Purchasing and Mortgaging a Property via an Assignment

Mortgagenomics Canada

What is a real estate assignment contract?

Before I get in to the process of how to qualify for a mortgage when assigning a real estate contract, let's first unravel what a real estate assignment is.

A real estate assignment is a transaction similar to that of a standard real estate transaction, except rather than being referred to as a buyer and a seller, in an assignment they are referred to as an Assignor and Assignee, the assignor being the seller and the Assignee, the buyer.

The main distinction of an assignment contract is the subject item of the assignment. Rather than being the property itself, the transactional item in an assignment contract is the RIGHT to PURCHASE - the property. Hence, the original terms and conditions of the original purchase contract remain intact. The only changes are in ownership and negotiable price.

Why would someone want to purchase a property via an assignment?

• its a way to get into a new property without waiting for a long period of time (typically, assignments are permitted by the builders when the property is nearing completion)
• depending on how far along the process is, you could possibly be involved in choosing the finishes of the property (but consider this a bonus as most of the time, the finishes and customizations have already been chosen or decided upon earlier on)
• depending on your regions market, you can also potentially score a good deal on an assignable property and this could be for various reasons:
• Assignable properties are usually a bit tougher to find as they do not have the same marketing allowances as do standard properties. Therefore, less exposure to potential buyers (this could possibly result in lower pricing)
• There could be some current owners who are looking to get out of their purchase obligation (for whatever reason) and as a result have priced their property lower than comparable's nearby. This is even more pronounced today with the pandemic and its varying impact on pre-sale contract holders who may be in scenarios where they need to bail on their purchase obligations.

What should I expect when qualifying for a mortgage for an assignment purchase?

• first of all, not all lenders are on board with assignment purchases. But the ones that ARE have all the same features and conditions you would expect for a standard mortgage qualification. You will receive the same interest rate as though you were qualifying for a regular real estate transaction. Also, the income qualification and credit score requirements all remain the same.
• the main difference entirely has to do with the property and the actual assignment contract:
• there will likely be additional documentation that will be required pertaining to the purchase contract and the newly drafted assignment contract (i.e. amendments, addendums, builder disclosures that include their terms & conditions pertaining to the assignment, and so on)
• some lenders will finance only on the original purchase price (which may be a deal breaker for many), but most will finance on the newly negotiated assignment price
• And finally, depending on your loan to value ratio, appraisals will be required on a case by case scenario...and that's it!

Some other things to be aware of:

• Align yourself with a complete real estate team that is familiar with assignment contracts and purchases (realtor, solicitor, mortgage broker). A multi-member support team will enhance the due diligence, further protecting you from any unexpected twists that may arise after you release conditions on the deal
• Don't assume that all pre-sale condos are assignable...many are not. And even for those that are, be aware of any unique assignment terms or fees of the builder. An experienced realtor will be able to identify any challenges or issues early on, rather than later (when it's too late!)
• An assignment cannot proceed without the written consent and/or permission of the seller (for resale homes) or builder (for pre-sale condos)
• For resale home assignments the seller is entitled to 50% of the profit. For pre-sale assignments, builders charge a fee in the range of 1% and as high as 5%

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