Is your Winnipeg home for sale really sold once you have an an unconditional offer? Maybe. Maybe not.
The Winnipeg real estate market is very strong right now. You put your home on the market, get multiple competing bids and choose the best offer with zero conditions. Simple, right?
Here is what you may not know. Maybe your Winnipeg Realtor explained it to you, maybe not:
If the buyer of your home is putting less than 20% down as a function of the purchase price, they will need mortgage insurance. That’s called a high-ratio mortgage. There are two main mortgage insurance companies in Canada, one is called CMHC and one is called Genworth. Both have very similar insurance criteria. It’s very normal for a buyer to need mortgage insurance when they are putting less than 20% down, and in fact it’s a requirement.
But the offer was “unconditional” you say — the buyer did not put any conditions in their offer, nor did they mention anything about financing or mortgage insurance, so why should you care about any of this? Aren’t all these details their problem? The short answer is… yes and no.
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The real truth is that in most cases there will be no problem and you probably won’t hear anything, except for your lawyer calling you to sign some additional documents. There something going n behind the scenes however, that you may not be aware of.
Because of the credit crisis and banking meltdown not only in the U.S. but around the world, Canadian mortgage insurers are being much more strict on who and what they will insure, and in fact are declining some applications that even two years ago would have been approved. Ask any busy Realtor or mortgage broker if they have run into this lately.
If the person who bought your home gets declined for mortgage insurance and they can come up with more of a down payment to bring them up to the 20% level (hello Mom and Dad) then they no longer require mortgage insurance and their financing options increase significantly. It’s when they can’t bring their down payment up to 20% that things start to get interesting. They have a problem and so do you. Why?
Well, let’s say you have sold your home and have bought another one. It’s called moving up or moving down and it’s usually why most people sell. Again it is very common for the seller to require the equity — the money from the buyer — to close on their next purchase. If there is a hiccup in the funding of your buyer then it is quite possible that you will have a hiccup in your funding also, unless you have down payment funds in place elsewhere and the ability to “carry” two homes. And even if you do, ask any seller who has had to deal with this and it’s extra stress nobody needs. So what’s the solution?
The buyer of your home was pre-approved, your Realtor even showed you the “letter” that was included with the offer that you accepted. What they didn’t tell you or maybe they didn’t know was this: The pre-approval letter from the lender is almost always subject to a few things, but even if it is not, it for sure is “subject to obtaining mortgage insurance,” as there is really no such thing as a pre-approval from the insurance companies. They only generally look at a file once an offer has been accepted.
Here’s the bottom line. Give the winning bid 72 hours or three working days to get full approval INCLUDING mortgage insurance approval (insurers are really busy these days and are much stickier about paperwork than they used to be so they need a couple of days) and then have the winning bidders or their Realtor send you a copy of the “mortgage commitment letter” from their bank. This is a much clearer representation of their financing than the pre-approval letter they received six months ago when they first started looking. This in itself does not 100% guarantee their financing (for a number of reasons which we will cover in another blog in the near future) but it is far, far better than the old pre-approval letter.
It is far more preferable to have to wait three days to ensure you really have a “firm” sale. You had multiple offers anyway, so if the winning bid falls apart, the buyers that made an offer on your home three days ago will still be around… or there will be six new ones. It’s much better to be patient, rather than to pack up all your stuff, get the kids transferred and registered at a new school and then find out nine weeks later, and one week before possession, that the buyer’s financing is in jeopardy.
It’s a small price to pay for a vast increase in overall certainty.
If you are thinking about buying a home yourself, call us at 1 (800) 480-6788 Ext. 201 or e-mail firstname.lastname@example.org and we will connect you with the best mortgage lender in the business. You will get all of your questions answered BEFORE you walk into any home, and greatly reduce your stress level and that of the homeowner that you will be dealing with.
The common thread that runs through our most satisfied and long term clients are those that take our advice to heart and follow it.