Monthly Archives: December 2016

Information About Costs and Considerations when Buying a Home

“Home is an invention on which no one has yet improved.”
– Ann Douglas

In the excitement of beginning a search for a home, many people jump right in without considering all of the elements that make a home truly right for them. It is a complicated and personal process. An unsuitable choice can be costly in many ways – you could lose money, waste time and effort relocating, or even put your family’s health in danger. The following are some things to consider when identifying your ideal home and planning a successful purchase.

Choosing a Neighbourhood
Remember that you can renovate a house but neighbourhoods take years to change and there’s no guarantee they’ll change for the better! On the other hand, if you really love a certain part of town but it’s out of your price range you may want to consider buying a less-than-perfect home then doing renovations. They can be quite expensive so try to make improvements that will be reflected in the value when you sell. These renovations have been found to have the greatest payback: kitchen 70%, bathroom 68%, interior painting 65%, exterior painting 62%.

Tips on choosing a suitable neighbourhood:

  • When you find a locale you like, walk around it. See what it’s like from street level.
  • Are the people friendly?
  • Are there stores and recreation facilities nearby?
  • Contact the local school board if you have children. Do local schools provide good education opportunities? If applicable are there private/religious schools?

Figure out what you can afford:
Consider how much you currently need to live on and how much you actually have leftover every month. People have a tendency to create budgets that look nothing like reality – when we should have $400 left over, for some reason we only have half that.

Consider these basic costs of buying a new home:

  • Most homes require a down payment of several thousand dollars.

  • Monthly mortgage payments can be 1/3 of the average person’s annual net income.
  • You may want to pay for a home inspection. Consider more than just the structure. Ask the inspector to check for asbestos, radon, animal infestation and lead.
  • Moving costs can be from a couple hundred to several thousand dollars depending on the distance of your move and the quantity of belongings.

Financing
The sort of home you can afford depends on several things:

  • How much you have saved

  • How much you earn

  • Past earnings
  • Your credit rating

The past has a way of haunting new homebuyers. If you are concerned about your credit rating you can usually get a free copy of your rating report from your local credit bureau. Normally all that’s required is a couple pieces of photo identification. Remember, a few late payments or disputed bills can besmirch your record. Try to pay everything on time and don’t have more than two credit cards. A bad rating can spell trouble getting a mortgage or you end up paying more for your mortgage as a form of insurance to the lender.

Pre-Qualification
This refers to documents from a bank or other lender indicating that you have the financing to back up your offer on a house. Pre-qualification is free and most lenders are happy to sit down with prospective buyers and figure how much they can afford. Having an accurate idea of price range will save time in the bidding process. If there are several people making offers on your dream home, being pre-qualified can make your offer more attractive since financing is not in question. It is important to note, however, that lending institutions will base their final decision about a mortgage on ability of the buyer to service the debt as well as the property. Most lenders state that the two components go hand in hand – the buyer with the ability to repay a mortgage and the property as security in the event of default on payment.

Some Tips on Buying an Old House

For some buyers, it’s hard not to fall in love with the special charm and character that old houses offer such as gabled roofs, hardwood floors, crown moldings, and more.  Old homes can also be attractive as affordable fixer-uppers and charming B&B establishments with their unique architecture and Old World craftsmanship rarely found in newer homes.  These homes often feature plastered walls, leaded glass windows, and original (antique) chandeliers and light fixtures.  As attractive as the property may be, it’s important to consult the experts and be aware of some common problems.  No buyer wants to discover that beneath the surface of their dream home lays a dilapidated wreck!

Foundation
One of the most important aspects of any home is the foundation.  This is even more important in older homes for two reasons.  First, a serious problem called “sulphate attack” can occur as a result of a chemical reaction between the soil and the concrete causing the foundation to crack and crumble.  Sulphates occur naturally in the soil and may also build up from lawn fertilizer over the years.  Modern foundation concrete is formulated to resist sulphate attack.  The second concern with older homes is that the centre beam of the home can begin to sink.  The result can be a sagging roof, bowed walls and sloping floors.  The remedy for both these problems is expensive and would require jacking up the house to replace the foundation and shore up the centre beam.  The cost of these renovations can range from several thousand dollars to $50,000 depending on the size of the home.

Electrical Wiring
Taking a tour of an older property after dark can be an illuminating experience!  It’s a great way to find out if there are obvious problems with the state of the electrical and lighting system of the home.  Do the lights flicker?  Is the current steady or do the lights fluctuate between bright and dull?  Is there adequate lighting in the home?  Any such problems could indicate faulty wiring or an overloaded circuit.  Even if you don’t find any problems, it’s important to have the wiring carefully inspected by a qualified home inspector or an electrician.

Many homes built or renovated from the late 1960s to the mid-1970s used aluminum wiring, which was less expensive than copper wire.  Unfortunately, many homeowners discovered over time that aluminum wiring posed a serious fire hazard.  Ask your inspector to check for aluminum wiring and, if necessary, factor the cost of rewiring into your offer price.

Also consider whether there are enough outlets in the home to suit the needs of a modern household.  Ask your home inspector or electrician if it is possible to safely install more outlets and to run a number of devices at once such as a television, computer, stove, etc.

Galvanized Pipe
Most insurance companies now refuse to cover water damage caused by leaks in a home with galvanized pipes.  These pipes rust out sooner or later.

Lead Paint
Lead paint is common in older homes.  Lead was used as a white pigment in paint until the mid-1950s.  Some paints contained as much as 50 percent lead by weight in the dried paint.  In 1976, the federal government passed regulations limiting the amount of lead in interior paint to 0.5 percent by weight (exterior paints may contain more lead).  Unfortunately, the affects of this toxic metal on adults and particularly children didn’t end in the 1970s; many old buildings still contain lead paint.

If you are planning to strip the paint in an old home, call in a professional renovation firm or use lead-safe dust masks and goggles.  Wear long pants and shirts when working and wash your face and hands thoroughly before eating.  Children and pregnant women should not be in the home during renovations.  In some cases, new paint has been applied over the old lead paint, in which case, you may not need to remove the old paint.

A home inspector and/or an environmental renovation company should be able to tell you if the paint in a prospective home will be a problem. You can also use home test kits available at many paint, hardware, and home centre stores.  To use these kits you would apply a chemical to the paint then look for a colour change, indicating the presence of lead.  According to the National Research Council Canada, the most dependable method of detecting lead-based paint is to have a sample analyzed by a commercial testing laboratory. Several samples will have to be taken from different parts of the house.  The most reliable laboratories are those certified by the Standards Council of Canada or the Canadian Association for Environmental Analytical Laboratories.

Asbestos
This naturally-occurring mineral makes a very effective fire- and heat-resistant material but unfortunately, in the mid-1970s doctors discovered that asbestos caused lung disease.  The tiny particles of this mineral are inhaled deep into the lungs and over a period of years begin to damage the tissues.  In old homes, asbestos was used in carpet underlay, textured paints, roofing felt, electrical wiring insulation, acoustic ceiling material, and insulation.  Your home inspector can let you know if you have asbestos or you may wish to consult an environmental assessment firm.

Finally, homes are a lot like people—the years eventually take a toll!  Things begin to sag and slope.  Rather than consulting a contractor, hire a structural engineer to examine your home.  They can give you an unbiased assessment of the home’s structure.  A structural engineering report is also more detailed than reports by home inspectors.  Both types of inspectors should be used when purchasing an old home.

For some buyers, renovations are not a deterrent but a challenge, particularly if they can purchase the property at a good price.  To determine the price you are willing to pay, add up the estimated costs to renovate the property based on a thorough assessment of the house.  Next, subtract that from the home’s anticipated market value after renovation, drawn from comparable real estate prices in the neighbourhood.  Your real estate professional can help you determine the market values.  Allow for an additional 5 percent for cost overruns and unforeseen problems plus inflation.  What’s left should be your offer.  If it’s in your price range, you may have the home of your dreams after all.

Tips To Buying on Leased Lands

A home is a substantial and important purchase. It is one of the few tax-free investments available to Canadians. There are no income taxes due on the capital gains, when selling a primary residence.* As well, retired homeowners often want to tap into the equity of a mortgage-free home with a reverse mortgage or sell the property to fund assisted living. Home is where the heart is and where people build wealth.

Although there are exceptions, the quality of that investment is very much affected by the land beneath the foundation. Structures deteriorate (and depreciate) while land appreciates. Land is finite, even more so in a world where the population is growing exponentially.

Buyers may fall in love with a spectacular kitchen, or vaulted ceilings, but they should also consider the land. There are three main types of ownership inCanada: strata, freehold and leasehold. Generally, a house on freehold land will appreciate the most because the land ownership is 100 percent. In a strata property, such as a condominium, each owner has ownership of a small percentage of the land, which helps to increase property value. Living on leased land offers no land title but occasionally offers some surprises!

In 1995, people living on leased lands titled to the Musqueam Indian Band suddenly faced rents of up to $36,000 a year. This was a huge increase from the $300 to $400 a year the leaseholders had been paying for 30 years. They spent five years and $1.5 million to fight the increases in court. The Supreme Court ruled that land rents could go as high as $10,000 per year.

In 2015, when the lease terms were up for renewal, the Musqueam Indian Band announced another increase, this time of eight times the previous rate. A resident would pay up to $80,000 per year instead of $10,000. Many of these homes are on relatively large lots, some with swimming pools, in a lovely neighbourhood. These people have invested in a structure, which cannot easily be relocated, plus the opportunity to live at a certain address.

Some of the people living on Musqueam Indian Band lands are fortunate to have prepaid leases. They were able to avoid the dramatic increases.

For buyers looking to purchase a home on leased land, lenders now typically require a prepaid lease. Banks also want the lease to exceed the length of the mortgage (amortization period) by several years. This is because landowners can evict tenants at the end of the lease period. Although it is unlikely that a landowner would do this, it is their right. They could decide to build a commercial complex, if they feel that is more profitable than residential housing.

A reverse mortgage is also less attainable for homeowners living on leased land. A reverse mortgage relies on land value for a stable price. Home shoppers should research whether a potential purchase would qualify for a reverse mortgage in the future. Being able to unlock the equity in a home can add to comfort in retirement.

What are the benefits of purchasing on leased land? Price is a key benefit. Typically it is less expensive than a home on freehold land. If a person wants to own a house, for example, but cannot afford one in an area with freehold title, a home on leased land could be an option.

Location is another benefit. Sometimes leased land is in a great location beside a lake or a ski hill.

InCanada, under the Indian Act and protected under the Constitution, title to certain reserve lands is held by the federal government ofCanadafor the use and benefit of a band. Some bands are self-governing and are granted full control over management of the lands and have a separate land registry system.

For those considering buying a home or condominium on leased land, research is essential. Consider these points:

  • What are the lease terms?
  • What are the fees, taxes and/or rents payable on the property?
  • Does the property qualify for a reverse mortgage, if desired?
  • What is the price history of the property?

Buying on leased land can be a good option for buyers who purchase with a full understanding of the costs and the lease structure weighed against the benefits.

* When you sell your home, you may realize a capital gain. If the property was your principal residence for every year you owned it, you do not have to report the sale on your income tax and benefit return. For more information, visit http://www.cra-arc.gc.ca.

Buying on Leased Lands

 

A home is a substantial and important purchase. It is one of the few tax-free investments available to Canadians. There are no income taxes due on the capital gains, when selling a primary residence.* As well, retired homeowners often want to tap into the equity of a mortgage-free home with a reverse mortgage or sell the property to fund assisted living. Home is where the heart is and where people build wealth.

 

Although there are exceptions, the quality of that investment is very much affected by the land beneath the foundation. Structures deteriorate (and depreciate) while land appreciates. Land is finite, even more so in a world where the population is growing exponentially.

 

Buyers may fall in love with a spectacular kitchen, or vaulted ceilings, but they should also consider the land. There are three main types of ownership inCanada: strata, freehold and leasehold. Generally, a house on freehold land will appreciate the most because the land ownership is 100 percent. In a strata property, such as a condominium, each owner has ownership of a small percentage of the land, which helps to increase property value. Living on leased land offers no land title but occasionally offers some surprises!

 

In 1995, people living on leased lands titled to the Musqueam Indian Band suddenly faced rents of up to $36,000 a year. This was a huge increase from the $300 to $400 a year the leaseholders had been paying for 30 years. They spent five years and $1.5 million to fight the increases in court. The Supreme Court ruled that land rents could go as high as $10,000 per year.

 

In 2015, when the lease terms were up for renewal, the Musqueam Indian Band announced another increase, this time of eight times the previous rate. A resident would pay up to $80,000 per year instead of $10,000. Many of these homes are on relatively large lots, some with swimming pools, in a lovely neighbourhood. These people have invested in a structure, which cannot easily be relocated, plus the opportunity to live at a certain address.

 

Some of the people living on Musqueam Indian Band lands are fortunate to have prepaid leases. They were able to avoid the dramatic increases.

 

For buyers looking to purchase a home on leased land, lenders now typically require a prepaid lease. Banks also want the lease to exceed the length of the mortgage (amortization period) by several years. This is because landowners can evict tenants at the end of the lease period. Although it is unlikely that a landowner would do this, it is their right. They could decide to build a commercial complex, if they feel that is more profitable than residential housing.

 

A reverse mortgage is also less attainable for homeowners living on leased land. A reverse mortgage relies on land value for a stable price. Home shoppers should research whether a potential purchase would qualify for a reverse mortgage in the future. Being able to unlock the equity in a home can add to comfort in retirement.

 

What are the benefits of purchasing on leased land? Price is a key benefit. Typically it is less expensive than a home on freehold land. If a person wants to own a house, for example, but cannot afford one in an area with freehold title, a home on leased land could be an option.

 

Location is another benefit. Sometimes leased land is in a great location beside a lake or a ski hill.

 

InCanada, under the Indian Act and protected under the Constitution, title to certain reserve lands is held by the federal government ofCanadafor the use and benefit of a band. Some bands are self-governing and are granted full control over management of the lands and have a separate land registry system.

 

For those considering buying a home or condominium on leased land, research is essential. Consider these points:

  • What are the lease terms?
  • What are the fees, taxes and/or rents payable on the property?
  • Does the property qualify for a reverse mortgage, if desired?
  • What is the price history of the property?

 

Buying on leased land can be a good option for buyers who purchase with a full understanding of the costs and the lease structure weighed against the benefits.