3 ways parents can help grown kids own a home

By Marilyn Lewis

THE ASSOCIATED PRESS

When responsible first-time homebuyers need help buying a home, the family bank sometimes can lend a hand.

Younger homebuyers face a mountain of obstacles, including rising home prices and interest rates, too few homes for sale and unpaid college debt. Student debt is a major source of trouble. When the National Association of Realtors surveyed recent homebuyers who had problems saving up a down payment, 53 per cent of those in the youngest group (37 and younger) blamed student loan debt for their difficulty.

Families appear to be pitching in to help, according to the results of that survey in the 2018 NAR Home Buyer and Seller Generational Trends Report. Among homebuyers who made a down payment, 23 per cent of those 37 and younger used a gift and 6 per cent a loan from family or friends the highest proportion for either type of assistance among all age groups.

Family assistance like this works best when the kids qualify for a mortgage on their own and parents make the purchase more affordable with, for example, a bigger down payment or a lower interest rate, says Jeremy Heckman, a certified financial planner with Accredited Investors Wealth Management in Edina, Minnesota.

FIRST, THE GROUND RULES

To create a businesslike distance for these transactions, Heckman suggests that parents:

_ Consider disclosing the assistance to all immediate family

_ Consider treating all siblings equally

_ Use contracts

_ Document gifts

Formal agreements offer important benefits, says San Francisco real estate attorney Andy Sirkin. They define obligations and minimize misunderstandings. And if parent lenders die or become incapacitated, all their heirs can view the transaction and its history.

WAYS TO HELP

Here are three ways parents can help make it more affordable for new homebuyers to purchase a home:

1. GIVE MONEY

A gift of money is often best, Heckman says. Parents can write a check for any amount they choose. That’s it _ no contract or ongoing commitments. Or they can pay all or part of an expense such as mortgage closing costs. Providing down-payment assistance can help new borrowers avoid paying for private mortgage insurance, which helps keep their monthly payment low.

HOW IT WORKS

Strict rules dictate how cash gifts are used in a home purchase, and they vary by mortgage type, lender and lender offer, says Mark Case, a senior vice-president at SunTrust Mortgage.

Lenders like to see money gifts _ easily traceable checks, bank transfers or wire transfers _ in a borrower’s bank account three or four months before applying for a mortgage, Case says. Givers and recipients may need to sign letters confirming that the money isn’t a loan.

When it comes to taxes, anyone can give any other person a gift up to $15,000 in value (money or, say, stocks) in 2018 without filing the gift-tax return IRS Form 709 . So a parent with two children can give each of them _ and even the children’s partners _ up to $15,000 this year without having to complete Form 709. A tax professional can confirm how the rules apply to individuals’ specific circumstances.

2. FINANCE THE MORTGAGE

Parents with cash to invest can become the mortgage lender, offering extra-easy terms, like no closing costs or no down payment. Heckman says they can charge a higher rate of interest on their money than it earns in a savings or money market account and still offer kids a lower-than-market mortgage rate.

“I said, ‘This could be a win-win for both of us,”’ says Jay Weil, an attorney in Wayne, New Jersey. He and his wife, Judy, have financed two mortgages for their son Matt and Matt’s wife, Allison.

HOW IT WORKS

Jay and Judy fully funded the younger couple’s first home, a Columbia, Maryland, townhouse. They decided to use a service that facilitates family loans. They worked with National Family Mortgage, which charges one-time setup fees of $725 to $2,100, depending on the loan size; provides all necessary forms and documents to meet state, local and IRS requirements; guides families through the settlement and filing process; and connects borrowers with loan servicers.

Then in 2017, the Weils lent the kids money again, for a $579,900 house in Laurel, Maryland. Matt and Allison got two loans. One was a primary mortgage from SunTrust Mortgage for $259,900, at 3.875 per cent. His parents provided a second mortgage for $260,000 at 1.98 per cent. They used money earned from the sale of their first home to make a down payment.

Family lenders must charge at least the Applicable Federal Rate , the minimum interest rate required to keep the assistance from being considered a gift.

3. CO-BORROW

Although riskier for parents, co-borrowing is another option. Mortgages with co-borrowers were nearly a quarter of all new-purchase mortgages in the third quarter of 2017, according to ATTOM Data Solutions, a real estate data company.

Co-borrowing helps borrowers overcome a limited credit history or a too-high debt-to-income ratio, says Case, of SunTrust Mortgage.

HOW IT WORKS

Parents apply for the mortgage, too. They must meet the lender’s credit requirements and sign loan papers with their kids at closing.

Aside from the mortgage itself, a separate family contract can define expectations and details such as who gets how much equity when the home sells and what happens in case problems arise, says Sirkin, the real estate attorney.

For parents interested in being co-borrowers, there are some things to keep in mind:

_ Not all loans allow co-borrowers, so it’s good to confirm the option when shopping for mortgages

_ Some lenders may call this step co-signing, which may have different parameters, but the outcome is the same: Parents and children are equally responsible for the loan and any missed mortgage payments

_ Parents’ credit could be affected, making it hard to finance another big purchase later, even if children make payments on time

With all the headwinds facing first-time homebuyers, family help sometimes makes all the difference.

___

This article was provided to The Associated Press by the personal finance website NerdWallet. Marilyn Lewis is a writer at NerdWallet.

February storms, floods caused more than $57 million in insured damage

Insurance Bureau of Canada (IBC) reports that a significant winter storm and flood event, which affected parts of Southern Ontario and Quebec, resulted in more than $57 million in insured damage, according to Catastrophe Indices and Quantification Inc. (CatIQ).

From February 19-22, 2018, a slow-moving high pressure system brought high temperatures and heavy rains to parts of Southern Ontario, including BrantfordChathamKentLondonCambridge, and parts of the Greater Toronto Area. Heavy rains also affected Quebec’s Eastern Townships and parts of Quebec City. The rainfall and high temperatures caused flooding in several parts of the region. Over $43 million in insured damage was reported in Ontario and over $14 millionin Quebec.

“Climate change is causing severe weather events more frequently throughout the year, especially storms involving floods,” said Kim Donaldson, Vice-President, Ontario, IBC. “Since flooding can cause significant damage in a very short time, it is important for consumers to know what their policies cover and whether they have overland flood protection. Consumers should check with their insurance representatives to see what options are available to them.”

For more information on how to protect property against floods and other disasters please visit IBC’s website.

About Insurance Bureau of Canada
Insurance Bureau of Canada (IBC) is the national industry association representing Canada’s private home, auto and business insurers. Its member companies make up 90% of the property and casualty (P&C) insurance market in Canada. For more than 50 years, IBC has worked with governments across the country to help make affordable home, auto and business insurance available for all Canadians. IBC supports the vision of consumers and governments trusting, valuing and supporting the private P&C insurance industry. It champions key issues and helps educate consumers on how best to protect their homes, cars, businesses and properties.

P&C insurance touches the lives of nearly every Canadian and plays a critical role in keeping businesses safe and the Canadian economy strong. It employs more than 120,000 Canadians, pays $9 billion in taxes and has a total premium base of $52 billion.

For media releases and more information, visit IBC’s Media Centre at www.ibc.ca. Follow IBC on Twitter @InsuranceBureau or like us on Facebook. If you have a question about home, auto or business insurance, contact IBC’s Consumer Information Centre at 1-844-2ask-IBC.

About CatIQ
Catastrophe Indices and Quantification Inc. (CatIQ) delivers detailed analytical and meteorological information on Canadian natural and man-made catastrophes. Through its online subscription-based platform, CatIQ combines comprehensive insured loss indices and other related information to better serve the needs of the insurance and reinsurance industries, public sector and other stakeholders. To learn more, visit www.catiq.com.

If you require more information, IBC spokespeople are available to discuss the details in this media release.

SOURCE Insurance Bureau of Canada

Smart Insurance Moves You Can Make Right Now

By Selena Maranjian | Motley Fool

1. Increase your deductible

For many kinds of insurance — car, home, health, and so on — your policy will feature a deductible. That’s the amount you’re on the hook for before the insurer will pay. Low deductibles can seem great, as you won’t have to produce a lot of cash after a car accident or flooded basement, but overall, a higher deductible can be better. After all, you can go many years without a claim and your monthly premiums can be significantly lower throughout that period.

Try calling your various insurers and asking how much lower your premiums would be if you increased your deductible. You may be able to save anywhere from 5% to 25% or more. Never hike your deductible to a level that you can’t pay if you need to, of course.

2. Shop around for lower rates

Another tip that applies to many kinds of insurance is very basic: Shop around for the lowest rates. Don’t just stick with your same old insurer, even if you’re receiving a “loyalty” discount. Spend an hour on the phone with a few competitors and compare apples to apples, specifying exactly what coverage you have and seeing what they would charge you. You don’t want to end up with a lower price that’s due to less coverage.

Give special consideration to any insurer you already have a policy with, as multiple policies can yield discounts. And keep an insurer’s reputation in mind, too. Don’t switch to one that’s not rated highly.

3. Maintain a clean driving record for lower car insurance rates

A great way to keep your car insurance rates low is to have a clean driving record. A single accident can send your rates up by as much as 41%, on average, for a $2,000 claim, per one report. Drivers with clean records get offered much better rates when shopping for a policy, too. You’ll want to avoid not only accidents, but also speeding tickets, DWI offenses, and more.

If you happen to have an incident on your driving record, it won’t be there forever. Its effect on your premiums will likely be reduced over time, and it might not make any difference at all after a few years. It can also help if you drive less. If you become a telecommuter and are driving much less now, let your insurer know, as your rate might drop. The fewer miles you drive, the less risk you present for an insurer.

4. Own certain cars for a long time for lower car insurance rates

Insurers view every make and model of vehicle differently. Do a little Googling, and you’ll find lists of the most costly and least costly vehicles to insure, and lists of the safest and least safe vehicles. Insurers favor safer cars and are likely to charge higher rates for cars that are associated with more claims and less-than-stellar drivers. Cars with a lot of safety features will be favored, too, while expensive cars will cost you more.

According to Insure.com, among 2017 models, the least expensive cars to insure include the Honda Odyssey LX, Jeep Renegade Sport, Subaru Outback 2.5l, and the Buick Encore, with average annual rates below $1,200. The most costly vehicles to insure include the Mercedes S65 AMG convertible, the Dodge GTS Viper, and the Maserati Quattroporte GTS, with average annual rates topping $3,000. If you tend to replace your car every few years, you’re keeping your rates on the steep side. Older cars can be far less costly to insure, and after a certain point, you might just drop your collision coverage entirely, saving even more.

5. Get life insurance if you need it

Don’t assume that because you’re only 25, or because you have no children, you don’t need life insurance. If anyone depends on you financially — your partner, children, parents, or even nephews or nieces — you need life insurance. Think, too, of anyone who has cosigned any loan for you, such as your parents, who might have helped you with school loans or a mortgage. If you expire ahead of schedule, you don’t want to leave them stuck with repayments.

We tend to ignore the possibility that we might die prematurely, but it happens to many people, and often by surprise. You don’t necessarily need a multi-million-dollar whole life policy. A relatively inexpensive term policy can be just fine, lasting only as long as you need it.

6. Consider a “life settlement” if you no longer need your life insurance

If you have a whole life insurance policy and you don’t need life insurance anymore, you may see little reason to keep paying those premiums. You can probably cash out and receive some money from the insurer — or you can look into a “life settlement,” which might pay more, though less than the face value of the policy, which is the amount that would be paid upon your death. With life settlements, a third party will buy your life insurance policy if it likes its odds of making a profit on it — often paying between 10% and 25% of your policy’s face value.

7. Think twice before filing a claim

If a tree falls on your house and splits it in two, of course file a claim with your insurer. But if you have a small claim, you might be best off not mentioning it. With several kinds of insurance, such as car and home, the more claims you file, the more your premiums likely will be increased. According to a CNNMoney article, “On average, filing a single claim — for anything ranging from a stolen bicycle to tornado damage — will result in your monthly premium being raised by 9%, according to a report released by InsuranceQuotes.com. File a second claim and premiums climb by an average of 20%.

 

READ MORE HERE: 

By Selena Maranjian | Motley Fool

Litigation Lender Loses Out in Loan Recovery as Unsecured Creditor

Today’s guest post comes from B.C. injury claims lawyer Erik Magraken

Reasons for judgement were published today addressing the priority of a litigation lender recovering funds from a deceased personal injury lawyer’s practice.

In today’s case (Napora (Re)) the Responded lent money to a personal injury lawyer to help fund the lawyer’s practice.  The money was spent on disbursements; basically money spent in the prosecution of claims on items such as expert reports.

Approximately $187,000 plus interest was owed.

The lawyer died and the practice was deemed insolvent with debts of about $650,000 and with $275,000 held in the general account on behalf of the law practice.

A bank, CIBC, had a secured interest in the personal property of the law practice.   The litigation lender argued that they should have first priority in repayment of the money available.  The court disagreed and ordered that the lender is second in line after the bank.  In doing so Madam Justice Murray provided the following reasons:

14]         Mr. Napora and Mr. Brito entered into many funding agreements between late 2011 and the time of Mr. Napora’s death. These agreements are set out in documentation which is the same for each transaction:

  1.                     Letters from Mr. Napora to Mr. Brito requesting an amount of money “in disbursement funding”, which if approved would be allocated to specific files identified in most letters by file number only. These request letters are on law corporation letterhead but signed by Mr. Napora;
  2.                     Each letter has an attached promissory note, in which Mr. Napora himself promised to pay the sum sought upon receipt of payment for the files specified or within two years, whichever came first. Of note, the promissory note is not on law corporation letterhead and is signed by Mr. Napora himself.

              iii.                    The Promissory note begins: “IN CONSIDERATION of the loan from CARLOS BRITO…, the undersigned Terry l. Napora, HEREBY PROMISES TO PAY …” [underlining added];

  1.                     In most of Mr. Napora’s request letters there is a proviso which states:

I have attached a signed Promissory note for your records.

I undertake to meet the obligations set out in the note of paying out the disbursements and interest related to each matter as payment is received on each matter, or within two years, whichever comes first.

[15]         Due to a clerical error the undertaking is missing in some of the request letters, but given that it was one of the terms of the funding arrangement from the beginning, I do not attribute any significance to its occasional omission.

[16]         The word “loan” was used in the Promissory note. Nowhere in the documentation is the word “trust”. As both Mr. Brito and Mr. Napora are lawyers and Mr. Brito was a banker before becoming a lawyer I attach some significance to that.

[17]         All of the above point to a loan for a specific purpose. Money was requested for a specific purpose and it was given.

[18]         After considering all of the evidence and all of the submissions I am satisfied that there was no trust relationship between Mr. Brito and Mr. Napora.

[23]         I am satisfied that CIBC, as the only secured creditor, has priority over Mr. Brito to the funds held by the custodian for the Napora Law Corporation.

Bank accounts can be used to teach kids basic financial literacy lessons

By Craig Wong

THE CANADIAN PRESS

OTTAWA _ Omar Abouzaher remembers going to the bank with his daughter so she could make her first deposit into an account that was opened for her when she was just a toddler.

The regional vice-president for the Bank of Montreal’s daughter was four when they took her piggy bank to deposit the coins.

“She’s a banker at heart,” he said.

While RESP accounts can help parents save for a child’s education, opening a savings account for a child can be the first step in teaching basic financial literacy, Abouzaher said.

“I believe sometimes we wait too long until the kids are a bit older and try to cram all this financial information and throw it at them,” he said.

Abouzaher recommends starting with teaching what it means to save and then build on that foundation.

“The older they grow, they’ll understand as well the other components or the other pieces that are maybe a little bit more complex when it comes to understanding debt, understanding what it takes to pay tuition, what it takes to manage your credit,” he said.

Parents hoping to teach their children the power of compound interest on their savings today will have a harder time than parents in the 1970s and 1980s, when interest paid on savings accounts soared above 10 per cent compared with rates today, when even the highest-paying savings accounts sit in the low single digits.

But earning interest isn’t the only reason parents would want to help their children open a bank account of their own.

Abouzaher said children can start to learn the basics of budgeting and saving for something down the road.

Kids can be given a choice, he said, such as, “Do you want to spend it right now and buy whatever you want to buy … or do you want to save it and maybe look at something else in the longer run?”

Parents should keep an eye on fees, just like they would with their own account, or else their children may learn an unwelcome lesson about having a bank account. While accounts for children often do not have a monthly fee, banks may charge for other services such as using a non-bank ATM, depending on where the account is opened.

The amount of interest paid on savings accounts for children also varies by institution. According to rate-tracking website Ratehub.ca, youth accounts at Tangerine, the online bank owned by Scotiabank, pays the highest interest rate for young savers at 1.2 per cent compared with typically less than one per cent at the country’s big banks.

At Tangerine, children hold their accounts jointly with a parent.

If a parent is already a Tangerine customer they can open up an account for their child online by entering the information on the bank’s website, said Oliver Small, a senior manager at Tangerine.

Small said you will need to have a social insurance number as well as one of several different pieces of ID to open the account such as a Canadian passport, a permanent resident identification or Secure Certificate of Indian Status.

For children age 11 or under, parents may also use a birth certificate or a citizenship card or certificate.

Small, who remembers his grandparents and parents teaching him early lessons of money management when he was a boy, said it is never too early to open an account.

“Money management and financial literacy are really critical life skills and we know that if you instill good behaviours early on they can last a lifetime.”

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