Mortgage Financing in a Competitive Housing Market.
Trish Pritchard • February 24, 2021
Canada is an interesting place to buy a property right now. If you’ve paid attention to the media at all over the last few weeks, you’ve probably heard that…
- Many people are still out of work due to COVID-19.
- The bank of Canada has forecasted rates will stay low for a long time.
- Although house prices keep rising, we may be in for a housing crash sooner than later.
While more recently, the media is reporting that…
- Canadian house prices are hitting record highs with no stop in sight.
- There is very little inventory available in housing markets across Canada.
- This week, bond rates have started to rise, and we can likely expect lenders to follow with an increase in fixed rates.
Needless to say, things can change pretty quickly. And while talking about the “Canadian housing market” is a lot like talking about the “weather in Canada”; it varies regionally and will be significantly different depending on where you live, one thing seems to be true, if you’re looking to buy a property, you can expect a competitive housing market.
Some markets will be hotter than others, but buying a home in a competitive housing market can be difficult.
You know you’re in a hot housing market when…
- Properties sell within days of listing on MLS.
- Properties are selling at or above the asking price.
- Properties are selling with competing offers.
- Properties are selling with competing offers well over the asking price.
Unfortunately, this can make you feel…
- Rushed to make decisions out of your comfort zone.
- Like you are being priced out of the market.
- Like you won’t ever find a property.
- Like you may need to change up your strategy to prevent being outbid by competing offers.
Now, if you get to this point in your home buying journey, you might begin to feel desperate. Understandably so. You might even look for ways to get your offer accepted and consider taking risks you wouldn't otherwise take. You may even consider (or be encouraged to) submit a subject-free offer.
While writing a subject-free offer might seem like a good solution to get your offer accepted, you need to know that it comes with significant risk. The biggest risk you take is that your deposit could be forfeit if you write an unconditional offer and your financing is declined.
The only time a subject-free offer is without risk is when you have enough money to purchase the property with the cash you have in the bank. So if you don’t have the cash to buy the house outright, the smart move is to mitigate your risk by including a “subject to financing” clause in the offer to purchase.
Mortgage financing is never guaranteed. The reason mortgage financing isn’t guaranteed is that securing mortgage financing is not only dependent on you the applicant, but also on the condition and value of the property. So even if you have the most stable income, an incredible credit history, and a large downpayment, if you need a mortgage, all lenders will assess the property’s condition and value before agreeing to mortgage financing.
Their scrutiny of the property is the same regardless of whether you include a subject to financing clause or make your offer unconditional.
Unfortunately, if you’re in a competitive situation, this is where you have to make quick decisions and put your best offer forward, but this is also when you’re at the highest risk of making mistakes. There are many reasons a lender can decline your mortgage application; here are just a few of them.
The property doesn’t appraise for what you offer, forcing you to come up with considerably more for a downpayment. This is especially true in competitive situations.
- The MLS listing contains compromising information.
- The property was a former grow op or drug lab.
- The property has a special assessment pending.
- The condo insurance docs aren’t acceptable to the lender.
- The property doesn’t meet zoning or size requirements.
- The lender finds out there is asbestos, aluminum or knob and tube wiring, or an underground oil tank.
- Or anything else they deem too risky to lend money.
So what can you do? Well, the best place to start is to make sure you have all your ducks in a row. Here are things to consider.
- Do you have a mortgage preapproval in place?
- Do you have all the supporting documents submitted to your mortgage professional
- Are you working with a mortgage professional who has outlined the process, including how long they need to arrange financing?
- Do you have rock-solid personal guidelines for making an offer? This will help you to avoid making an emotional last-minute decision.
- Are you working with a real estate professional who is willing to help you stick to those personal guidelines?
Securing mortgage financing in a competitive housing market is tough. So if you find yourself without a concrete plan, please contact me anytime. I deal with high-stress situations like this regularly, and I would love to provide you with the counsel you need.
What Is a Second Mortgage, Really? (It’s Not What Most People Think) If you’ve heard the term “second mortgage” and assumed it refers to the next mortgage you take out after your first one ends, you’re not alone. It’s a common misconception—but the reality is a bit different. A second mortgage isn’t about the order of mortgages over time. It’s actually about the number of loans secured against a single property —at the same time. So, What Exactly Is a Second Mortgage? When you first buy a home, your mortgage is registered on the property in first position . This simply means your lender has the primary legal claim to your property if you ever sell it or default. A second mortgage is another loan that’s added on top of your existing mortgage. It’s registered in second position , meaning the lender only gets paid out after the first mortgage is settled. If you sell your home, any proceeds go toward paying off the first mortgage first, then the second one, and any remaining equity is yours. It’s important to note: You still keep your original mortgage and keep making payments on it —the second mortgage is an entirely separate agreement layered on top. Why Would Anyone Take Out a Second Mortgage? There are a few good reasons homeowners choose this route: You want to tap into your home equity without refinancing your existing mortgage. Your current mortgage has great terms (like a low interest rate), and breaking it would trigger hefty penalties. You need access to funds quickly , and a second mortgage is faster and more flexible than refinancing. One common use? Debt consolidation . If you’re juggling high-interest credit card or personal loan debt, a second mortgage can help reduce your overall interest costs and improve monthly cash flow. Is a Second Mortgage Right for You? A second mortgage can be a smart solution in the right situation—but it’s not always the best move. It depends on your current mortgage terms, your equity, and your financial goals. If you’re curious about how a second mortgage could work for your situation—or if you’re considering your options to improve cash flow or access equity—let’s talk. I’d be happy to walk you through it and help you explore the right path forward. Reach out anytime—we’ll figure it out together.
It’s a commonly held belief that if you’ve made your mortgage payments on time throughout the entirety of your mortgage term, that the lender is somehow obligated to renew your mortgage. The truth is, a lender is never under any obligation to renew your mortgage. When you sign a mortgage contract, the lender draws it up for a defined time, so when that term comes to an end, the lender has every right to call the loan. Now, granted, most lenders are happy to renew your mortgage, but several factors could come into play to prevent this from happening, including the following: You’ve missed mortgage payments over the term. The lender becomes aware that you’ve recently claimed bankruptcy. The lender becomes aware that you’re going through a separation or divorce. The lender becomes aware that you lost your job. Someone on the initial mortgage contract has passed away. The lender no longer likes the economic climate and/or geographic location of your property. The lender is no longer licensed to lend money in Canada. Again, while most lenders are happy to renew your mortgage at the end of the term, you need to understand that they are not under any obligation to do so. So how do you protect yourself? Well, the first plan of action is to get out in front of things. At least 120 days before your mortgage term expires, you should be speaking with an independent mortgage professional to discuss all of your options. By giving yourself this lead time and seeking professional advice, you put yourself in the best position to proactively look at all your options and decide what’s best for you. When assessing your options at the time of renewal, even if the lender offers you a mortgage renewal, staying with your current lender is just one of the options you have. Just because your current lender was the best option when you got your mortgage doesn’t mean they are still the best option this time around. The goal is to assess all your options and choose the one that lowers your overall cost of borrowing. It’s never a good idea to sign a mortgage renewal without looking at all your options. Also, dealing with an independent mortgage professional instead of directly with the lender ensures you have someone working for you, on your team, instead of seeking guidance from someone with the lender’s best interest in mind. So if you have a mortgage that’s up for renewal, whether you’re being offered a renewal or not, the best plan of action is to protect yourself by working with an independent mortgage professional. Please connect anytime; it would be a pleasure to work with you!
Wondering If Now’s the Right Time to Buy a Home? Start With These Questions Instead. Whether you're looking to buy your first home, move into something bigger, downsize, or find that perfect place to retire, it’s normal to feel unsure—especially with all the noise in the news about the economy and the housing market. The truth is, even in the most stable times, predicting the “perfect” time to buy a home is incredibly hard. The market will always have its ups and downs, and the headlines will never give you the full story. So instead of trying to time the market, here’s a different approach: Focus on your personal readiness—because that’s what truly matters. Here are some key questions to reflect on that can help bring clarity: Would owning a home right now put me in a stronger financial position in the long run? Can I comfortably afford a mortgage while maintaining the lifestyle I want? Is my job or income stable enough to support a new home? Do I have enough saved for a down payment, closing costs, and a little buffer? How long do I plan to stay in the property? If I had to sell earlier than planned, would I be financially okay? Will buying a home now support my long-term goals? Am I ready because I want to buy, or because I feel pressure to act quickly? Am I hesitating because of market fears, or do I have legitimate concerns? These are personal questions, not market ones—and that’s the point. The economy might change tomorrow, but your answers today can guide you toward a decision that actually fits your life. Here’s How I Can Help Buying a home doesn’t have to be stressful when you have a plan and someone to guide you through it. If you want to explore your options, talk through your goals, or just get a better sense of what’s possible, I’m here to help. The best place to start? A mortgage pre-approval . It’s free, it doesn’t lock you into anything, and it gives you a clear picture of what you can afford—so you can move forward with confidence, whether that means buying now or waiting. You don’t have to figure this out alone. If you’re curious, let’s talk. Together, we can map out a homebuying plan that works for you.
