Things To Consider When Purchasing a New Home Part 2: Timing
Sunday, 29 August 2021
After speaking with a mortgage broker and determining how you are going to purchase your new home, the next consideration, often overlooked, is Timing; when you plan to take possession of your new home. Getting your rental expiry date to line up with your new home possession, and also making sure your mortgage interest rate hold lines up with possession are some things we'll discuss in this blog.
Mortgage Interest Rate Holds
When you get pre-approved for a mortgage, the lender will hold a rate for you, often for 90-120 days. You can also get rates held for a longer time such as a year, but this will often times result in the rate being slightly higher. If your home won’t be ready to move in for upwards of a year, and you are concerned that the interest rates are going to rise in that time frame, opting for a longer rate hold, and incurring a higher rate, may be your best option.
Lining up your possession date with the mortgage rate hold while still having control of selecting your finishing materials can be challenging. Here’s a tip that will help. The sweet spot number of days before possession that you want to pay close attention to is 120 days. If you are buying a townhome that is a spec (the home is framed up and built to drywall stage), usually the builder can have the home ready for possession within 120 days of you making your selections. This is a great time to lock in a competitive mortgage rate and still have the ability to customize your home.
PRO TIP: When you get within 30 days of your possession day, ask your mortgage broker to shop rates one more time, you might find there are some quick closing specials that may reduce your interest rate or offer better terms.
Dealing with Rental Leases
A rental lease is an agreement between you and your landlord to rent their premises for a specific amount of time, usually one year. But what if your possession date on the new home you bought comes up before the lease expires? Will you have to carry two homes for a period of time? Let’s dig into this.
Your landlord’s biggest concern is keeping his/her property rented. If they are easy to communicate with and you plan ahead, they can help facilitate your early departure by starting the process of qualifying a new tenant prior to the expiry, ensuring there is no vacancy. Alternatively, a heads up notice that you would like to stay in the place for an additional month or two beyond the expiry date should also be easily accommodated.
PRO TIP: Take a look at your rental lease, and see if there are any clauses regarding “sub leases”. Sometimes it states that if you find a replacement tenant, than you can exit the contract. Speak with a professional to find out the best way to use this term in the rental contract to your advantage.
Good communication and being proactive with your landlord goes a long way when figuring out whether you need extra time on your lease or need to exit prematurely.
Its Not About "Timing the Market…"
Timing the market often comes up as being a major reason buyers hesitate or put off purchasing a new home. Some great advice is this: Don’t worry so much about timing the market. You will never be precise in buying at the lowest price. Instead, look at the monthly costs - if you are comfortable with affording those costs, then jump in. Making a return by being a homeowner comes down to how long you are in the market. It is over a long term period that you are paying off your mortgage principle, and if the market goes up in value, that is certainly a bonus. Real estate is not the same as the stock market. Gaining equity over a long term, and reducing your mortgage principle should be your focus as a first time home owner.
As the saying goes “ don’t wait to buy real estate, buy real estate and wait!”
Check out Rockfords quick possessions and upcoming releases. There's price points and possession times both short term and long term.