|Financing and What Happens if it Goes Wrong?|
By: Jayson Schwarz
First of all before you go house hunting go to your bank, trust company or other financial institution, and see what amount of a mortgage you can qualify for. Take your significant other or partner if you have one because everyone's income and assets help. Once you know how much you can get, get the best rate you can and get it locked in for as long a time period as possible. Do not be afraid to negotiate, the banks want and need your business and do not be afraid to shop rates and lockup periods. Get your commitment in writing!!! Remember time is important because of the time it takes to have your house ready and remember to allow for extensions or construction delays.
Now we are ready for the builder. Go to the trailer armed with your knowledge and look to see what mortgage rate and term the builder is offering. Take note that the builder may have bought the rate down to make his package more attractive or forced his bank as part of his deal with them to offer special packages. Remember, if your bank’s offered rate and terms are close, you may be able to negotiate a better deal with the builder. If you do not take the builder mortgage you may be able to get some leverage in your overall negotiations as the builder may save money by not having to pay his bank for the better rate. Question this and make sure you understand all of the financing details.
When we walk into that sales trailer all ready to buy our beautiful new home perhaps the most important piece of the puzzle we need to have is security in our financial arrangements. A tragedy waiting to happen occurs when you sign an unconditional offer, give your hard earned and saved deposit to the builder and later find out you do not qualify for the mortgage. In other words Adon’t buy the house unless you have a mortgage commitment or a conditional deal. This leads us into the next part of today’s discussion - What happens if it goes wrong?
An Agreement of Purchase and Sale for the purchase of land is a contract and once it is unconditional binds both of the parties to do the things that they are obligated to do under that contract. If either party does not perform their part of the bargain they can be liable to the other party for either specific performance or damages. Firstly if the Purchasers default they will likely lose their deposit. The builder will then have the option of suing to force them to close the deal and pay all legal fees related thereto (specific performance), or sue them for any damages the builder might suffer before he resells the house (things like interest, changes, price differential, etc.) and legal fees. Sometimes in a booming market, kindhearted builders will release Purchasers who have made a mistake or encountered personal tragedies, but don=t count on it!!
The moral of the story is to make sure you have financing or that the offer is conditional for a few days on both financing and review by a lawyer. It is critical you get the right advice and only a lawyer can provide legal advice, that is the law. When you select a lawyer find one who cares about you and a long term relationship.
Jayson Schwarz is a Toronto Real estate Lawyer.
Good luck and happy home hunting!!!!!!!!!!!!!!!!!!!!