As always, before I sit down to write my column, I tend to notice a theme of what’s happened over the last few weeks.
Recently, this has been the challenge that many clients are facing when they own their home clear title (no mortgage owing) and they want to sell and buy another home. Sometimes this is to downsize, sometimes it’s to move to a different community, and sometimes it is to get away from their current neighbours.
Whatever the reason for the move, offers to purchase that are presented without a subject to sale of a home condition are far more attractive to sellers.
Many times clients have found their next property without having listed their current property for sale.
As a sweeping generalization it is mostly seniors I see in this situation. They’ve worked hard all of their lives and paid off their homes. They live on pension income and for the most part live comfortably. Some have significant investment portfolios.
If they want to move forward without a firm sale on their current home, clients can sometimes put themselves in a precarious position.
Even a year ago this might not have been such a challenge. Interest rates were half of what they are now (if not less) and homes weren’t on the market more than a day or two. Most people were confident that they would sell in a few days.
Again a sweeping generalization, but I’m seeing homes sitting on the market for weeks and even months in some cases. If you were to write an offer counting on the sale of your home you had best make sure you have a back up plan in place.
What does a backup plan look like?
For seniors on a fixed income it is difficult to qualify for a large mortgage if that is what’s needed. There are niche mortgage products that are built specifically for clients with significant net worth. These products allow for extended ratios based on the overall financial picture versus strictly how much income is available to make mortgage payments.
Another option (for clients 55 or older) is a CHIP Open mortgage. This allows older clients to pull equity from their current home to make a sizeable down payment on their next home in the event that their current home doesn’t sell. Unlike the traditional CHIP Reverse mortgage, there is no penalty to pay the mortgage in full regardless of how quickly their home sells.
It means no payment on the down payment funds, and theoretically a smaller mortgage on their new home until the current home is sold.
I’ve also used a credit line on the current home for the down payment on the new home, which again can be paid off with no penalty.
There are alternative lenders that will register an interalia mortgage over both homes that can also be paid in full with no penalty once the current home is sold.
The fees and costs associated with each of these options can be very different. Even though you may be incurring a slightly higher cost, by having one of these options in place you are able to move forward with your purchase to make sure you are able to buy your dream home without having to wait for a firm sale on the home you are in.
Best case scenario is that you have a sale on your home that lines up with the dates for your purchase. Next best case is that you have a firm sale and only require bridge financing which can be quite a bit simpler to line up.
If you are finding yourself in this situation, I encourage you to speak with a mortgage professional to look at your various options. I would also encourage you to do this well ahead of writing an offer so that you know exactly what you qualify for and how much it will cost you.
This article is written by or on behalf of an outsourced columnist and does not necessarily reflect the views of Castanet.