3 Hacks to Win a Multiple Offer

Multiple offers are back. Are you prepared?

The market has been heating up over the last three months. We are starting to see multiple offers again. We are starting to see houses going over asking again. Take some time to learn the lessons from the last time the market overheated during the pandemic.  This is the key to success to winning a multiple offer.

Hack 1: Borrower pre-approval

Understand that pre-qualification and pre-approval are very different things. A pre-qualification occurs when an employee at the bank asks how much you earn and gives you a number. A pre-approval is more detailed. I will take the time to document your income with letters of employment, paystubs and income tax information. With your consent, I will pull your credit bureau and help you figure out how to minimize your monthly expenses. Typically, lenders offer pre-approvals at slightly higher rates than their current offers. Lenders like to have a little wiggle room in case rates go up before your offer is accepted. However, the pre-approved rate is a ceiling. If rates go down, you’ll get the lower rate.

Hack 2: Property pre-approval

Pre-approval as a buyer is what almost everyone does in today’s market.  But buyers are only one part of the mortgage equation. The other portion is the property itself. I can also pre-approve properties. If you send me copies of the listings in which you’re interested, I can vet these properties.  I’ll forward the listings to the mortgage default insurers to make sure that there are no red flags on the properties. If it is a property that you really love, consider getting a pre-purchase home inspection. In the last round of multiple offers, many buyers found defects after closing and regretted not having a home inspection condition.

Hack 3: Write the seller

In the era of multiple offers, the steps above will help distinguish your offer from those of others. It will demonstrate to the seller that even without conditions your offer is likely to proceed. However, that’s what everyone else is doing.  To distinguish your offer from everyone else’s, consider adding a personal letter. The one thing that you and the seller have in common are your hopes and dreams for the property.  Some sellers ignore these letters, but a surprising number of sellers weigh these letters heavily. They have grown to care for their neighbours. Many want to make sure that their legacy is selling their house to someone that will continue to add value to the community. Some sellers will consider lesser offers because of these letters.

In conclusion, do not rush the home buying process. Multiple offer situations encourage people to sometimes make quick decisions. If you have your ducks lined up properly, you can make an offer confidently, with an increased chance of success.

I can be reached at: bturner@nextdayapprovals.ca or 249-353-3278.

Qualifying Ratios

In Canada, all mortgages need to qualify under the B-20 stress test.  The stress test is simply a set of two qualifying ratios that ensure that a borrower has the financial capacity to weather an increase in interest rates. Under the current B-20 regulations, the qualifying rate is set at the higher of 5.25% or the contract rate plus 2%. In today’s market this means that borrowers are qualifying as if the interest rate was at least 6.44%

Gross Debt Servicing

The first qualifying ratio is gross debt servicing. Real Estate professionals sometimes refer to this with the shorthand of PITH (Principal, Interest, Taxes, Heat). In other words, the mortgage payment, 1/12th of the property taxes and at least $100 for heat. Gross debt servicing can not exceed 39% of monthly pre-tax income.

Total Debt Servicing

The second qualifying ratio is total debt servicing. Total Debt Servicing is PITH, plus car payments, plus 3% of any credit card debt, plus 1% of any outstanding student loans.  Total debt servicing can not be more than 44% of monthly pre-tax income.  Often, car payments are a limiting factor. Fortunately, I have a service that can help reduce car payments. They do this for late model cars by spreading out the payments over a longer period of time. Alternatively, it can also make sense to reduce one’s down payment in exchange for paying down debt. This can help maximize the amount of house that one can qualify for.

Conclusion

When the OSFI first introduced the B-20 qualifying ratios in 2017, many saw this as a hindrance to home ownership. However, as interest rates have increased over the last year, the stress test is actually helping ensure that borrowers have the capacity to withstand the increase. Because borrowers qualified at an interest rate of at  least 5.25%, they have the capacity to pay higher interest rates. Unfortunately, variable rates are for the first time in 30 years higher than fixed rates.  The best variable rates currently available are Prime -0.9% which amounts to 5.8%. This is greater than the interest rate at which borrowers originally qualified, but not terribly out of line. All of this means that because of the stress test, borrowers might not be in great shape, but should be able to weather this current higher rate environment.