Diane Cardoso

Buyers News

FEDERAL BUDGET OFFERS GOOD NEWS FOR HOMEBUYERS AND HOMEOWNERS!

Vancouver BC-January 29, 2009- The federal budget is now offering several new initiatives to benefit homebuyers and homeowners in our communities. They announced a new First-Time Home Buyers' tax credit up to $750 to help homebuyers with closing costs such as land transer taxes and legal fees, a new Home Renovation Tax Credit of up to $1350 for homeowners who renovate, a new funding program for ecoENERGY retrofits that proveds home and property owners up to $5,000 for energy improvements and a new social housing program.

The federal budget also announced an increase to the Home Buyers' Plan withdrawal limit to $25,000 from $20,000-. The plan was first introduced in 1993 to help first-time homebuyers by allowing them to withdraw from their RRSPs to buy a home. The withdrawal limit had not been increased since then. Eligible coupls can now withdraw up to $50,0000. The REGBV has advocated these changes for many years, and, in 2008 received support from Delta-Richmond East MP John Cummins who introduced a private members' bill and personally raised the issue with colleagues from all parties, including the Minister of Finance.

Home-Owners’ Insurance

There are three main reasons to purchase property insurance:

1.To protect your property and belongings against any loss, except those specifically excluded in your policy. 3.To protect you against liability. All policies include three basic sections: 2.Liability Coverage-a description of how your insurance coverage applies to injuries suffered by others, or damage to the property of others, arising out of the use of your property or your personal actions. It is advisable to determine what types of specific coverage are important to you and then shop around to find a company that best suits your needs. Some of the issues to consider are: -How much is the deductible?

-How much extra does it cost to cover unusual loss conditions such as an earthquake?

-Is the replacement cost based on the original cost of the property or on a guaranteed replacement value?

It is very important to review your existing policy with a qualified insurance agent to make sure you have adequate coverage to meet your current needs, as your home may have been modified or the coverage details changed by the insurer since you first took out the insurance. It is better to clarify your coverage now before any claims need to be made.

Underground oil storage tanks-what buyers need to know!

 

Property owners are financially responsible under the Environmental Management Act (EMA) for costs associated with remediating soil and groundwater damage caused by leaking oil storage tanks. To avoid responsibility under the EMA buyers must establish that, after making all appropriate investigations and inquiries of the seller, they were unaware of the existence of an underground oil tank. It’s important that buyers, with the assistance of the REALTORS representing tanks when purchasing a property.  Due diligence includes:

a) A direct inquiry of the seller as to whether the seller is aware of the presence of any underground oil storage tanks on the property. b) Receipt of a completed Property Disclosure Statement representing that the seller isn’t aware of any underground oil storage tanks on the property; and  c) A representation from the buyer’s building inspection service that the property doesn’t contain an underground oil storage tank (for added protection, this could be included with (a) or (b). If the buyer is aware that an oil storage tank exists on the property, they should consider whether the Contract of Purchase and Sale should include a provision of the removal of the tank will become the responsibility of the buyer upon closing. Since December 15, 2006, the removal of oil storage tanks has been regulated under the British Columbia Fire Code 2006 (BC Fire Code). Responsibility to remove a tank rests with the owner o their authorized agent. The BC Fire Code requires that disposal of an oil storage tank be done in conformance with good engineering practices, and example of which is found in Part 9 of the Environmental Code of Practice for Aboveground and Underground Storage Tank Systems Containing Petroleum Products and Allied Petroleum Products (2003), published by the Canadian Council of Ministers of the Environment.  

For more information please review the BC Ministry of Environment’s fact sheet 32 at www.fcabc.bc.ca/Docs/oiltanks_New_Code.pdf

Financing the Property Transfer Tax (PTT).
Is it possible? It depends …
 

When a home buyer begins working with a REALTOR®, typically the buyer has been preapproved for a mortgage. Early in the process a REALTOR® should ask whether the buyer knows about the Property Transfer Tax (PTT).
    The PTT is a provincial tax that is paid when property ownership or interest is registered at the Land Title Office. The PTT is charged at a rate of one per cent on the first $200,000 of fair market value and two per cent on the remainder of the value.
    The PTT adds $8,000 to the cost of a $500,000 home. This amount may come as a surprise to the buyer if they have not factored it into closing costs and it could result in a deal collapsing.

• Is there provincial government legislation or policy that prohibits the financing of the PTT?
  No. The provincial government sets the tax amount and collects the tax. But it has not enacted legislation or policy governing whether or not consumers may finance the PTT.
• Is there federal government legislation or policy that prohibits financing the PTT?
  No. There is no federal government legislation or policy that prohibits the financing of the PTT, including the Bank Act, which does not restrict financing the PTT. However, the Bank Act, section 418(1) governs the loan-to-value ratio for mortgage insurance. It requires borrowers of any mortgage with a loan-to-value ratio of 80 per cent or more of the value of the property to buy insurance against default from a mortgage insurance company such as CMHC or Genworth Financial. (Note: Until April 2007, the ratio was 75 per cent or more). A loan-to-value ratio of less than 80 per cent is a conventional loan and does not require mortgage insurance.
• Is it possible to finance the PTT?
  A borrower with a conventional mortgage may be able to take the PTT out of their equity or find some other source of financing. But, in a high ratio mortgage, lenders typically do not allow home buyers to take the PTT out of equity. Lenders consider the PTT to be a closing cost and closing costs are typically not financed as part of a mortgage. Underwriters providing mortgage insurance such as CMHC and Genworth Financial stipulate that applicants must be able to cover closing costs and lenders must perform due diligence to protect against default. However, lenders look at each situation on a case-by-case basis, particularly if borrowers have good credit and have the ability to pay monthly costs.
• Is there a situation where the PTT could be financed?
  Yes. For example, let’s say a couple has just graduated from medical school. Several years ago they sold their home to finance their education, so they do not qualify for the PTT first-time home buyers’ exemption. They see a $900,000 home and they don’t want to wait a year to save a down payment. They visit their lender and because the couple have started new jobs, one as a cardiologist, the other as a family practitioner, with a combined annual income of $400,000, the lender agrees to finance the mortgage. The lender also offers the couple a line of credit for closing costs which includes the PTT. In this specific case, the couple’s credit is good and they have no debt.

Talk about the PTT
For high ratio mortgages, financing the PTT is typically not an option. REALTORS®, each time you meet with a new client, make sure you help them understand all the costs involved in buying a home.
    Take the time to explain all of the components of financing that home buyers need to have in place to complete a deal.

Closing costs include:

• Property Transfer Tax
• Goods and Services Tax (only on new homes; however a rebate may be available)
• appraisal fee
• fire and liability insurance
• legal fees
• life and disability insurance (if required)
• mortgage application fee
• mortgage insurance (if required)
• survey fee

Realtor Link

Mortgage insurance change makes home buying easier: bankers

CBC News

A federal law that lowers the level where mortgage insurance is required came into effect Friday, and bankers say the change could save many would-be homebuyers $2,000 or more.

 

For the last 40 years, homebuyers have been required to buy mortgage insurance from CMHC or another insurer unless their down payment equaled at least 25% of the purchase.

 

One of the changes in Bill C-37 is to cut the requirement for mortgage insurance to purchases with a down payment of less than 20%.

 

The effect of that change is that at least 10% of buyers will now not have to buy insurance, BMO Bank of Montreal vice-president Cid Palacio told CBC News…

 

Based on a home price of $300,000, a buyer with a 20% down payment can save about $2,500 on insurance premiums, she estimated.

 

Because of three- or five-year insurance must be bought at the time of purchase, the saving comes when the buyers are under the most financial pressure.

 

Some customers have been scrambling to meet the 25% requirement to avoid the insurance premium, Palacio said.

“This often means that they are dipping into their credit cards or rainy-day savings to make up the difference.”

While the change makes it easier to buy a house, BMO Bank of Montreal has not changed its risk assessments, she said.

Because the federal change happened Friday, the bank will extend any savings to customers whose mortgages closed that day.

RBC Royal Bank carried out a survey in anticipation of Friday’s change. It found that lowering the down-payment requirement for mortgage insurance from 25% to 20% would make about one in five prospective homebuyers more likely to buy a home.

“We’ve immediately implemented this lower down-payment limit,” Said Catherine Adams, RBC Royal Bank’s vice-president of home equity financing.

“These savings can add up to approximately $2,000 for a client with a typical $200,00 mortgage over 25 years, on a home valued at $250,000,” She said.

 ___________________________________________________________________________________

 

Homeowner mortgage loan insurance premiums vary according to the Loan-to-Value Ratio-October 3, 2006

Loan-to-Value Ratio-                                    Premium on Total Loan Amount

Up to and including 65%                              0.50%

Up to and including 75%                              0.65%

Up to and including 80%                              1.00%

Up to and including 85%                              1.75%

Up to and including 90%                              2.00%

Up to and including 95%                                   

     Traditional Down Payment                      2.75%

     Flex Down                                            2.90%

• Premiums may be added to the loan amount
• Premiums in Ontario and Quebec are subject to provincial sales tax-the sales tax cannot be added to the loan amount
• Single Advance-premium payable at the time of loan advance
• Progress Advance-premium payable as funds advance

Second homes-October 3, 2006

Understanding that changing lifestyles affect decisions Canadians make on how and where they live, you are now able to provide borrowers high ratio financing to purchase or refinance a second home using CMHC Homeowners product-without additional underwirting restrictions, premiums, or fees

• The borrower is limited to a maximum of two homes that have CMHC insured homeowner mortgage loan financing
• At origination, the home must be intended for occupancy at some point during the year a borrower or relative of the borrower on a rent free basis (i.e. not an investment property)
• The home can be located anywhere in Canada and must be suitable for; and available for; year round occupancy

Self-Employed Borrowers-October 3, 2006

CMHC has enhanced its income and employment verification requirements for self-employed borrowers-providing streamlined and consistant quidelines on minimum lenth of service, proof of income, as well as grossing-up taxable income and eligable add backs. Self-employed borrowers continue to have access to all of CMHC's Homeowner Mortgage Loan Insurance products:

• Using the same product criteria as salaried borrower
• No increase in mortgage loan insurance premiums
• Same quick and consistent decisions on mortgage loan insurance requests used for all other borrowers

How does the reduction of GST effect real estate? 

In May, 2006, the Federal Budget included a reduction of the GST from 7% to 6%.  The rate cut takes effect on July 1, 2006, but this does not mean that any home purchase transaction which closes after July 1, 2006 will simply have the benefit of the reduced GST rate.  Rather, the Budget includes a number of transitional rules that determine which rate will be payable.  The Budget rules for real estate sales provide that:

a)      If ownership or possession of any type of property is transferred before July 1, 2006, the 7% GST rate will apply.

b)      If you have a written purchase agreement entered into on or before May 2, 2006, ownership and possession of a non-residential property are transferred on or after July 1, 2006, the 6% GST rate will apply.

c)      If you have a written purchase agreement entered into on or before May 2,2006, ownership and possession of a residential property are transferred on or after July 1, 2006 the 7% GST rate must be charged, but the purchaser may file a claim with Canada Revenue Agency for a 1% rebate to obtain the benefit of the GST rate reduction to 6%. 

d)      If you have a written purchase agreement entered into after May 2, 2006, ownership and possession of any type of property are transferred on or after July 1, 2006, the 6% GST rate will apply.

The Budget also includes anti-avoidance provisions which anticipate that Buyers may try to rearrange their affairs to take advantage of the lower rate.   Call Deb or Diane if you have any questions regarding how this new policy may affect you!

Courtesy of: Clark Wilson, LLP

Property Transfer Tax In General:

Tax Calculation:
1% of first $200,000 of purchase price or “fair market value”
2% of the balance

|Example:
Property purchased for $265,000
1% of $200,000 $2,000
2% of $65,000 $1,300
Total tax payable: $3,300

First Time Home Buyers may qualify for exemption if:

• The purchase price (including net GST) is below $325,000 in the Lower Mainland and below $265,00 for the rest of BC. A partial rebate on purchases between $325,000 and $350,000 is available (see below).

• Each purchaser applying for exemption is a permanent resident of Canada or a Canadian citizen. Each purchaser must have resided in Canada for at least one year immediately prior to registration date

• Each purchaser has never owned an interest in a principal residence anywhere in the world.

• The amount borrowed must be at least 70% of the fair market value of the property. The amount borrowed does not include funds borrowed from relatives.

• During the first 12 months, the mortgage cannot be reduced by more than the greater of $13,000 (Greater Vancouver & Fraser Valley) and the amount that would reduce the mortgage to 70% of the fair market value.

• The mortgage term must be at least one year. If not, the full Property Transfer Tax is payable at the time of purchase and the rebate may be applied for after residing in the residence for 12 months.

• The purchaser must occupy the property within 92 days from the date of registration of the transfer in the Land Titles Office.

• The purchaser must reside in the property for a period of at least one year from the date of transfer.

• If one of the purchasers does not qualify for exemption and the other does, the amount of exemption will depend on the percentage of ownership registered. For example; Joe qualifies and owns 60% of the property, Sam does not qualify for the exemption and owns 40% of the property. They would qualify for 60% of the tax exemption.

Example of Calculating Pro-rated Exemption ($325,000 - $350,000)

There is no exemption when the market value exceeds $350,000

If the market value is between $325,000 and $350,000 the proportionate exemption is calculated as follows:

Example where the market value is $331,500:

PTT Exemption = ($325,000 + $25,000-$331,500)

                                         $25,000

The pro-rata exemption is calculated as 74% of $4630 = $3462.2

The purchaser now pays $1203.80 in PTT

2.To secure financing when purchasing a property.

Policies normally cover the people living in your household, including you, your spouse, any of elatives and anyone under the age of 21 in your care.

1.Property Coverage-a description of the actual insurance coverage on your property including any extra expenses incurred as a result of an insurable loss.

3. Party Conditions-a description of what is expected from the insured and the insurance company under provincial law.

-What are the limits on specified items such as jewellery, bicycles, computers etc.?

-What risks are specifically excluded in the policy? Are there other risks covered?