Co-buying a home

Think of your siblings, or perhaps your closest friends. Could you buy a home with them? As in, have permanent, legal roommates?

 

This is a new trend, mostly among millennials who are finding themselves priced out of hot housing markets. In Toronto, for example, where the average house price is moving close to $800,000.00, many people are looking to alternate arrangements instead of settling for a condo. Co-buying allows them to afford a house, maybe even a detached house, when alone they wouldn’t have the income to support it.

 

There are some definite dangers to consider. First, how well do you know the finances of your co-buyer? How secure is their employment? How good are they at paying their bills? Some people with good incomes simply forget, or choose not to pay certain bills. If your co-buyer doesn’t pay their share of the mortgage, however, you could lose your house.

 

Most importantly: what happens if your relationship breaks down? This is not an investment partner; this is someone who will live with you in your house. Especially if you don’t have separate entrances, you will be seeing a lot of this person. Do they leave dirty dishes in the sink or dirty socks on the floor? Do they have a noisy pet, or a young child? Do you? What happens if one of you wants to sell and the other doesn’t?

 

Co-buying has the potential to help you into a really hot market, but there are a lot of possible issues. If you are thinking about it, you should definitely have a written contract with your co-buyer that sets out all of the possible issues and how they are to be resolved – and you should do this before you buy.

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When it comes to real estate, pay attention to the details

There is a lot of fine print in the real estate industry. Purchase and sale agreements, mortgage commitments…there’s a lot there that most people don’t read too closely. Ultimately, you should, but if you’re not going to, you need to at least be aware of what could bite you so that you can ask a trusted advisor what applies in your situation.

When buying, always look at what you’re agreeing to assume in rentals. Is there a furnace rental, or a water softener? If so, do you want them, or would you rather have ones that you own? If you agree to take on a rental, you have to do so. Conversely, if you’re selling, be sure that you’ve at least addressed all of the rentals. It’s never pleasant to find out not long before closing that you have to buy out an expensive furnace because it didn’t get listed in the agreement. Sellers should always be aware of what they’re agreeing to provide for a survey, and make sure they have it before they sign. And if you’re buying or selling, always, always read the extra schedules so that you’re sure what you’re agreeing to do.

With mortgages, it’s important to look beyond the rate. Do you want to be able to pay it down aggressively? Have you talked about the length of the term and the amortization? It’s obviously important to get the best rate you can, but if you have other objectives, you want to ensure they’re being met.

As they say, the devil is in the details. And a devil is not what you want in your new home or mortgage.

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Keep your proof that your house is where you live for when you sell it

A short time ago, the federal government introduced changes to reporting requirements for selling houses. These rules do not change the actual tax – there are still full exemptions most of the time if it’s your principal residence – but now you have to make a statement on your tax return about whether you sold a house in the prior year. The reason for this is to prevent people who are selling investment properties from avoiding capital gains taxes. When the time comes that you sell the house you live in, be prepared for what you will need to provide on your tax return the next year – this is a handy guide from MoneySense Magazine.

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Buying under a power of sale

house-saleWhen the housing market shifts, whether from loss of value or from increased interest rates, an unfortunate consequence is often an increase in properties that are sold under power of sale, or sold by the mortgage lender in order to pay back the mortgage. This consequence can be an opportunity for the right buyer, but you should keep in mind that the person selling to you hasn’t been living there. They don’t know anything about the physical nature of the house, so they completely limit their liability for anything that could go wrong. This will be written right into the offer, so if something happens after closing, you will be out of luck. Do your due diligence up front. Get a home inspection, and get in inspectors for any specialized items on the property (well, septic system, wood stove or fireplace, fuel oil tank, etc.).

Buying under power of sale can give you a financial break. Be sure it doesn’t become a money pit.

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Selling when you aren’t a Canadian resident

canada-1If you are not a Canadian resident, or will not be on the day of closing, budget for getting a lot less money on the day of closing. Tax laws in Canada may require that you pay capital gains tax, and so your lawyer could have to hold back up to 25% of the sale price to cover the possible taxes. There are some exemptions, and you can speak to an accountant about getting approved for one before closing, but you may need to pay it. Especially if you have a mortgage, or need to use those funds right away, you should look into this as soon as you have an offer to minimize the effect on you.

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First-time buyer rebates on Land Transfer Tax

sale-2I get asked a lot about rebates for first-time buyers. The rules can be a bit complex, which is why it happens fairly regularly that someone thinks they qualify when they don’t. Here are the basic rules:

  1. You have never owned property anywhere in the world. That means never, anywhere. Not “not in the past five years.” Not “I owned a property in another country.” Not even “I went on title to my parents’ condo in Florida.” You can’t ever have been on title to any property, anywhere.
  2. You do not, or did not, have a spouse who has owned property at any point while you were spouses. The key point to remember here is that Ontario’s Family Law Act has two definitions of the term “spouse” – one is that you are legally married, and one that is expanded to include two people who have been living together for at least three years or have a child together. For Land Transfer Tax, the broader definition is used, which means that if you have been living for at least three years with your partner in a house that they own, you are no longer eligible for the rebate. Even if you break up, you lost the right to the rebate during your relationship and cannot get it back.

It’s really important to be aware of the rules, and to be sure that you fit into them, before assuming that you’re going to get the full rebate. If you’re not sure, ask your lawyer at the beginning so that you aren’t budgeting for money you won’t get.

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Reverse Mortgages

reverseBecause of Remembrance Day tomorrow, I’m posting about real estate today.

You see these commercials once in a while: happy older couple who are able to stay in their home because of the magic of a reverse mortgage. But what is a reverse mortgage?

Basically, it’s a mortgage that you don’t pay until you die or sell your home….but that you can’t refinance either. These mortgages can be extremely restrictive, and so it is particularly important that you read through the fine print to ensure that you are comfortable with the terms. You could end up in a mortgage with fairly high interest compared to the average market rates that you can’t pay out as long as you’re staying in your home. They can be beneficial to a person who has very low cash flow because of a fixed income, but significant equity in a home that has recently increased drastically in value. However, it is critical that you read all of the details. If you are going ahead, you need to go ahead with full knowledge.

Some quick advice when buying from an estate

tombstoneIt comes down to one point: ask if the executor has gotten their probate order back yet. If they haven’t, there is always a chance that the closing could be delayed, because the seller cannot sell until that order has been returned by the court. If they have it, it’s smooth sailing.

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Renting to own

for-rent-4These are becoming increasingly popular as a way for purchasers to get into the housing market before they have a down payment ready. The danger, however, is getting financing down the road when it’s time to close the actual purchase.

Many lenders are very hesitant to loan money to purchase these properties, so it is crucial that you talk to a mortgage broker at the beginning of the deal, and keep in touch with the broker as the years pass. It would be heartbreaking to get to the end of the term, have paid all your money, and not be able to get a mortgage.

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Are you ready for communal living?

Condo 7I have many people who buy condos because they are affordable. A very important consideration, however, is whether you can handle the condo lifestyle.

I have a client who recently put an offer on a condo. Fortunately, he had me review the status certificate and related documents before his offer became firm, because in with all of the rules and regulations was a ban on dogs – cats were permitted, but no dogs. He has a dog, so this was a major problem. Because we found it early, he was able to make a decision about whether to go ahead with the purchase without losing any money if he decided to back out.

Condos have some very particular rules. If you’re okay with them, they can be a great option, but it’s critical to be sure that you can live within the rules before you go ahead and buy.

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