Don’t forget about other costs when shopping for a house

Short and sweet today: When thinking about the cost of a home, remember to be aware of more than just mortgage payments. You will need to pay taxes, house insurance, and utilities, and you should always budget for repairs and emergencies. When calculating whether you can afford to buy, don’t forget all of the little costs that add up.

Co-signed

With the mortgage rules changing almost daily these days, it is becoming increasingly difficult to qualify for financing. As a result, many young and first-time buyers are turning to parents or other relatives to co-sign the mortgage in order to get that approval.

As a co-signer, you do have to be very careful. You are now on the mortgage, so if the true owner stops paying, you’re on the hook – and your credit will take a beating. Also, you are likely going to be on the house too, so that could affect your ability to qualify for additional loans for yourself, whether a new credit card or credit line or refinancing your own mortgage.

Ultimately, you’re the only one who can decide whether it makes sense to co-sign a mortgage, but you should definitely be getting legal advice before you sign everything to be sure that you really want to do it.

Severing ties

What happens when you own a property jointly with someone, and don’t want to share any more?

Your kindergarten teacher probably wouldn’t be happy, but technically, you can sever a joint tenancy without any notice to the other parties. Basically, you do a transfer from yourself to yourself, with a statement that it is being done to sever the joint tenancy. The other person won’t find out unless they decide to look. Possibly not the best surprise to leave someone, but sometimes it is important to make sure that your share goes where you want it to go.

Can you cancel the closing?

As a follow up to my post last week, what happens if you’re the one who doesn’t want to close?

Generally, if you refuse to close, you must have a legitimate reason. As a buyer, if something is uncovered that would severely affect your enjoyment or use of the house, or your title to it, and you had no way of discovering it any earlier, you may be justified in not closing. As a seller, you are somewhat limited in why you can legitimately refuse to close, beyond not receiving funds. If you believe you have a legitimate reason, and refuse to close, you still run the risk of ultimately being found in the wrong, and then you will have to pay all of the other side’s costs that result from not closing. This could be additional mortgage costs, moving costs, or even the extra cost of buying a different house.

Before putting in or accepting an offer, be certain that you want it.

Specific performance

You put in an offer and it was accepted, but some time before the closing date, the seller decided not to complete the deal. Can you sue to make them sell you the property?

In Ontario, there is a concept called “specific performance” which, essentially, means that you are looking to have the contract fulfilled rather than get compensated for your loss. Specific performance, however, is not an easy thing to get. Generally, courts prefer to award damages (that must be proven) rather than force specific performance. Specific performance will usually only be ordered when the property is so unique that it would be impossible to find something similar. As always, consult a litigation lawyer before assuming that you can get the house in the end.

Do you have to pay HST?

Barrie always has a lot of new construction going on. New homes in Ontario are subject to HST on the purchase price. Usually, this is built into the offer price, so that you don’t end up having to pay extra, but that always factors in that you’ll qualify for the provincial and federal HST rebates on a new home. If you are buying a brand-new home, you may entitled to a rebate, but only in specific circumstances:

  1. You must intend to live in it as your primary home. It can’t be a cottage or other seasonal residence.
  2. If you are not going to live there, an immediate family member of yours (or of your spouse’s) must intend to live there. You can allow your brother to live there and get the rebate, but you can’t rent it to a friend.

If you don’t meet these requirements, you may end up paying a lot in HST that you weren’t budgeting for. If you aren’t sure whether you qualify, as a professional accountant before you go firm on your offer.

Left behind

I have had many occasions where purchaser clients arrived at their new home to find it full of items that the vendor left behind; most recently, a buyer client of mine agreed to allow the seller to leave behind a boat that couldn’t be moved because of the weather, which was only removed the very last day the seller was permitted to leave it there. (And the seller left behind some junk along with the boat, that he conveniently forgot to remove when he picked his boat up.) As a seller, you can only leave items if you have specifically agreed to do so in your agreement of purchase and sale. This includes construction materials; though it is easy to assume that the buyer would want leftover paint or trim, if the buyer doesn’t want it, you could be on the hook for the cost of removal after closing. If you aren’t sure, ask – before closing.

Why you shouldn’t add your kids to the title of your house

One of the most common questions I get asked is how difficult it is to add an adult child to the title of your house. The correct question, though, isn’t whether it’s easy to add them on title. The correct question is whether it’s the right thing to do. And the answer is, usually not.

There are a lot of things that can go wrong by adding someone on title. The very first is that you no longer have sole control over the asset. Quite literally, your house is no longer your own. In Ontario, any joint owner can, without notice to anyone else on title, sever a joint tenancy and make the house owned as tenants in common, which means that they can gift, sell, or bequeath their share to someone else. This can make your life very difficult.

Second, your house is now someone else’s asset. This means that their share can be claimed by creditors during a bankruptcy, or a spouse on divorce or death.

Third, and perhaps most important, you probably won’t even save the taxes you think you’re saving by doing this. Most people want to do this in order to save money on probate taxes. However, by giving someone what is, legally, an investment property, you have made your principal residence – otherwise completely exempt from capital gains taxes – subject to them. Capital gains tax is significantly higher than probate tax, so if the market goes up at all, which it has a habit of doing, you could end up paying far more than you would have through probate taxes.

As always, get advice before jumping into this. The attempted cure might end up being worse than the perceived disease.

Watch your taps

A few years ago, my husband and I went to visit his family at Christmas. What we didn’t realize was that, just before we left, a toilet that got flushed did not stop running. We returned four days later to find it running, immediately turned it off, and gritted our teeth when the very large water bill arrived the next month. One thing we were grateful for, however, was the fact that there was a note attached to our door from the local water department, letting us know that water had been running in our house for (at that point) two days straight, and that we should check to see where the leak was.

These people would probably have appreciated a note like that. In the end, they will be on the hook for over $4,000 in extra costs, and it appears the City of Toronto will not allow them to pay in instalments to ease their burden.

Refinancing is math

Pure and simple. How much will you save on interest, vs. how much will you pay in penalties? Reading the fine print before you sign your mortgage in the first place will help immensely, because then you will know what sort of penalty to expect. But the bottom line is that you should never assume what your penalty might be, because it’s almost always going to be a bit higher.