DISCLAIMER: This post is written for buyers, in other words people who do not currently own a tenanted property. This post is not suggesting in any way that the rights of an existing tenant be infringed upon
Purchasing a residential property?
Two words that matter this Spring; Vacant Possession
Your contract had best contain a ‘Vacant Possession’ clause.
Mortgage lenders will not concern themselves with your best intentions; it is not about what will be – it is purely about what is.
And if the property is tenanted at the time of possession, then you are effectively applying for a rental mortgage. This means a minimum 20% down payment, higher interest rates, and far more stringent qualifying criteria.
‘But wait, we only have 5% down and we plan to give notice and move in 60 days after we take possession’
There is virtually no lender that will approve this under any circumstances, and this has to do with the recent changes made by our federal government. The lenders want to trust you, the lender wants to help you, the lender wants to approve you, but the new government guidelines eliminate lenders’ ability to be flexible. Lenders must answer to Big Brother, and Big Brother is very rigid.
Vacant Possession – demand it.
‘But wait, we’re buying the property as a rental anyways, so it’s a good thing that it already has a tenant… right?’
No, an existing tenant is rarely a good thing.
How is their lease written? Does it protect you? Are rents reflective of current market rents? Is there a provision for annual rent increases? Your costs will be increasing every year, cover yourself. What is your duty for notice to evict the tenant? Why is the seller refusing to give simple notice?
Don’t risk inheriting the seller’s errors and/or headaches.
Whether your new purchase is meant to be owner occupied, or an investment property, demand vacant possession or walk away.
If you have any questions, contact your local Dominion Lending Centres mortgage professional.
By Dustan Woodhouse