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One Killer Strategy To Make The Mortgage Changes Work To Your Advantage

I’m sure you’ve all heard about the Federal Government’s January 17th change to CMHC mortgage rules by now (and I missed blogging about it, shame on me). They take effect on March 18th, and there’s one great strategy I’ll share to get some killer deals if you’re out shopping for more real estate right now. Here’s the gist of the mortgage rule changes (via CMT):

  1. A 30-year maximum amortization on insured mortgages over 80% LTV
  2. An 85% LTV limit on insured refinances
  3. Elimination of government insurance on secured lines of credit (aka., HELOCs)

Now there’s going to be some consequences out of this, as always, both intended and unintended. Don Campbell from REIN had a great discussion on his Facebook wall about what those might be, and I’ll summarize them here.

  1. Bank of Canada rate won’t have to rise as quickly
  2. A bunch of ‘panic’ sellers will hit the market in Jan/Feb
  3. A number of home buyers will push to close before new rules (not understanding that most banks will adopt rules immediately)
  4. ‎Combined with the recent CREA/MLS agreement will lead to increased listings
  5. Cash flowing properties will become even more important
  6. More Speculators will be kept out of market – capping price increases on new [construction]
  7. More renters will stay renting

Now, notice the two points of Don’s which I’ve bolded. This means there’ll be people, both listed right now, and who will list even more quickly, who want to get their current home sold and their new home bought before March 18th. If you can find the right people, have your financing sorted, can close quickly and (most importantly) have a good Realtor and Lawyer who can get you through this, there’s a great opportunity to solve some people’s problems, and get a good discount for doing it.

The basic idea is this: buy their house with as short a closing as possible. Transfer the title and do all the normal stuff you do to take possession, but let the sellers stay in the property until (for example) March 1st. This gives them up to an additional 6-7 weeks in which to find and buy their new home. I spoke with a mortgage broker this afternoon and the mini-rush hasn’t pushed their time-lines much, so even if you need financing, you should be able to close in 10-14 days, if you have a good broker and lawyer.

Here’s the breakdown:

Step 1: Find good sellers motivated by the new rules

Your Realtor can help you do this by searching for attributes like recently changed listings which dropped their possession requirements or added negotiable. Price drops or comments in the private (Realtor only) notes like commission bonuses can also flag people who are hoping to get out now and use the 35 year amortization for their new property.

Step 2: Establish rapport, understand where they’re going

Your job (and your Realtor’s job) is to find people who were going to be tight qualifying for the house they want to buy, and wanted to get through with the new financing before they’re limited to a 30 year amortization. You’re going to help them solve that problem by buying their house with a quick close, but not forcing them to move. The balance is between the best discount you can get for solving their problem, but still leaving enough on the table for them to be able to buy the new house they want.

Step 3: Write offer with lease-back agreement

You’ll need to get your lawyer on board up front, but this isn’t an uncommon practice and shouldn’t be hard (or expensive) to do. You absolutely want to make sure you’ve got your legal butt covered, in case (for example) the house burns down the day after closing. You’ve gotta be clear about the cost of staying, who has insurance, damage deposit etc, and also make sure the lenders are cool with what’s going on.

Step 4: Do it!

This part is pretty self explanatory. You write the offer, it gets accepted. You close. They go shopping. They offer and close, then move. Everyone’s happy and you’ve both been able to take advantage of the last of the 35 year mortgages!

If you have any questions, or want to work with a Realtor who gets this stuff, leave a comment, use the contact form or feel free to give me a call. 780-488-4000.

Warning: This one can be tricky and should be used by experienced homebuyers, investors and always consult the appropriate industry professionals. In this case this includes your Realtor, Mortgage Broker or Banker and always your Lawyer.

(HT to Wade Fenner who put the bug in my ear about this earlier today.)

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