offer and confirms that even a buyer with a pre-approved mortgage still needs final approval once purchasing a particular property.
How could this affect your mortgage?
If you remove your financing condition before the lender has completed its review, you could be legally committed to purchasing the property even if your financing subsequently runs into a problem.
Your realtor, mortgage broker and lawyer each play different roles in the transaction. Make sure you're comfortable with your financing before making important decisions regarding conditions.
The Bottom Line
When buying a home, you aren't just asking:
"Do I qualify for a mortgage?"
You should also be asking:
"Does this property qualify for the mortgage I'm planning to use?"
The best time to discover a potential financing issue is before you remove conditions — not a few days before possession.
If you're thinking about buying a home, getting pre-approved is an excellent first step. Once you find a property, send the listing to your mortgage broker as early as possible so the property can be reviewed alongside your financing.
At Financial First Responder, my goal is to make the mortgage process simple and help you understand what to expect before you commit to one of the biggest purchases you'll make.
Thinking about buying a home?
Reach out before you start making offers and we can review your mortgage options, determine a realistic purchase price, and help you go into the home-buying process prepared.
Financial First Responder
Simple Mortgages. Protected Wealth.
This article is provided for general educational purposes and should not be considered legal, insurance, real estate or financial advice. Mortgage qualification and property requirements vary by lender, insurer, borrower and property. Always obtain advice specific to your situation from the appropriate licensed professionals.
