Timing the purchase of your new home
Ideally when buying real estate, consumers want to
close the deal on selling their existing home the same day they
close the deal on their new house.
But the world isn't perfect, and it is not always
possible to time the closing of your sale with the closing of your
purchase. That could leave you with a gap or overlap, during which
you don't have a place to live or you carry two properties and need
Consumers can take heart, though -- such gaps are
rare. And there are solutions, such as interim financing, to get
over some of the monetary hurdles.
"It tends to be the exception, not the rule.
I don't see it that often," says Chris Wisniewski, group product
manager for mortgages and home equity at TD Canada Trust in Toronto.
"Believe it or not, the purchase and sale are timed quite well."
First-time home buyers, she notes, are "usually
quite flexible in terms of a closing date." They're usually
renting and can adjust their closing schedules. At worst, they can
break their lease and only be on the hook for some rent.
It can be more challenging for existing homeowners,
who can get caught in two types of poor timing. First, they could
face a gap in ownership, where they sell and close their deal a
few weeks or months before they buy and close the deal on their
new property. In this scenario, they must find a place to live for
the short term, such as with a friend or relative, or they may need
to rent a hotel room or an apartment.
The second scenario is an overlap. That's when consumers
close a deal on a new property and either haven't sold their existing
home or are closing the deal but not on the same day. So, they wind
up paying for two mortgages during the overlapping period.
An ownership gap can leave you looking for short-term
A gap in ownership, while inconvenient, is usually
easier to deal with than an overlap. It arises often with new home
construction, where deadlines are fluid and contractors often exercise
their right to extend a closing.
If you find yourself between homes, Don Lawby, president
of Century 21 Real Estate in Vancouver, says one factor working
in your favour is the current hot housing market.
"Because the market is so good, vacancy rates
have gone up fairly significantly across Canada," he says.
"In most areas, if you need to, there's probably some opportunity
to find temporary accommodation."
Of course you can always try to rent your existing
property back from the new owner until your new home is ready. That
is the cheapest and most convenient way to deal with the ownership
gap because you avoid having to move your belongings twice.
Experts say sellers need to anticipate the ownership
gap problem and should consider accepting an offer from a buyer
who is flexible about the closing date, even if the offer is slightly
lower than others. That's because it might save money in the long
run if you don't have to move twice or find temporary accommodations.
In addition to the logistical nightmare the ownership
gap presents, it can also erode the profit you make from the sale
of your home.
Obtaining bridge financing can be difficult
On the other hand, overlapping is more financially
complex. That's because you have to qualify for two mortgages, even
if only for a brief period.
To avoid the stress of an overlap, Lawby suggests
"people always go visit their friendly banker or mortgage broker
and arrange for standby or interim financing if for some reason
closing on your property doesn't happen in an orderly fashion."
Wisniewski says interim financing can help in an overlap
situation. "It's a fairly simple process to get interim financing,"
she says, which covers the situation in which you've sold your old
home and bought a new one, but the closings are staggered.
However, if you've bought a new home and are closing
that deal but haven't yet sold your existing home, you need a bridge
loan to get you through till you sell your home. At that point,
you are effectively on the hook for two mortgages and getting financing
is "a little bit more complex," she says.
You need to have the cash flow to carry both properties
or enough equity built up in the properties to persuade the bank
to make the loan, while you look for a buyer for your existing home.
As well, it can be more expensive, with bridge loans usually two
percentage points above prime.
Wisniewski says it helps to have a line of credit
in such a situation.
Jim Middlemiss is a freelance
writer and lawyer based in Toronto. He's a frequent contributor
to National Post, Investment Executive and Wall Street & Technology.