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Today’s blog is courtesy of one of our favourite mortgage brokers, Mortgage Jake – May 19, 2017
Unfortunately, during these past few weeks, an increasing number of people are finding themselves in a very undesirable position: they bought a house at the peak of the market, and now that the market has shifted, they’re having a hard time selling their current home. What to do?
The good news: you have a few options.
First of all: If you bought a house more than a month ago and you’re still deciding on the mortgage broker/bank, hurry up. Now. Do it. Why? If you need an appraisal, you’ll want to get it before the next set of sales numbers come in. If what we’re seeing now – a significant increase in listings accompanied by a slowdown in sales – results in lower prices, it’s possible that your house will appraise for less than what you paid, and you’ll have a whole new bunch of issues to deal with. SO – pick a lender and get the house that you bought appraised ASAP.
Second: Depending on how much time you have before closing on your new home, you have 2 options:
1. Sell your house ASAP for whatever gets you the $$ you need to close on your new house; or
2. Keep your house, take it off the market, and refinance it. Pull out the equity to finance your new home and rent your current home out.
The good news: tenants are out in droves looking for properties to rent. If you can’t sell your house for what you want and are prepared to hold it for the foreseeable future (and your lender agrees), this might be a viable option for you. I just pitched it to someone and they didn’t realize this was an option for them. So now instead of selling in a slow and shifting market, they will keep this asset and multiply their real estate holdings by 2.
Third: If your house is on the market and you’re debating refinancing and renting it, BEFORE you relist it for a lower price, GET YOUR HOUSE APPRAISED (or condo, or loft..). Why? If your appraiser sees that you listed for $799,000 and then went down to $699,000 to speed up the sale, you’re in trouble with the refinancing (if you decide to go down that route).
Fourth: If renting our your current home is not an option, you’re kind of in trouble. Selling your house at the current ‘market value’ might mean selling for less than you were planning on, which likely means that you’ll have a lower down payment and you might have to pay CMHC fees (if you don’t end up having a 20% downpayment). The problem is, if the house you bought is $1M or more, you MUST HAVE 20% down. The second problem? If you need to go to an alt-prime lender (in other words, not a traditional bank), right now their rates are much higher than where they were before Home Capital ran into (minor) problems.
Fifth: When figuring all this out (shameless plug), speak to a GOOD MORTGAGE BROKER who has seen this before, and knows how to navigate these problems well. Creativity and resourcefulness are two of my best traits and you need a calm and steady presence in your corner.