There are many reasons that a real estate sale can be delayed. Many of the issues that arise can be avoided if the parties are aware of the potential for delays. In this article of the series, we will look at delays that are solely in the purchaser’s control.
1. Not satisfying mortgage conditions in enough time
There is a common misconception among purchasers that once the bank has pre-approved you for a mortgage, those funds are just waiting to be drawn on once you find your perfect home. Unfortunately, this is not the case.
The pre-approval is just step one. This step tells you what you can afford. Once you have chosen a new home, you need to go back to the bank. At that time the financing process actually begins. Delays at this stage can occur because purchasers are slow to meet with their mortgage broker or slow to provide their broker with all the documentation they require to proceed with the mortgage application. Once your broker has all your documentation and everything they need signed, then your mortgage application goes to the underwriters. It is only once the underwriters are satisfied that mortgage instructions are sent out to the lawyers.
Your lawyer cannot proceed without mortgage instructions. The law firm then follows the bank’s specific instructions regarding what searches are required, documents to be drafted including the actual mortgage. Your lawyer meets with you to sign the documents and requests the mortgage funds from the bank. The bank can take a few days to fund.
If there are any conditions still outstanding the bank will not fund. A small delay at the start of the mortgage process can become a delay further on that may very well prevent your purchase from closing on time. Our advice in this situation is to meet with your mortgage broker just after your offer is accepted. Take the time to ensure that everything is moving along as quickly as possible.
2. Not allowing sufficient time to get shortfall funds
The second most common delay for purchasers is not allowing sufficient time for the bank to process their shortfall funds. If your shortfall funds are sitting in investment accounts, RRSP or even savings accounts, it can take several days for the bank to transfer those funds into an account from which they can be issued.
Talk to your bank about transferring those funds early. Keep in mind that while you can calculate your down payment, that figure will not be the actual amount of the shortfall. Shortfall calculates will include standard adjustments to the purchase price for things like property taxes. It will also include legal fees and other disbursements such as title insurance for example.
Our advice to avoid this sort of delay is to inform your lawyer as soon as possible that the funds will take time to be transferred. That way if your lawyer has all the instructions required they can prioritize those shortfall calculations. If it is not possible for your lawyer to complete the shortfall calculation in enough time, transfer over extra funds or be aware that those extra funds will have to come from some other account.
Communication is key to prevent delays. If you are purchasing property and have questions please contact us for assistance.