This morning at our own TMG Office, I was able to tune into a keynote speech by one of our very own. The topic of discussion was based around selling your current residence and purchasing a new one. I thought this was of some value as I am currently working with some clients that fit this topic. Where it becomes complicated is when your current residence is sitting on the market and not moving, yet you have an accepted offer on the new place. With the impending closing date on the new property fast approaching, have you thought of a "Plan B"?
This is where I can help. There are basically 3 scenarios to look at and specifically:
1) Client sells the current residence and the completion dates on the new property work out just fine.
2) Client sells and secures the sale agreement on the current residence but the completion date on the new property is prior to the existing property's completion.
3) Client does not sell the current residence.
Situation number one is ideal. The realtor should understand the level of importance regarding the sale of the existing home prior to the completion date of the new home. This will come down to communication and I am able to work with the realtor to find a suitable solution. It is important to realize a few things here, value to owner is much different that fair market value. You may feel your property is worth more than it actually is; if this number is the be all end all quotient in making the sale and move possible, it's important to trust your Real Estate Advisor as they are the professionals and have all of the appropriate information to make a sound decision on market pricing. At the end of the day, a prompt sale is key if you have an accepted offer on another property. If you are counting on the proceeds of sale from your existing property, then the completion date of the new property should be after the sale completes from your current residence.
Situation number two states that you have sold your current residence but the new property has a closing date prior to the existing property completion. If this is the case, you'll most likely be relying on the proceeds of sale to cover the down payment costs of your new property. Since your current residence is closing after the completion of the new property, you will require something called 'Bridge Financing". Bridge financing is a loan that the lender will provide to 'bridge' the down payment funds. There are a few stipulations such as there needs to be a firm sale agreement in place, subjects and conditions must be removed by the buyer. Deposits are usually not included in the bridge loan so if you have a firm sale agreement in place, you may need to borrow the deposit from other avenues. There are also usually caps on the time frame for bridge loans, such as 30-90 days, this depends on the lender. The interest rates vary from about 5.00-7.00%. You will also need to cover the costs associated with bridge financing, anywhere from $1,500.00-$3,000.00 depending on the lawyers and set up fees.
Situation number three pertains to not being able to sell the current residence, yet have purchased a new one. You may be able to refinance the existing property if you have enough equity built up, or you may need to borrow the down payment funds from other sources such as your family. Keep in mind that you'll only be able to refinance up to 80% since you'll most likely be renting that property out. You can only refinance a property up to 85% if it's owner occupied. In any case, this is a stressful situation to be in. We would potentially be able to rent this property out if strata allows rentals; the lender will most likely want to see a Tenancy Agreement in place. If the property is getting an appraisal, I would recommend that the property gets de-listed prior to that time. Keep in mind that rental incomes on properties are not usually based on the fact that it's a furnished suite so therefore, a suitable number needs to be adhered to for what you expect the rental income to be. The lender may be able to obtain an economic rent letter by just looking at the MLS.
In closing, always have a 'Plan B'; you just never know what tomorrow can bring. It's so easy to get caught up in the moment when you find the property of your dreams, but you do need to step back and look at the big picture; the 'what if'. I am here to assist you through the process, offer guidance and consultation along with many other professionals involved in the home buying process. There are always solutions, we just have to work through them to find the best case scenario while saving you the stress and money in the process
As always, I encourage you to contact me if you have any questions with your current mortgage or are looking for one. Please find me on facebook at Jason Nesseth | Mortgage Specialist | British Columbia and on twitter @jasonmortgages.
"Working with you for the life of your mortgage!"
Jason Nesseth with TMG The Mortgage Group Canada Inc. If you have any questions or comments about this blog, please feel free to call Jason at 604.375.7375, email jason.n@mortgagegroup.com or visit his website at jasonnesseth.com