Unimor Capital Corporation

Tag: appraisal

  • Closing Costs: What You Can Expect

    Closing Costs: What You Can Expect

    It is important to be fully aware of all the costs involved in buying a home, preferably before you go house hunting. Knowing in advance what these additional ‘costs’ are, over and above the down payment that you might have, will help you plan for a smooth closing and avoid any unpleasant surprises. You should allow at least 2% of the purchase price for closing costs, although they could be as high as 4%.

    Below is a comprehensive list of closings costs that you might incur, but remember that they are only estimates and should be used as a guideline.

    Legal Fees & Disbursements
    A lawyer will charge a fee for their professional services involved in drafting the title deed, preparing the mortgage, and conducting the various searches. The disbursements, on the other hand, are out-of-pocket expenses incurred, such as registrations, searches, supplies, etc… The actual fee that the lawyer will charge will depend entirely upon the deal between you and your lawyer. Be sure to ascertain exactly what this will amount to in a worst-case situation. A typical purchase transaction for a $200,000 property with one mortgage will range between $800 to $1,200, including disbursements. We recommend you call one or two lawyers and obtain a quote directly from them including both their fee and estimates of disbursements before choosing which one you’d like to use.

    Land Transfer Tax
    There is usually a land transfer tax that is charged on closing when the property is transferred to your name and it can vary depending on the price of the home, whether or not you are a first time home buyer and which city you live in. Learn more about Land Transfer Tax Ontario.

    Mortgage Insurance
    You should budget for insurance on your new home. Insurance costs can include default mortgage insurance, homeowners insurance, mortgage life insurance and title insurance.

    Property Tax & Prepaid Utilities Adjustments
    At the time of a sale, the lawyer for the buyer must confirm that local taxes have been paid up to date. If they are, a Tax Certificate is issued, from which any adjustments can be made – usually requiring the buyer to compensate the seller for any prepaid taxes. If they are not up to date, the municipality requires that the seller pay them off from the proceeds of the sale. Therefore, remember that if the previous owner has prepaid property taxes or other utilities for the year, they will be credited the prepaid portion on closing. If they paid all their taxes by April, expect a large adjustment cost on closing.

    Property Appraisal
    If your lender requires an appraisal report to be completed, it will have to be done before they hand over any mortgage money. They want to be assured that the property is worth what you are either paying for it, or valuing it for, and the cost normally ranges between $150 to $300 depending upon the location and complexity of the property.

    Home Inspection
    A report commissioned by a property owner or purchaser, usually to verify the condition of a property prior to the ‘firming up’ of a Real Estate transaction. The scope and detail may vary, but most reports indicate the specific problem and the cost to repair. Depending on the size and location of the property, a home inspection is around $300.

    Interest Adjustment (IA)
    If you arrange to make your mortgage payments monthly on the first day of the month, and your transaction closes after the first day of the month, your lender may charge you interest on closing up to the first theoretical payment date, called the Interest Adjustment Date (IAD). Your mortgage agent will calculate this for you. Remember, that all mortgages are paid in arrears so if your possession date is June 1st, and you choose to pay monthly, then your first payment will be July 1st. In this example there is no Interest Adjustment payable. However, if you moved in on May 29th, with your first payment on the first of the month, your first payment would still be July 1st, but there will be a three day Interest Adjustment (from May 29th to the ‘official start date’ of June 1st).

  • What First-Time Home Buyers Need to Know

    What First-Time Home Buyers Need to Know

    With record-low interest rates that may go away in the distant future, many would-be first-time home buyers are considering their options with regard to buying a home. In preparing to purchase a home, it will help to know what lenders are looking for when buyers apply for a mortgage with them. There are four components: down payment, credit, income and assets, and appraised value of the property.

    Down Payment – Putting down at least 25% is ideal, in that buyers can avoid having to purchase mortgage default insurance on their loan. The higher the loan to value ratio, the more risk the lender is being asked to take on. This will result in higher interest rates for the buyer.

    Credit – There are several components to this, including total debt, recent payment history, and ability to manage credit over time. These items give the lender a picture of the buyer’s ability to manage obligations over time. Of the above items, recent payment history is probably the most important. Prior to taking on a mortgage, buyers who are having issues making monthly payments such as those on a car will face questions as to how they will be able to manage after they move into a home.

    Income & Assets – Lenders are looking for two to three years of stable employment history from borrowers. They use two ratios to determine if buyers qualify from an income perspective. The first is the GDSR, or Gross Debt Servicing Ratio. This is the ratio of total shelter expenses (mortgage, taxes, insurance) to gross income. Lenders are looking for this number to be in the 30% to 32% range. The second ratio is the TDSR, or Total Debt Service Ratio, which is the ratio of all financial obligations to gross income. Lenders here are looking for 40% to 42% maximum.

    Ideally buyers will obtain a mortgage in which the principal and interest components of the payment amount will remain constant for as long as possible.

    Should property values decrease, even if the income of the buyer remains the same, being able to refinance the mortgage at the end of the term could prove to be out of the question, at any rate. As far as assets go, the lender will want to know where the down payment is coming from, which could be from the buyer’s savings or perhaps via a gift from a close relative.

    Property Value – The lender needs to know if the property is worth what the buyer and seller think it is worth. If there is a difference between the appraised value of a property and the contract price, the lender will take the lower of the two.

  • How Does an Appraiser Determine the Value of a Home?

    How Does an Appraiser Determine the Value of a Home?

    An appraiser will use a variety of methods to determine the fair market value of a property. The definition of market value is the highest price reasonably expected at any given time when an interest in land is sold by a willing seller to a willing buyer after adequate time and exposure to the market.

    Appraisers are specifically trained and have sufficient experience to develop a realistic opinion of the value of a property. There are three basic methods when determining the estimated value of your home:

    Cost Approach: This estimates the cost of building a new home identical to yours at current prices, subtracting accumulated depreciation and adding the estimated land value.

    Income Approach: This approach is for income-producing property and is based on the assumption that the current value is the income potential when the property is developed to its highest and best use. The net operating income from the property is capitalized into value by an appropriate method and rate.

    Direct Comparison Approach: This is based on the idea that an informed purchaser would pay the same price for acquiring another existing and equivalent property. The estimated value is based on the selling price and listings of comparable properties in the area.

    The appraiser uses the most appropriate approach and supports the evaluation with the most reliable, factual and relevant market data. At times it’s advantageous for a buyer or a seller to get an independent appraisal to determine the value of the property. This will ensure you’re not paying too much or, if you are a seller, that the listing price is in line with the market.