Secondary Financing a Solution For Lower Values at Closing

With the GTA’s homes selling for almost 20 per cent lower than they were in the spring, many transactions that were set to close are at risk.

Mortgage lenders (traditional banks, monoline lenders and credit unions) have begun lowering their property valuations in an attempt to get ahead of a possible continued decline. Home buyers have been seeing lenders ask for a second appraisal just before the sale closes just to be sure the value is where it was when the mortgage approval was issued.

With some lenders lowering their valuations by as much as 15 per cent, that’s leaving many home owners short. For example, a buyer with an accepted offer to buy a home for $800,000, may get a new appraisal value of $700,000 – that’s the new amount the lender will lend on.

In this case the buyer needs to come up with the extra $100,000 to close.

For buyers who are working with a mortgage broker they have access to a professional who has been monitoring the sale process and is usually the first to know when there is a mortgage shortfall. A good mortgage broker will have access to secondary financing who might be able to step in and lend the difference as a second mortgage and close on time.

If the buyer is working with their own bank, they’ll need to begin looking for a mortgage broker or lender at the last minute and start the mortgage application process from the start, likely missing their closing date.

Not only will the buyer possibly miss their closing date, their own bank may not allow secondary financing, causing the buyers to then find a new lender for the 1st and 2nd mortgages.

The moral of the story? Well, working with a mortgage professional who has access to a wide range of lenders gives buyers and their Realtors a lot more options should a purchase have problems.

A good mortgage broker is about solutions as much as they are about great rates. Contact Steve White to find out how he can provide great solutions for your clients.