The Dos And Don’ts Of Buying A New Home

The Dos And Don’ts Of Buying A New Home

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Home buying season is officially here and when it comes to your finances there are dos and don’ts that come along with the often-overwhelming responsibility of taking on a new or higher mortgage.

Here is a list of the top dos and don’ts to keep in mind when you’re shopping for a home.

Ensure you’re in a good financial place.

With the increase in minimum down payment (10 per cent minimum on the portion of the price of a home over $500,000), it’s important to review your financial plan and ensure you are ready to make one of the largest purchases you’ll likely ever make. When it comes to deciding on the amount to put down on your home, everyone is different. Some may want to minimize debt as much as possible while others may be comfortable with a higher mortgage if the investment returns look promising.

If you’re a first time homebuyer, consider borrowing from your RRSP if it makes sense. You can withdraw up to $25,000 tax free (up to $50,000 per couple) under the federal governments Home Buyers Plan. First time home buyers are also eligible for a first-time Home Buyer’s Tax Credit of up to $750 and may be eligible for a refund on the land transfer tax.

Whatever you choose, it’s important to ensure you have a safety net in place. You never know when you will have a leaky roof or your furnace breaks down.

Keep the emotion out of it.

Buying a home can be a very emotional process which is why it’s essential you know your budget before getting emotionally attached. Get pre-approved for a mortgage BEFORE you begin your search. Even if you just start looking casually, you may stumble upon a place that feels like home, and at that point it may be more difficult to stick with what’s affordable if you don’t have a set budget.

Identify your priorities. What is a “need to have” versus a “nice to have.” One way to weigh out the differences is by making a list of the top must-haves and rating them on a scale from one to ten.

When it comes to keeping the emotion out of your decision-making, waiving a home inspection is another big no-no; while you may be over the moon about a home you found, it isn’t worth the risk of sacrificing potential unforeseen problems down the road.

Mortgage broker versus banks.

In the past, it was commonplace for homebuyers to resort to their banks for their mortgage requirements and needs, but these days there is an increasing presence of mortgage brokers. Mortgage specialists have access to a range of lenders and rates and can negotiate the lowest rate on your behalf.

Say no to mortgage insurance.

Here’s why: with mortgage insurance, everyone at the same age pays the same premium. There are no discounts to be had for a better than average lifestyle, health status, etc. Additionally, mortgage insurance benefit value declines as you pay your mortgage. So even though you will continue to pay the same price for insurance, it will decrease in value and it will be gone when your mortgage is paid off, even though you may have ongoing insurance needs.

Location, location, location!

The farther away you are from your place of work, the more you may end up spending every month on your commute. Weigh the extra commuting expenses after tax credits versus the incremental mortgage payment on a property that would not only make your daily commute shorter and less expensive, but also save you a lot of time.

Happy house hunting!

Vice President of Investments, Invisor Investment Management Inc., one of Canada’s leading online financial advisors.

Source; HuffPost Business Canada

 

RBC selling home-auto insurance unit to Aviva for $582 million

TORONTO – Royal Bank of Canada is selling RBC General Insurance and moving some of its employees to Aviva Canada.

The bank  will receive about $582 million from the sale of the home and auto insurance business and RBC estimates it will realize a $200-million after-tax net gain from the deal, which will close sometime between July and September.

Aviva Canada will also provide a full suite of property and casualty insurance to RBC customers, including home and auto, under a 15-year strategic agreement with the bank. Policyholders won’t be affected at this time.

About 575 RBC employees will move to Aviva and others supporting the sales process will remain with the bank.

Those that are moving to Aviva are responsible for claims, underwriting, product development, information technology and related functions.

“This partnership is a fantastic addition to Aviva Canada, diversifying our distribution alongside our highly-valued 1,500 independent brokers,” Aviva Canada chief executive Greg Somerville said in a joint statement.

The head of RBC Insurance said the deal will allow the bank to focus on and invest in areas with the greatest potential for growth, including life, health and wealth insurance.

“RBC Insurance is one of the fastest growing direct-to-consumer home and auto insurance providers in Canada and this partnership will allow us to maintain our deep client relationships, while offering a full suite of property and casualty insurance products,” said Neil Skelding, the president and CEO of RBC Insuranc

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B.C. couple says home warranty insurance offers little protection

A Coquitlam couple says B.C.’s home warranty insurance has failed them and there needs to be more government oversight.

In March 2013, Tina and Ben Wilson moved into a newly constructed home on Coquitlam’s Burke Mountain. Now, almost three years later, they are still fighting with the insurance provider handling their new home warranty claim.

“You buy your dream home and it turns into a nightmare,” says Tina.

The home came with home warranty insurance. By law, all residential builders in B.C. must have third-party home warranty insurance on new homes before getting a building permit. The Wilsons say soon after they moved in, they noticed a number of deficiencies including electrical issues, drainage problems with water settling against the house and mold in the basement suite. They decided to file a new home warranty claim.

“We let them know in August about the mold in the basement suite and by November we knew we were in for a fight,” says Tina.

The Wilsons say the insurer, Aviva Insurance Company of Canada represented by National Home Warranty Group, sent a third-party investigator to look into the mold problem. Initially, the couple says they were told nothing was wrong.

“The builder, the insurer, and the third party all came in and said the ventilation system was working fine and installed to code,” says Tina. “When we pushed back and hired engineers and hired environmental specialists, they found that not only was it not functioning at all, but it wasn’t installed to code.”

The insurance company eventually accepted the findings and began the remedial work. However, the Wilsons say the experience with  home warranty insurance has been an uphill battle.

“If you are willing to fight. If you are persistent. If you don’t go away quietly, then new home warranty eventually might do something to help you a little bit,” says Tina.

The Homeowner Protection Office, which is a branch of BC Housing, monitors the performance of home warranty insurance, but it has no authority to regulate warranty providers or insurance brokers. Consumer Matters reached out to BC Housing Minister Rich Coleman, but he declined our request for an interview. Instead, we were referred to the Homeowner Protection Office.

Vice president and registrar Wendy Acheson says, “I believe most homeowners are very satisfied with the system and when you look at the number of homes being built where we don’t get any complaints [it’s] enormous. The number of complaints we get is actually 0.2 per cent of the number of homes that are being built.”

Acheson says there are a number of tools available to the homeowner should they run into trouble. A complaint can be made to the Financial Institutions Commission which regulates insurance providers. A homeowner can also institute mandatory mediation.

But realtor and homeowner advocate John Grasty says there’s little protection for the homeowner because they are forced to use a home warranty company selected by the builder.

“In my opinion what protection that is offered is worthless,” Grasty adds.

“There’s not enough political will. I don’t think enough consumers are speaking out. A lot of them can’t be bothered. It’s just too much of a huge organization to be arguing with. ”

Home inspector Ted Gilmour agrees. He says many of his clients are frustrated by the system.

“I think it’s disingenuous of the government to insist on you buying into that system that does not protect you because you have to sue the builder to get anything done is my experience.”

As for Tina and Ben, fighting with their insurance provider and the handling of their new home warranty claim has become a full-time job.

“You quickly realize going through the process, your idea of what is there is a complete misconception,” says Ben. “There’s no one literally there to help the homeowner.”

The Homeowner Protection Office says the province plans to review new home warranty insurance regulations in 2016.

Growing popularity of laneway homes raises questions about adequacy of insurance

Soaring real estate costs are pushing some Canadian cities to embrace laneway housing, touted as the future of affordable living in urban centres.

But as the properties become more popular and balloon in value, questions are beginning to arise about whether current insurance practices are sufficient.

Home insurer Square One Insurance says it has been fielding so many recent calls about laneway homes _ most of them in Vancouver _ that it’s started offering a separate product created specifically for the structures.

Daniel Mirkovic, the company’s president and chief executive, says in the past, laneway homes or coach houses were often $50,000 conversions of detached parking garages created by homeowners to house their adult children.

“Now, because of the high price of real estate, the whole concept of laneway housing has changed,” Mirkovic said. “When you’re looking at a laneway home that the owners have invested $200,000 or $300,000 dollars to build, that’s a very significant investment.”

Converting a back alley parking garage into a residential structure is one way for homeowners to offset the cost of pricey real estate by generating rental income. However, not all Canadian cities allow for laneway homes to be built.

Vancouver is a notable exception. The city has issued over 1,000 permits for laneway homes since 2009. In Calgary, city officials are launching a pilot project that will allow laneway homes to be developed along one of the city’s streets.

As square footage in Canada’s hottest real estate markets becomes pricier and developers look for new ways to squeeze housing into tight spaces, laneway homes are likely to grow in popularity. That could force insurers to rethink their policies.

Currently, most insurance companies _ including Aviva Canada, Intact Financial and TD Insurance _ cover laneway homes under the same policy as the main property and don’t offer a separate insurance policy for the structures.

Mirkovic says that could be problematic in certain circumstances _ for example, if a natural disaster occurs that affects both the main structure and the laneway home. In the aftermath of such incidents, building replacement costs may soar due to a phenomenon referred to as “post-event inflation.”

In that situation, Mirkovic says, “the demand to build new homes or rebuild homes has gone up dramatically because there are thousands of people who need to rebuild their homes, and the supply is low. There’s only a certain amount of building supplies readily available; only a certain amount of contractors who can build homes.”

A home that cost $300,000 to build could cost $500,000 to rebuild. Typically, the insurance policy would cover the difference _ but in the case of a laneway home, it might not, Mirkovic says.

“If you’re insuring something as a detached structure you only get coverage up to the limit specified, which might be up to $300,000, but if it actually costs $400,000, you’re out of pocket for the extra,” Mirkovic said.

There could be drawbacks, however, such as two deductibles instead of one. In some instances, premiums may be higher as well, Mirkovic said.

Mike Shepel recently opted for Square One’s laneway housing package to insure a rental property he purchased in Vancouver. Knowing that replacement costs are guaranteed to be covered in the event of a disaster such as an earthquake provides him with security, Shepel said.

The physician said he plans to use the same product to insure his second rental property _ another laneway home _ as well.

“They’re really cute little places,” Shepel said. “It’s a unique way to get more homes into the community ? It really does feel like a small, little comfy cottage, where you feel more independent.”

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