They say, “it takes a village to raise a child.” I don’t know who “they” are, but I wonder how many people “they” think it takes to move said child… not to mention the timing! If you’ve ever decided to uproot and make a move, you know the timing can be tricky. Your village to support you in making a move should be populated by a REALTOR® (we know a couple), a lawyer, and a mortgage broker at the very least. That mortgage broker can be an instrumental in constructing your overall strategy – one that makes financial sense. Michelle Lapierre of Mortgage Tailors is one of the best! As part of our Community Connects professionals, we asked her to weigh in on this (sometimes) tricky endeavour. Here’s what she had to say:
How The Financing Works
Homeowners who are selling a property at the same time as buying are often the least serviced customers in the mortgage industry. If you are both buying and selling your home, you are now managing two transactions instead of one, with many more timing considerations. It is best to be pre-approved for financing and have a thorough discussion of your mortgage plan and goals. Here is a layout of the questions I discuss with my selling and buying clients:
Are You Pre-Approved?
There have been A LOT of changes to mortgage qualification rules over the past few years. Just because you were told you could purchase to a certain amount before does not mean you can rely upon that same information now. You need to get a current pre-approval done for your new home purchase to make sure you qualify before you list your home. During that process you should find out whether you qualify to carry your home at the same time or if you must sell first to qualify for that new purchase. A pre-approval also allows you to hold a rate for 120 days while you are out shopping.
Can You Buy Before You Sell?
If you are looking to move properties, this is the first place we start. Here are some of the questions we will consider to determine if you have the option to buy before you sell:
- Do you qualify to purchase while still carrying your current property?
- Do you have a down payment outside of your current home?
- Is your current mortgage portable and what is the penalty to break it?
- What do you want to avoid more: carrying two properties at once or moving twice?
If you would like to buy first, here are some considerations:
- Down Payment Other Than Equity – Without selling first you may not be able to bridge any equity over to your new property. If you have access to gifted funds or other savings outside of your equity, then you have down payment. If not, you can look at your equity pull-out options on your current home. This MUST be completed prior to listing your current home, and depending on your equity position, may or may not be available.
- No Porting – You are not able to port your mortgage or mortgage default insurance premiums prior to having a firm sale on your property.
- Mortgage Penalty – Since you are not able to port, you must be prepared to pay a penalty on your current mortgage. This may be credited back to you if you purchase within the timeframe your lender allows, but it will be charged when your lawyer pays out your mortgage on possession day of the sale. The penalty is also needed to determine your equity position on your current home.
- Possibility Of Carrying Two Homes – If you are not able to sell quickly, you will have to pay for mortgage payments and other carrying costs on both properties.
Your existing property is considered firm sale when all conditions on the offer to purchase are removed, regardless of possession date. Here is what your financing looks like when you sell first:
- Bridge Your Equity – Once you have a firm sale, the mortgage lender on your new purchase can provide a bridge loan if the sale on your first home completes after your possession day on your new property. They will calculate your equity by subtracting realtor fees, mortgage balance, mortgage penalty and legal fees from your sale price. They can bridge you that equity to your new property. You will still need some funds outside of your equity to be able to put a deposit down on an offer to purchase.
- Mortgage Portability – You may have the opportunity to port your mortgage to your new property to avoid or be credited back for a penalty. Keep in mind not all mortgages are portable and each lender has different policies about how much time can be between the sale and purchase. Even if you can port, you may actually save money by not porting and getting a new mortgage at todays low rates instead. I can help you do that math.
- Porting Mortgage Default Insurance Premiums (ex. CMHC fees) – You may be able to port your premiums over to a new property. Once you have found your new property I can ask your insurer to quote what is cheaper: porting your premiums and paying a top up premium on any new money, or paying for a new premium entirely.
- Possibility Of Moving Twice – If you are not able to find a property you want to purchase in time, or you are not able to negotiate a possession date on that new property that is prior to your sale completing, you must have a plan for an interim place to live and be prepared to move twice.
If you are considering the purchase of a new property, it may be time to start assembling your village. With COMMUNITY and professionals like Michelle at your service, we can help make it a positive, less stressful experience!
Contributed by: Michelle Lapierre | Mortgage Advisor, Mortgage Tailors
p. 780-756-5363 e. firstname.lastname@example.org
Need a line to a great mortgage specialist? We’d be happy to help by providing a referral from our COMMUNITY Connects database. These professionals have been used by our clients in the past – their commitment to service is one we respect and feel represents our commitment to our own clients.