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SMP: Theresa’s Soap Box: Home Inspections and Appraisals

Today I’m here to chat about a question I received from a client recently: how do home inspection and appraisal relate to a mortgage? Are they required, can you skip one if you have the other…basically, what’s involved there?

Home inspection:

Home inspection is pretty self explanatory. This is when you hire a licensed inspector to assess the property. They’re going to look at the condition of its parts, of what they can see, the mechanics of it: so the water heater (how good is it? Is it going to last?), the plumbing, maybe the roof (how long is it going to last and how old is it?), and make assessments based on that suggestion. If they know the roof is 20 years old, they may suggest that you will need to replace it in the next 2 to 5 years. All of these changes would affect the value of the property in your eyes.

In terms of a mortgage, home inspection does not usually come up unless there is something odd about the property that we notice or if there’s some interesting history that the lender or the insurer knows about. Even if you just have a purchase agreement and there have been a lot of price adjustments afterwards and there are notations for repairs or improvements. The lender might want to see a home inspection report just to make sure that these are regular maintenance items or just improvements and not indications of bigger problems in the future.

Appraisal:

An appraisal seems like it is more common in relation to mortgages, but that might not be the case. For an appraisal, you’re getting a licensed appraiser, they usually compare the value of this property to neighbouring properties to give you an objective third party assessment of what the value of this property should be.

You may have experienced this in the past where a lender asked you to get an appraisal for the property. We’ve actually now been able to negotiate with our lenders here at Finder Financial Services, that we do not need an appraisal in every single case. It use to be the norm, and now we’re trying to get away from that to pass the cost savings onto you. Lenders now have ways to do automatic valuations or computerized valuations so they generally know based on all the statistics what the value should be.

In more unique circumstances, for example, a foreclosure, if you’re bidding on a foreclosed property, an appraisal would be necessary and you would be required to provide that. Other than that, usually we can get rid of that process and save you some time and money.

If that’s interesting to you or you wanted to know more, just give us a call at 1-866-924-5244.

SMP: Theresa’s Soap Box: RRSP home buyer plan credit

Today we are here to talk about the RRSP home buyer plan credit that you can apply for. If you are looking for a property, it’s your first time buying a house, or you’ve owned a house in the past and you’re waiting to see how long you have to wait until you can use these credits again.

RRSP is one of the more popular home buyer plan credits that you can get. It’s very different from the other first time home buyer credit, which is the property transfer tax credit. Not only do they cover different things, but the qualification is completely different.

First thing about RRSP is that you can take out up to $25,000 from your RRSP account and use that to buy your property. It’s a nice savings, you put the money into RRSP, it is tax free so you have your tax money back, and now you can take it back out tax free and use it for your down payment.

The one thing to note is that it is $25,000 per person. If one spouse has been contributing money into the RRSP, but the other has not, then you can only take out $25,000 from the one person’s name. The other spouse cannot tag along and also take out $25,000 from that person’s account. Chat with your financial advisor and talk about setting up spousal RRSP accounts. Something where the funds that you have in RRSP are more equally divided amongst the different people so when you do need to take out the money, you can apply for $25,000 here and $25,000 there and receive $50,000 in total.

Qualification:

The qualification to be eligible to withdraw home buyer plan funds is very different. There is a 4 year limit. If you or your spouse have owned property in the last 4 years that you live in as your residence, then you are not eligible. It also encompasses you and your spouse together. So if you own the property, your spouse is not on title, but they are your spouse at the time and is within the last 4 years, then you are both not eligible for the RRSP homebuyer plan program. If 4 years has gone by, you sold all of your property, neither of you owned your residence, then you are eligible again to use this program.

This is quite intricate. If you’re curious about that or you’re not sure if you qualify or not, feel free to give us a call at 1-866-924-5244 and we’ll be happy to walk you through the steps. We’ll also let you know about some Government of Canada websites that can walk you through the requirements as well.

SMP: Theresa’s Soap Box – What are the risks of co-signing?

Today I’m here to talk about what are the risks co-signing or acting as a guarantor for someone on their loan. Whether it’s a car loan, mortgage, or anything in between, there are some real risks that I wanted to address.

You’ve probably heard of this, a parent co-signing for their child to buy a car, or a family member co-signing for another relative to help them buy a house. These are obviously trusted family members or very close people that you know. You’re not out there co-signing for strangers whom you don’t know what their finances are like. It seems as long as you make your choice correctly, there’s not really any risk.

1. What if the other person doesn’t pay?

The first item that I wanted to bring to your attention is if the other person doesn’t pay, they default on their loan and you are now responsible for that debt. The part that seems to catch people off guard is that you are responsible for the entire loan. Not half, not a couple months worth of payment…you are now expected to pay back the entire amount. People don’t seem to expect that when they do get into trouble. Not to mention your credit is going to be affected & collections is going to come after you.

All round, it is a very unpleasant situation, especially if you are dealing with close friends or family members, how do you resolve it in an amicable way and not get yourself in more trouble?

2. What if I co-sign and I want to apply for a mortgage?

The second thing which is even lesser known is what if your friends or family members are making all of their payments? There’s no default, everyone’s credit is perfect, everybody is happy, but you did co-sign for this person and maybe they have a $500 per month car loan.

What if you decide to buy a house now and you need to apply for a mortgage? Even though this car does not belong to you, you don’t make the $500 per month payments, and you don’t get any benefit from this car, you are still responsible for $500 per month. Again, not half, not 2 or 3 months worth of payments, but the entire $500 per month.

What the lenders are going to do when they’re calculating your financial balance sheet is they’re going to say, okay, you already promised this $500. In case that other person doesn’t pay, we’re going to take $500 per month of your income and reserve it. Whatever is left of your income, you can use that to try to qualify for a mortgage. If you make $2000 per month, a quarter of your income is now gone and reserved, and they won’t let you use that in qualifying for a mortgage so you may end up with something a lot smaller than you had initially thought.

So if that’s of concern to you, or you want to know more, there are a lot of intricacies to this that we usually get into with mortgage prequalification, feel free to give us a call at 1-866-924-5244.