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- Feb 18, 2008
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Here's an excerpt from my blog post on the topic.
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):
[list type=decimal]
[*]A 30-year maximum amortization on insured mortgages over 80% LTV
[*]An 85% LTV limit on insured refinances
Elimination of government insurance on secured lines of credit (aka., HELOCs)
[/list type=decimal]
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!
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.
(and a hat-tip to Wade Fenner who put the bug in my ear about this one today)
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):
[list type=decimal]
[*]A 30-year maximum amortization on insured mortgages over 80% LTV
[*]An 85% LTV limit on insured refinances
Elimination of government insurance on secured lines of credit (aka., HELOCs)
[/list type=decimal]
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!
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.
(and a hat-tip to Wade Fenner who put the bug in my ear about this one today)
