Published: April 15, 2015 • Last updated: January 6, 2021 at 8:20 am
Mortgage Lenders Are Not Always Comfortable With Assigning A Mortgage
Some people sign up to buy a new condo at the pre-construction phase, and years later before they take possession, their circumstances no longer make sense to complete the transaction. It can happen with new houses too, but far less often. They prefer not to rent out their unit – they just want out of the contract, by assigning their purchase agreement to someone else; sometimes at a profit.
Where the assignment price is higher, many mortgage lenders are not comfortable financing these purchases (That is, the original buyer has made a decent profit on their deposit, without actually completing the purchase.)
Mortgage brokers have access to some lenders who are ready to take on this business. Our team is familiar with two such lenders, and my peers have told me of a few others. Here are extracts from RMG Mortgages’ underwriting policies.
RMG Underwriting Policies: Assignments
There are 2 scenarios when it comes to assignments.
Scenario #1: Assignment is being completed based on the original purchase price and the builder is signing the assignment. These can be completed as LRU+ with full disclosure. Regular guidelines, including for down payment and appraisals, apply.
Scenario #2: Assignment is based on current value vs. original purchase price.
Typically, the builder will sign the assignment agreement (required) and a side agreement will be drawn up between the original purchaser and the new buyer based on current value. The builder generally will not sign this agreement as it is the original purchaser who is profiting and not the builder.
RMG will consider these scenarios with the following conditions:
- Full disclosure to the insurer, full mortgage insurance paid by the borrower.
- Full appraisal
- Full down payment must be validated from the client
- Any credits/incentives are to be deducted from the purchase price
- LTV is based on the lesser of the purchase price (based on est. new value) and the appraised value.
This is encouraging as RMG Mortgages are a significant player in the mortgage industry, with competitive rates and a wide range of mortgage products. You can see this lender is alright to use the higher assignment price, provided an appraisal supports the price.
RMG Mortgages insures all their mortgages, not just high ratio ones. Typically the mortgagor is not aware of this insurance if the purchase is conventional, as RMG quietly insures these mortgages in the background at their own expense. However, where an assignment is involved, the buyer will pay the insurance premium, even if the loan to value is less than 80%.
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