10 Things to Check Before You Buy a Home

The process of buying a new home is a very daunting task even if you are a seasoned purchaser.  I came across this checklist on apartmenttherapy.com the other day and thought it would be most useful.

1. Check the drains to make sure they’re not backed-up. To test, do a load of laundry, fill up the tub and sinks, and try to drain them all at the same time.

2. Open all the windows all the way to make sure they’re able to open and shut completely—fixing them is not only a pain, but a financial drain.

3. Turn on all the faucets and make sure they’re in working order.

4. Light a fire in the fireplace. While cleaning them is pretty easy (just call a professional chimney sweeper), you should also make sure they draft correctly.

5. Taste the water. Even if the city you live in has great water, if you’ve got old pipes, they may send out debris into yours.

6. Flush the toilets. Make sure that the toilets are able to flush toilet paper.

7. Open the electrical panel. Watch out for loose wires or ones that simply don’t connect to anything, which could be a sign of live wires inside!

8. Turn on the heat/air. Not only do you want to ensure they turn out, but check to see if they heat/cool to their designated temperatures.

9. Pull the carpets back. Peel away a corner of the carpet to verify what’s underneath (often there’s hardwood under there) and to make sure it’s not mildewing.

10. Basement moisture. Check for signs of dampness, not just on the walls, but near things like dehumidifiers, which suck water out of the air.

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Matt Robinson, August 16th 2010 | Posted in Mortgage Tips & Advice

Beware of Mortgage & Title Fraud

In a time where identity theft and Ponzi schemes are plastered across the daily news, the last thing you want to worry about is yet another way to lose your hard-earned money.

But as a homeowner, you need to be aware of crimes on the rise known as mortgage fraud and real estate title fraud.

Mortgage Fraud

The most common type of mortgage fraud involves a criminal obtaining a property, then increasing its value through a series of sales and resales involving the fraudster and someone working in cooperation with them. A mortgage is then secured for the property based on the inflated price.

 

Following are some red flags for mortgage fraud:

  • Someone offers you money to use your name and credit information to obtain a mortgage
  • You are encouraged to include false information on a mortgage application
  • You are asked to leave signature lines or other important areas of your mortgage application blank
  • The seller or investment advisor discourages you from seeing or inspecting the property you will be purchasing
  • The seller or developer rebates you money on closing, and you don’t disclose this to your lending institution

“Straw Buyer” Scheme

Because of the recession, more people are desperate and eager to find a way to hang onto their homes. A couple was recently arrested in Canada after duping 100 families looking for help to avoid foreclosure in the US.

Another term for mortgage fraud is the “straw” or “dummy” homebuyer scheme. For instance, a renter does not have a good credit rating or is self-employed and cannot get a mortgage, or doesn’t have a sufficient down payment, so he or she cannot purchase a home. He/she or an associate approaches someone else with solid credit. This person is offered a sum of money (can be as much as $10,000) to go through the motions of buying a property on the other person’s behalf – acting as a straw buyer. The person with good credit lends their name and credit rating to the person who cannot be approved for a mortgage for his or her purchase of a home.

Other types of criminal activity often dovetail with mortgage fraud or title fraud. For example, people who run “grow ops” or meth labs may use these forms of fraud to “purchase” their properties.

The Fallout for Lenders

Fortunately (for you, at least), mortgage fraud typically hurts the lender the most.

Canadian precedents have been set in which banks are held responsible for mortgage fraud. The BC Court of Appeals recently ruled that “the lender – not the rightful property owner – is the one out of luck in a fraudulent mortgage scheme” and that lenders “must ensure their mortgages are valid by taking steps to ensure that the registered owner obtained title to the property legally.” The same conclusion was made by the Ontario Courts a couple of years ago.

Banks, as you can imagine, aren’t too thrilled about this trend. Royal Bank of Canada recently sued a former bank employee over an alleged mortgage fraud scheme.

Title Fraud

Sadly, the only red flag for title fraud occurs when your mortgage mysteriously goes into default and the lender begins foreclosure proceedings. Even worse, as the homeowner, you are the one hurt by title fraud, rather than the lender, as is the case with mortgage fraud.

Unlike with mortgage fraud, during title fraud, you haven’t been approached or offered anything – this is a form of identity theft.

Here’s what happens with title fraud: A criminal – using false identification to pose as you – registers forged documents transferring your property to his/her name, then registers a forced discharge of your existing mortgage and gets a new mortgage against your property. Then the fraudster makes off with the new home loan money without making mortgage payments. The bank thinks you are the one defaulting – and your economic downfall begins.

Following are ways you can protect yourself from title fraud:

  • Always view the property you are purchasing in person
  • Check listings in the community where the property is located – compare features, size and location to establish if the asking price seems reasonable
  • Make sure your representative is a licensed real estate agent
  • Beware of a real estate agent or mortgage broker who has a financial interest in the transaction
  • Ask for a copy of the land title or go to a registry office and request a historical title search
  • In the offer to purchase, include the option to have the property appraised by a designated or accredited appraiser
  • Insist on a home inspection to guard against buying a home that has been cosmetically renovated or formerly used as a grow house or meth lab
  • Ask to see receipts for recent renovations
  • When you make a deposit, ensure your money is protected by being held “in trust”
  • Consider the purchase of title insurance – quite a few lenders are now adding this requirement as a condition of approval

It’s important to remember that if something doesn’t seem right, it usually isn’t – always follow your instincts when it comes to red flags during the home buying and mortgage processes.

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Matt Robinson, February 2nd 2010 | Posted in Mortgage Commentary

How Will the Olympics affect the Real Estate Market?

I’m sure you’ve heard it: “once the Olympics are over our real estate market will……..” 

I know I have.  I have been listening to it for almost seven years now.  And I am still finding myself question what, if any, effect it will have on the real estate market.

Smaller, underdeveloped cities like Athens and Barcelona have seen huge property gains triggered by the Olympics. But in developed host cities, such as Sydney and Atlanta, the effect on property prices has been virtually nil. Sydney house prices increased by 50% between 1996 and 2000 – but research has shown that this was due to general market influences, rather than the games.

A recent study through UBC has concluded that cities that win Olympic bids experience neither boom nor bust in their real estate prices, but gain construction jobs as they prepare for the Games.

Despite billion-dollar price tags, the Olympics are “too small relative to the national economy to be picked up in broad national indicators,” like total employment, GDP or the stock market, according to the study.

Interesting to note that in addition to the housing markets studied, they also used quarterly data for 300 metropolitan areas in the U.S., nine major cities in Canada and eight state capitals in Australia which showed pre-Games construction employment was up 1.7 per cent in Australia and 4.3 per cent in Canada. The U.S. rose 3.9 per cent leading up to the Games and maintained 2.9 per cent growth for the six years afterwards.

Not sure if this study entirely concludes this debate; only time will tell.

But with only a few weeks until the games begin……Go Canada Go!

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Matt Robinson, January 26th 2010 | Posted in Current Market Information

Bonus 2009 Tax Credit for First Time Buyers

With tax season almost upon us I thought I would throw out a reminder about one of the tax credits that is available to first-time buyers for 2009 tax year.  A new program for 2009 and subsequent tax years is the Home Buyer’s Tax Credit.

To be considered elible for for the Home Buyer’s Tax Credit you must be a first time home buyer (or have not lived in a home you own for the tax year and the past four years) and purchased your new home after January 27, 2009.

The credit is a flat $750 for 2009, calculated by multiplying the lowest personal income tax rate for the year (15% in 2009) by $5,000. If tax rates go up in the future, it’s safe to assume that the credit will, as well.

A nice bonus for the first time home buyers out there.

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Matt Robinson, January 12th 2010 | Posted in Mortgage Commentary

Mortgage Rule Changes Ahead?

The government and Bank of Canada is becoming increasingly concerned that consumers may not be able to meet debt payments once interest rates rise again.  Finance Minister Jim Flaherty has even gone on record stating he’s considering taking measures to make it harder to obtain a mortgage to avoid households taking on excessive debt.

Possible measures he mentioned include raising the minimum downpayment, which currently stands at 5% or decreasing the amortization period from 35 years.

If Flaherty changes lending guidelines, the impact on Canadian housing could be significant and immediate.  The plus side would obviously be that a number of Canadians that should not have entered the market in the first place will be kept out of trouble. 

On the other side of that coin, he must be very careful to not shut the market down completely and elimate significant demand.  That may not only cause a decrease home values but could also shut out young (mostly well qualified) home buyers.

If rates jump in 2010, as many economists are predicting, that in and of itself could slow the market wihtout any government intervention.

There are also other routes that could be taken to hedge against the governments concerns.  They could tighten up on debt servicing ratios or increase minimum credit score requirements further.  Utilizing one or a combination of these would ensure that better qualifed buyers are entering the market.

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Matt Robinson, December 22nd 2009 | Posted in Mortgage Commentary

Vancouver & Toronto: Markets with Influence

I’ve just had a peak at the latest stats from the Canadian Real Estate Associations’ (CREA) November report and there are some very interesting points to note.

Two of the country’s largest markets appear to have had recent record increases which seems to be affecting the collective bottom-line when it comes to Canadian real estate prices.

According to a recent article in the Financial Post, the Greater Vancouver Real Estate Board (GVREB) is reporting a surge in sales activity of more than 252% over November of 2008 while the Toronto Real Estate Board (TREB) is drumming a tune of “best November on record.”

While the article points out these eyebrow raising stats, it also brings us back down to earth.  It mentions that although the average sale price in Canada on the whole is up 20% from October of a year ago – that number tends to be skewed by two markets: the Greater Vancouver and Greater Toronto markets.

Benjamin Tal, senior economist for CIBC World Markets, is quick to point out that yes, this is a tremendous increase (especially given what we’ve gone through nationally over the last 13+ months) BUT it is also a result of a comparison with a, quote, “dead market” last year.

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Matt Robinson, December 10th 2009 | Posted in Mortgage Commentary

Mortgage Deals

In a year of “interesting” economic times, we end the year with some great mortgage rates.  Royal Bank of Canada, TD Bank, Canadian Imperial Bank of Commerce and Bank of Montreal just announced some lower mortgage rates on the heels of the Bank of Canada’s recent decision to keep interest rates at historic lows.

In what started out in January as an offering of 5.79% on 5 year fixed terms, we end the year with 5 year fixed term deals as low as 3.85% (Abbotsford Mortgage Special).  Closed Variable Rate mortgages started the year at Prime +1.00% and are now being offered as low as Prime -.25%.  A remarkable turnaround to say the least.

Looking ahead to 2010, stabilizing economic conditions bode well for the mortgage market and rates continue to fall.  It would appear another good year for mortgage holders is on the way.  Low rates over the next 12 months mean now is the perfect time to tidy up finances and to utilize these low rates as a tool to further enhance your financial portfolio and increase your net worth.

It’s going to be a good year for people who want to consolidate their debts, do renovations on their home or want to buy because the rates are going to be attractive.

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Matt Robinson, December 10th 2009 | Posted in Mortgage Commentary

Canadian Mortgage Market Optimism

Canadians are emerging from the recession confident that the value of their homes is rising and optimistic about their local housing markets. The Canadian mortgage market is rebounding and will surpass the $1 trillion mark in 2010, reports the Canadian Association of Accredited Mortgage Professionals (CAAMP) in the fifth edition of the Annual State of the Residential Mortgage Market, released in late November.

Canadians are positive about house prices, and attitudes about whether this is a good time to buy a home have never been higher in the three years that CAAMP has surveyed on that question. The overwhelming majority of those surveyed (40%) expect house prices to go up, which is more than double the opinion of those surveyed in spring 2009 (18%).

In past surveys, negative house price sentiments were most evident in British Columbia, Alberta and Ontario – provinces that, in retrospect, were hardest hit by the economic downturn. On a 10-point scale (where 1 is very negative and 10 is very positive), attitudes in these provinces have sharply rebounded to 6.44 from 4.77 in fall 2008, 6.24 from 5.00, and 6.30 from 5.11, respectively, and are now in line with the 6.25 national average.

Most Canadians are optimistic and believe now is a good time to purchase a home, setting a record-high national average of 6.56 out of 10, up almost a full point from 5.58 last fall. Ontarians are most positive at 6.82, while Saskatchewan residents, who have seen house prices increase rapidly, are most negative at 6.05.

As interest rates remain low, it is not surprising that Canadians continue to be satisfied with their mortgages. Of those who renewed in the last year, 73% received lower rates than their original mortgage term.

“Mortgage consumers have been busy, and have effectively capitalized on low interest rates to shop and renegotiate,” said Jim Murphy, President and CEO of CAAMP. “CAAMP’s survey found that, on average, negotiated rates were discounted by 1.23 percentage points lower than typical advertised rates for five-year mortgages, and we see this discounting trend continuing. “In spite of continued job loss concerns, Canadians’ mortgage debt load remains reasonable.

Homeowners have close to three-quarters (74%) of the value of their properties in equity and for those with mortgages, equity is more than one-half (52%) of the value of their homes. Fewer Canadians took equity out of their mortgages this fall (down to 18% from 22% last year). The primary motivator was, once again, debt consolidation or payment (approximately $17 billion), followed by home renovations (approximately $12 billion, down from $14.5 billion in 2008). One third of respondents who took out equity to fund home renovations said the Home Renovation Tax Credit had influenced their decision.

Significant Statistics from the Study

  • Overall, Canadians remain very satisfied with their current mortgage, with 77% either completely satisfied or satisfied. The top reason cited is the mortgage rate, which averaged 4.55% this past year – a dramatic decline from 5.41% last year.
  • Canadians in provinces that have felt the greatest effect of the recession are also the most optimistic about the increase in house prices – 42% of people in Ontario, 43% of people in Alberta and 47% of people in British Columbia feel that house prices will increase in the next year.
  • Two-thirds of all mortgages are fixed for terms of four or more years, with five-year terms remaining the most popular at 56%. But many people who took out a mortgage in the past year chose a shorter term, with 20% at one year or less.68% of mortgage holders have fixed-rate mortgages, while 27% have variable- and adjustable-rate mortgages.
  • Fixed-rate mortgages are the most popular among people between the ages of 18 and 34, while those in the 55+ age group are more likely to opt for variable-rate mortgages.

 Click here to download the full report.

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Matt Robinson, December 1st 2009 | Posted in Current Market Information

The Difference Between Bridge & Interim Financing

When it comes to residential mortgages, there is a lot of confusion about the terms ‘bridge loan’ and ‘interim loan’ and there seems to be a broad misunderstanding of these two types of loans.  Hopefully this post will lead to some clarification.

I would define bridge loans as financing required to help someone buy a new residence where there is a firm contract for purchase and a firm contract for sale and the purchase occurs at an earlier date.  The term ‘bridge’ meaning that the financing needed is bridging the gap the offsetting dates produce.

Interim loans are a similar concept, except there is NO firm sale agreement in place for the present property, even though a new purchase has been finalized.  These types of loans are growing in popularity in the current market.  People are getting anxious about buying and think they better make an offer before they’ve even sold their other house.  In these instances they need these loans to carry them over.

Most lenders will consider this type of file providing the package is planned correctly. (the lender’s bottom line concern is ‘Will we get paid back?’)

Logic tells us that if the client has two homes, then one of them could be considered a rental.  One of the main challenges in placing this type of file is deciding which property will be the rental.  The reason is that we often need a “Rental Offset” in order to make the debt servicing fall within the lenders guidelines and that normally means including all the financial obligations that the borrower(s) have at the time the file closes.

Examples:
- some enders only allow an offset on the “subject” property
- some only on the applicant’s residence
- some only on insured loans

Getting the optimum mix is the key to having these files stamped “APPROVED”.

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Matt Robinson, November 24th 2009 | Posted in Mortgage Products

Renting Vs. Buying Analysis

In a previous post, I went over some of the pros and cons of both continuing to rent and purchasing a home.  Here I will outline what purchasing power a rent payment would foresee.  Note the examples below take into account utilizing a 5% down payment.  In a future post I will show what this would look like without a down payment.

The examples below demonstrate how large a mortgage your current rent could support with a down payment of 5%. Your potential purchase price is also shown. Examples are based on a 35 year amortization and an interest rate of 4.09%. Your gross income will determine how large a mortgage you can qualify for.

Your Rent – $           Amount Rent will buy – $           5 % Down Payment -$           Purchase Price – $

600.00                      142,089.00                                   7,250.00                                  145,000.00
650.00                      145,028.00                                   7,400.00                                  148,000.00
700.00                      156,788.00                                   8,000.00                                  160,000.00
750.00                      167,567.00                                   8,550.00                                  171,000.00
800.00                      178,346.00                                   9,100.00                                  182,000.00
850.00                      190,105.00                                   9,700.00                                  194,000.00
900.00                      201,864.00                                 10,300.00                                  206,000.00
950.00                      212,643.00                                 10,850.00                                  217,000.00
1,000.00                   224,402.00                                 11,450.00                                  229,000.00
1,050.00                   235,182.00                                 12,000.00                                  240,000.00
1,100.00                   245,961.00                                 12,550.00                                  251,000.00
1,150.00                   257,720.00                                 13,150.00                                  263,000.00
1,200.00                   268,499.00                                 13,750.00                                  274,000.00
1,250.00                   280,258.00                                 14,300.00                                  286,000.00
1,300.00                   291,037.00                                 14,850.00                                  297,000.00
1,350.00                   302,796.00                                 15,450.00                                  309,000.00
1,400.00                   313,576.00                                 16,000.00                                  320,000.00
1,450.00                   325,335.00                                 16,600.00                                  332,000.00
1,500.00                   333,174.00                                 17,000.00                                  340,000.00
1,550.00                   346,683.00                                 17,700.00                                  354,000.00
1,600.00                   362,572.00                                 18,500.00                                  370,000.00

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Matt Robinson, November 17th 2009 | Posted in Mortgage Products
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