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The Down Payment Secret that Could Save Every Home Buyer’s Heiny (Legally Speaking)

Feb 01, 2018

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When buying a house in Winnipeg, Manitoba (or anywhere in Canada for that matter), if your down payment funds are coming from an external source like a gift from an immediate family member like Grandma instead of from your own pocket, the Mortgage Insurers like CMHC require that money be in your account at least 30 days before possession. 

 

Here’s the thing: that’s not enough to save you from a potential world of legal trouble.

 

Just ask the guy whose Grandma ripped him off. (It happens)

 

My home buying client was a young man in his twenties. His Mom had passed away, leaving him an inheritance. While he waited for the executor, his Grandmother, to administrate the estate and deal out his portion, he was excited to look at homes and embark on negotiating the purchase of a house.

The inheritance was more than enough to cover the down payment, so he was set.


Or so he thought.


Unfortunately, Granny didn’t mind breaching her executor duties and held back the money from her grandson, despite the will’s explicit instructions to give the money to him. There was nothing he could do. Lucky he heeded my advice as you will read on and he was saved from the financial (and emotional nightmare) of breach of contract.

Here’s the problem. Buying and selling homes involves a string of legally binding terms in the contract, many of which he was dying to sign.

Luckily, he had me for a real estate agent and, despite his confident expectation that the money would come in, had taken my advice right from the beginning to not sign any contracts until the inheritance money was in hand.

Once he found out the money was not on its way, he was relieved he hadn’t obligated himself financially. Had he kept on signing based on this promise of money, he could have not only lost the deposit he would have made in the contract to buy the house, but also been sued for being in breach of contract.

 

Real estate’s a tricky beast. That’s why there are Agents. And lawyers. And all the other professionals involved (Trusted Advisors). Every step involves legal repercussions. Buyers seem to forget that in their wanderlust.

But I digress.

 

Another guy, let’s call him Larry, was eager to buy a home. He would need a cosigner, but he had one lined up, so he wasn’t worried.  But I was. Until that money is actually in the bank, until the co-signer is approved by the lender and that cosigning document is actually signed, it’s open season.

Anything can happen.

Unfortunately for him, something did.

What neither he nor the cosigner realized was that, in order to co-sign, they must qualify for the mortgage as if they are buying it themselves. They must be able to afford the payments every month based on their assets, financial commitments and income. And, with mortgage rules tightening in 2018, that’s become even more difficult.

 

What happened was what I feared would – the co-signer could not qualify and therefore could not co-sign after all, as willing as they were.

Here’s the thing you need to know about your down payment: it needs to be IN HAND before it counts. As the saying goes... a bird in the hand is worth two in the bush. Don’t count your chickens before they hatch. We know this.  

But somehow, we get all mushy and emotional when buying a house, thinking of it as a romantic endeavor rather than a cautious walk down a path riddled with legal rocks and dips.


Good thing you hired yourself a top notch professional real estate agent, eh?

I’ll help you keep it real. You can wear your rose colored glasses AFTER the sale. THAT’S when to dance and twirl in your new home, drooling over the new appliances and misting up at the thought of all the memories you’re going to make in those new-to-you rooms.

 

If You Remember One Thing, Remember THIS:

 

If you’re relying on money from a source that’s beyond your control, bad things can happen.

Maybe not every time, but why play roulette with your finances?

 

I’ll tell you what I tell my clients.

 

How to Legally Protect Yourself When Buying a Home Winnipeg (or anywhere in Canada)

 

  1. Don’t rely on external money.

    No matter how much you believe it, no matter how likely you feel you are to get it, don’t count on it.

  2. Use Cash that’s In Your Control

    Even if its’ your own RRSP or GIC, don’t count on it until the money is – say it with me -  IN THE BANK.  By the way – if CMHC doesn’t count the money as money until its in the bank for at least 30 days before you need it, why would you?

  3. Hold the Cash for LONGER

    Really, 30 days before possession isn’t long enough. The safest bet is to have the funds IN HAND before you even view homes, or especially write an offer on a house!  I’m dead serious. Then you don’t have to fiddle around with the last minute troubleshooting and stress that so many buyers struggle with.



    Don’t leave it to the end. Secure the money first (and by that I mean IN THE BANK!), THEN offer. I promise, it fends off more headaches than Advil. If the person gifting you the down payment is not wanting to risk the money in your hands directly, have the lawyer that will represent you put it in their Trust account. Then the money is entrusted for the purpose it was intended.

 

 


PreApprovalChecklist_cover_image.jpg  PS: I made this for you. 

 

  Protect yourself from a bad buying
  experience or financial fall-through

  (Trust me, I've seen too many of them,
  and with the new legislation we're about 
  to see more...) 

  This Pre-Approval Checklist is my gift to you. 

  Click here to get your complimentary copy.  

 

 

 

 

 

 

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Category: Buying a Home


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