Stressed by mortgage test

The only thing constant in the real estate business is change. And once again, we have a change in the mortgage rules that will affect many real-estate buyers.

As of Jan. 1, the government has implemented a stress test on conventional mortgages. There seems to be some confusion as to what this means, and as to who will be affected.

This change only affects home buyers (or people looking to re-finance) who wish to purchase/re-finance and have a 20 per cent or greater down payment. For example, someone purchasing a $500,000 home and has a $100,000 or greater down payment. 

This does not affect buyers who have less than 20 per cent of the purchase price as a down payment, as those buyers were already required to qualify for the stress test.

This means that anyone with a 20 per cent or greater down payment on a home will be required to qualify for their mortgage based on calculations on the greater of either the five-year posted rate or two per cent higher than their contract rate. 

Often, the posted rates are far more than the rate agreed upon with the financial institution.

For example, if you have a pre-approval for a three per cent mortgage rate, the regulations will now require you to have the ability to afford to pay your payments on your mortgage as though the rate on your mortgage was five per cent.

Another example: The interest payment on a mortgage of $300,000 at three per cent with a 25-year amortization would be $1,420 per month.

At a five per cent interest rate, that same mortgage would cost $1,745 per month. With these new rules, you would be paying $1,420 per month, however you would have to qualify for the mortgage as though it were $1,745 per month.  

As of Jan. 1, regardless of how little or how much you have saved as a down payment, buyers must qualify at the higher stress test rate. We strongly recommend that if you are thinking of buying in the near future, you take this into consideration.

Please note that pre-approvals in place will not protect you from this change.

If you believe these changes may affect you, local mortgage professionals are recommending to action well before Dec 1, 2017 as often lenders implement the new rules early. 

In a nutshell, there have been significant changes to the mortgage lending market every year for the past 10 years. We shall see you here again next year, similar time, same place, likely with more changes, whether we like them or not!


Renovate before selling?

Sellers often ask for tips on the best things to do to fetch the highest dollar when they sell their home.

One of their main questions is whether they should do major, or even minor, renovations before putting up the ‘for sale’ sign.

The answer isn’t simple as there are many factors to consider before the right advice can be given.

  • How much will the renovations cost?
  • What exactly are you planning to renovate?
  • Will you be doing the renovations yourself or will you be hiring a professional?

Generally, if a seller is considering a huge, costly, professional renovation before selling, our advice is not to move forward as the seller risks spending so much that in the end, after all the bills are paid, they can’t possibly break even.

As anyone who has ever started home renovations knows, one renovation of one item or one room leads to another and another and another, until the renovation is worth almost as much as, if not more, than the house is worth on the market. 

On the other hand, if a seller is capable of doing these renovations on their own and are focusing on those areas of the home that really need an update, as opposed to a change just for their own personal preference, our advice is generally to “go for it."

As a basic rule, if you are going to renovate before putting your home for sale, ensure you invest in the areas that matter most, such as kitchens and bathrooms. 

There is one other consideration: when renovations are actually repairs. It is always good advice to ensure all repairs are completed before the ‘for sale’ sign goes up.

Otherwise, a seller risks selling for less when a buyer, or the buyer’s home inspector, finds a major issue and the buyer wants to renegotiate the price at the eleventh hour.

All in all, if your home is in good repair, has no major issues and shows neat, clean and tidy — in most cases, it is ready for sale.

Inside a seller's market

You hear it everywhere these days:

  • "The market is great!
  • I bet you're loving this Vernon real estate market"
  • "It's a great time for you realtors."

From the outside looking in, it does seem like everything is coming up roses. However, from the inside, realtors often have a far different outlook.

A full fledged, hair-straight-back seller's market can be great — for sellers.

However there are two sides to every transaction — a seller side, and a buyer side. The buyers are certainly not enjoying this market, and it is riddled with issues behind the scenes.

There is a significant amount of wasted time in the current market. The general public sees homes selling quickly and think, “what an easy sale."

However, there are many, many transactions that don't make it to fruition. Buyers are feeling they must make extremely quick decisions or risk losing out on a home they want.

When decisions are made In a panic, often steps in the real estate process are missed such as making sure a solid financing preapproval is in place, or the buyer having the opportunity to really and truly ensure he or she even wants that particular house for certain before taking action.

Buyer's remorse is rampant in today's competitive real estate market and buyers are often looking for innovative ways to walk away from a deal.  

In addition, buyers often must attempt offers on two, three or five in multiples before being the successful bidder. What appears to be a quick sale for the seller is an agonizingly slow and stressful process for the buyer. 

Further to this, multiple offers have become the norm. Anyone who has ever been in a multiple offer situation with two or more offers, knows how incredibly stressful they are.

Buyers, sellers and realtors all feel an incredible amount of anxiety during multiple offers situations as there is always at least one loser and people are going to go away from the bargaining table disappointed.

Once again, great for the seller and not ideal for at least one unlucky buyer who has to start the process all over again. 

To compound the issue, finding affordable homes is becoming a thing of the past while mortgage rules continue to tighten. 

Often sellers, buyers and realtors are involved in transactions that fail due to the inability of the buyer to obtain financing due either to recent mortgage rule changes or bankers simply not having the time to verify the buyer’s information for a firm preapproval.

More wasted time for all involved.     

Seller's markets can be great for sellers. However from the buyer's point of view and the realtor's points of view, most would agree that a more normal, balanced market is far more desirable. 

Multiple offers? 5 top tips

Having more than one buyer fighting over your home is the ultimate home seller’s dream. 

And clearly, in the Okanagan these days, dreams do come true! How do you get the most out of a multiple-offer situation?

Helping our seller clients through many of these situations lately, we have put together the following tips for handling an offer competition on your home:

Go with the Best: Once again, whether you are a buyer or a seller, this is point No. 1 because this is the most important decision you make.

Choose a realtor or real-estate team experienced in handling multiple offers. Do not leave this to chance – experience counts here more than ever. You need the best information, advice and experience on your side as one false move and you could end up with no offers at all. 

Shop Around: It’s your realtor’s job to ensure all offers are in before entertaining the offers.

Ensure all buyers have had the opportunity to write an offer if they want to get in on the competition.Three offers are better than two, four offers are better than three – and so on.

Examine all the details: It’s not always about the best price. An offer with all cash with no conditions may be more desirable to you than a higher price with many conditions.

There are also many other considerations such as when they want to move in, what they want you to leave and if they want you to wait for them to sell their house first.   

Too Similar? Send Them Back: Sometimes the offers are simply too close to call. They can be coincidentally similar in almost every way. Often the best strategy is to send both offers back to both realtors and ask them to bring back their best offer before a certain time the following day.

Best offers wins.  

Encourage back ups: Once one of the multiple offers is accepted, there is never a guarantee (unless it is an all cash, no subject offer) that conditions will be removed. 

It is always a good idea to approach the second offer(s) to see if those buyers would like to accept an offer in back-up position; if the first offer fails, the second offer is automatically in first position.

This is a great insurance policy. 

All the above advice can and should be given by a realtor or real-estate team experienced in competing in multiple offers. 

Your best chance of success is to have a real professional fighting for you and your home. It’s a fight that is not for the faint of heart.

Want to have a true professional on your side in a potential multiple offer situation? Call the multiple offer professionals at the Salt Fowler Team at RE/MAX Vernon at 250-549-7258 and Just Add Salt.

More Just Add Salt! articles

About the Author

Lisa Salt is a Vernon born Realtor® who, along with her husband Gord Fowler from Calgary, lead one of the most successful and dynamic real estate teams in the North Okanagan. 

An international clay target shooting champion, Lisa brought the attributes of hard work and diligent focus to the real estate industry to create the success she and her team have today. 

To experience the local knowledge and expertise that only someone born and raised in the Okanagan can offer, call Lisa today and 'Just Add Salt'.

Website link:   http://www.saltfowler.com

Contact e-mail address:  [email protected]


The views expressed are strictly those of the author and not necessarily those of Castanet. Castanet does not warrant the contents.

Previous Stories