Page 16 - BEST MAGAZINE FALL 2018

Hiccups
BY: JOHN SPINA
ECONOMY AND FINANCE
The real estate market is heating mortgages or lower tier lenders, or The best way for a buyer to avoid
up and as that occurs, financing transactions is becoming more challenging. Prices are
climbing ever-upwards and mortgages are getting bigger. Add to the mix the new stress-test applied to qualify for mortgages and you have the potential for a personal financial calamity.
In the ordinary course, when an offer to purchase is made, that offer is conditional on the buyer being able to secure mortgage financing. Once the buyer has received a mortgage commitment, the condition is waived and the buyer is now legally obligated to complete the transaction. Failure to do so will cause them to lose their deposit and may expose them to damages for breach of contract.
Over the past five years, I have seen cases where lenders, having issued mortgage commitments, revoke them thus leaving the buyer to have to scramble to try to find alternate financing. They sometimes have to resort to very expensive private
in the worst cases, are unable to find a lender at all, thereby causing them to default under the terms of the Agreement of Purchase and Sale.
How is this possible? How can a lender who has promised to provide a mortgage suddenly refuse to do so? The answer lies in the nature of the mortgage commitment itself and in the underwriting process used by lenders.
Mortgage commitments contain many conditions that must be fulfilled to the lender’s satisfaction before they are obligated to advance the mortgage funds. The commitment is issued on a superficial analysis of the stated income and liabilities of the buyer, the appraised value of the property being purchased and its carrying costs after closing. Because some lenders do not complete their due diligence before issuing a mortgage commitment, the document is flimsy and unreliable because it can be revoked if the lender is not satisfied with what it finds after the due diligence has been completed.
this from happening to them is to ensure that they make available to a lender all of the documents required to support their application such as: Notices of Assessment from Canada Revenue Agency for at least the past two years, pay cheque stubs to prove current income, documented proof of any other sources of income, account statements for all debts and liabilities (including obligations to pay spousal or child support) and if possible, a budget that shows all of the projected carrying costs of the property being purchased and how those costs will be paid given the buyer’s income and other financial obligations.
Giving the lender an accurate snap-shot of the buyer’s financial position will allow the lender to assess the strength of the application at the outset and avoid the unpleasant and potentially devastating loss of mortgage financing on closing.
16 THE BEST MAGAZINE FALL 2018
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