Buying a house before yours sells? A bridge loan can help
Shopping for homes in a red-hot market is no easy task.
Just ask Caleigh and Rory Amelio, who recently relocated to Caledon, Ont., after selling their house in downtown Toronto.
When the Amelios spotted their dream home in a picturesque – and popular – neighbourhood north of the city, the couple understood the need to act fast to secure the property. In doing so, they made a purchase offer before selling their residence in the city’s west end.
“With the housing market the way it is right now, you’re forced to make decisions without having all the answers you want to have,” Mr. Amelio explains. “The Caledon market was so hot that we had to buy our new place prior to selling our home, and without any closing conditions.”
The Amelios’ situation is commonplace in frenzied real estate markets, such as those of Vancouver, Toronto and, for now, Calgary, where bidding wars and snap buying decisions are the norm.
Demand for homes in desirable neighbourhoods – particularly those within or near downtown cores – is so strong that buyers are often forced to waive common-sense conditions, such as housing inspections and financing clauses, when making a purchase offer, then cross their fingers and hope their existing home sells quickly once the bidding-war dust has settled.
When those sale and purchase closing dates don’t match, enter the need for bridge financing.
Put simply, a bridge loan is a short-term financing tool that helps purchasers to “bridge” the gap between old and new mortgages by allowing them to tap the equity in their current residence as a down payment, while essentially owning two properties concurrently as they wait for the sale of their existing home to close.
The tool has become increasingly popular in recent years, according to Ryan McKinley, Vancouver-based senior mortgage development manager with Vancouver City Savings Credit Union.
“With how hot the real estate market is now and has been over the past few years, we’ve seen an uptick in bridge financing,” Mr. McKinley says. “It’s really necessary when you know there’s going to be a lag in closin
Although the math behind bridge financing has been known to confuse more than a few home buyers, it’s a relatively simple equation.
To determine the amount of a bridge loan, take the purchase price of the new house, then subtract the value of the mortgage and the initial deposit. The leftover amount is the sum that will need to be financed until a sale is complete.
In the Amelios’ case, the decision to seek bridge financing was also strategic, so they could make upgrades to their new house without the stress of trying to remodel around their young children.
“Bridge loans can offer huge benefits without much expense,” Ms. Amelio points out.
Indeed, the couple paid about $780 in interest and administration fees to finance their bridge loan, a relatively small sum that offered peace of mind during a potentially stressful transaction.
The affordability of bridge loans – which are typically offered for no more than 90 days, and only when a firm, condition-waived sale agreement is in place for the borrower’s existing property – is another factor behind their popularity, according to Luke Wile, a mortgage broker with Red Key Mortgage Group in Calgary.
Still, he notes that bridge loans are more expensive than traditional mortgages. Interest rates vary by financial institution, but major banks typically charge prime plus 2 per cent a day, in addition to legal and administration fees that usually range from $250 to $500.
Why the higher rates? As Mr. Wile explains, bridge loans carry greater risk due to the fact that a home sale could technically fall apart before the transaction is officially completed, heightening the risk that a purchaser will suddenly be left carrying two, often sizable, mortgages.
While the downside of bridge financing is minimal, there are some key considerations to keep in mind.
The first, explains Sandra Price, a mortgage broker with East Coast Mortgage Brokers in St. John’s, Nfld., is that home buyers still need to qualify to acquire one. “If you can get a mortgage, you can usually get a bridge loan, but they will look at your credit score and you will need a strong credit portfolio to get this kind of loan due to the increased risk,” she points out.
Another challenge: Not every financial institution offers a bridging product. In some cases, buyers – particularly those with weaker credit scores – might be forced to pursue financing from private lenders who charge far steeper rates, often in the range of 19 to 21 per cent.
Mr. McKinley cautions home buyers to be aware of another potentially dangerous scenario. “The worst thing you can do is purchase a property and then realize you can’t be approved for bridge financing because you don’t have the equity or can’t service the debt,” he warns.
His recommendation to buyers: Work with your mortgage adviser and develop a plan that takes into account everything from household cash flow to your ability to carry two mortgages in the event that a rare, worst-case scenario plays out.
For the Amelios, that scenario isn’t so far-fetched.
“We were really fortunate because we know multiple people who are still holding onto their old homes after purchasing another house, which could put them in financial jeopardy,” Ms. Amelio says.
In all, she would gladly spend the money to secure the flexibility and peace of mind that bridge financing provides.
“The week we had was very valuable to get painters and contractors into our new house and fix it up without children or furniture,” she says. “Bridge loans help everyone out.”
If you are interested in a current market analysis or a thinking of buying or selling this year, please don't hesitate to contact me. Should you know of someone who would appreciate the level of service I provide, please contact me with their name and preferred contact method. I’ll be happy to follow up and take great care of them.
Every homeowner must pay for routine home maintenance, such as replacing worn-out plumbing components or staining the deck, but some choose to make improvements with the intention of increasing the home's value. Certain projects, such as adding a well thought-out family room - or other functional space - can be a wise investment, as they do add to the value of the home. Other projects, however, allow little opportunity to recover the costs when it's time to sell.
Even though the current homeowner may greatly appreciate the improvement, a buyer could be unimpressed and unwilling to factor the upgrade into the purchase price. Homeowners, therefore, need to be careful with how they choose to spend their money if they are expecting the investment to pay off. Here are six things you think add value to your home, but really don't.
1. Swimming Pools Swimming pools are one of those things that may be nice to enjoy at your friend's or neighbour's house, but that can be a hassle to have at your own home. Many potential home buyers view swimming pools as dangerous, expensive to maintain and a lawsuit waiting to happen. Families with young children in particular may turn down an otherwise perfect house because of the pool (and the fear of a child going in the pool unsupervised). In fact, a would-be buyer's offer may be contingent on the home seller dismantling an above-ground pool or filling in an in-ground pool.
An in-ground pool costs anywhere from $10,000 to more than $100,000, and additional yearly maintenance expenses need to be considered. That's a significant amount of money that might never be recouped if and when the house is sold.
2. Overbuilding for the Neighborhood Homeowners may, in an attempt to increase the value of a home, make improvements to the property that unintentionally make the home fall outside of the norm for the neighbourhood. While a large, expensive remodel, such as adding a second story with two bedrooms and a full bath, might make the home more appealing, it will not add significantly to the resale value if the house is in the midst of a neighbourhood of small, one-story homes.
In general, home buyers do not want to pay $250,000 for a house that sits in a neighbourhood with an average sales price of $150,000; the house will seem overpriced even if it is more desirable than the surrounding properties. The buyer will instead look to spend the $250,000 in a $250,000 neighbourhood. The house might be beautiful, but any money spent on overbuilding might be difficult to recover unless the other homes in the neighbourhood follow suit.
3. Extensive Landscaping Home buyers may appreciate well-maintained or mature landscaping, but don't expect the home's value to increase because of it. A beautiful yard may encourage potential buyers to take a closer look at the property, but will probably not add to the selling price. If a buyer is unable or unwilling to put in the effort to maintain a garden, it will quickly become an eyesore, or the new homeowner might need to pay a qualified gardener to take charge. Either way, many buyers view elaborate landscaping as a burden (even though it might be attractive) and, as a result, are not likely to consider it when placing value on the home.
4. High-End Upgrades Putting stainless steel appliances in your kitchen or imported tiles in your entryway may do little to increase the value of your home if the bathrooms are still vinyl-floored and the shag carpeting in the bedrooms is leftover from the '60s. Upgrades should be consistent to maintain a similar style and quality throughout the home. A home that has a beautifully remodelled and modern kitchen can be viewed as a work in project if the bathrooms remain functionally obsolete. The remodel, therefore, might not fetch as high a return as if the rest of the home were brought up to the same level. High-quality upgrades generally increase the value of high-end homes, but not necessarily mid-range houses where the upgrade may be inconsistent with the rest of the home.
In addition, specific high-end features such as media rooms with specialized audio, visual or gaming equipment may be appealing to a few prospective buyers, but many potential home buyers would not consider paying more for the home simply because of this additional feature. Chances are that the room would be re-tasked to a more generic living space.
5. Wall-to-Wall Carpeting While real estate listings may still boast "new carpeting throughout" as a selling point, potential home buyers today may cringe at the idea of having wall-to-wall carpeting. Carpeting is expensive to purchase and install. In addition, there is growing concern over the healthfulness of carpeting due to the amount of chemicals used in its processing and the potential for allergens (a serious concern for families with children). Add to that the probability that the carpet style and colour that you thought was absolutely perfect might not be what someone else had in mind.
Because of these hurdles, wall-to-wall carpet is something on which it's difficult to recoup the costs. Removing carpeting and restoring wood floors is usually a more profitable investment.
6. Invisible Improvements Invisible improvements are those costly projects that you know make your house a better place to live in, but that nobody else would notice - or likely care about. A new plumbing system or HVAC unit (heating, venting and air conditioning) might be necessary, but don't expect it to recover these costs when it comes time to sell. Many home buyers simply expect these systems to be in good working order and will not pay extra just because you recently installed a new heater. It may be better to think of these improvements in terms of regular maintenance, and not an investment in your home's value.
The Bottom Line It is difficult to imagine spending thousands of dollars on a home-improvement project that will not be reflected in the home's value when it comes time to sell. There is no simple equation for determining which projects will garner the highest return, or the most bang for your buck. Some of this depends on the local market and even the age and style of the house. Homeowners frequently must choose between an improvement that they would really love to have (the in-ground swimming pool) and one that would prove to be a better investment. A bit of research, or the advice of a qualified real estate professional, can help homeowners avoid costly projects that don't really add value to a home.
Carbon monoxide (CO) is an odorless, colorless gas produced by the combustion of fuels such as natural gas, oil, and propane in mechanical unit including furnaces, water heaters, and stoves. These items are normally designed to vent the CO to the outside, but harmful interior levels of CO can result from incomplete combustion of fuel, improper installation, or blockages, leaks or cracks in the venting systems. Very high levels of CO can lead to incapacitation or death, with victims sometimes never having been aware they were being poisoned.
Homeowners can take action against potential carbon monoxide poisoning by taking the following steps:
Have all fuel-burning appliances professionally inspected annually, preferably before the start of the cold-weather season when heaters and furnaces are first used.
These appliances include gas stoves and ovens, furnaces and heaters, water heaters, generators, and clothes dryers.
All such units should be properly installed and safely vented to the outside.
If repairs are necessary, be sure they are performed by a qualified technician.
Always use the proper fuel specified for the unit.
Have flues and chimneys for fuel-burning fireplaces or wood stoves inspected regularly for cracks, leaks, and blockages that may allow a buildup of CO to occur.
Never use gas stoves or ovens as a home heating source, even temporarily.
Do not idle a vehicle in a garage, even with the garage door open. When starting the car, open the garage door, start the engine, and drive out as soon as possible to prevent dangerous CO emissions from accumulating.
For additional protection, purchase a CO detector (either battery operated or plug-in) and follow the manufacturer's instructions for proper location and installation. Installation of working CO detectors in residential properties is now required by law in many areas.
Learn what to do if the CO alarm activates: if anyone in the home experiences symptoms such as fatigue, dizziness, blurred vision, nausea, or confusion, everyone should leave immediately and seek medical attention. If the alarm sounds but no symptoms are felt, open doors and windows immediately and shut off all fuel-burning devices that may be potential sources of CO.
Gratitude unlocks the fullness of life. It turns what we have into enough, and more. It turns denial into acceptance, chaos to order, confusion to clarity. It can turn a meal into a feast, a house into a home, a stranger into a friend. Gratitude makes sense of our past, brings peace for today and creates a vision for tomorrow. ~Melody Beattie
Wishing you and your family a very Happy Thanksgiving!
Three Little Fixes You Can Make When Prepping a Home for Sale
For Sale (Almost) Homeowners make a lot of memories in their houses, and there's no doubt it's emotional for them to say goodbye to their well-loved kitchens and family rooms when they put their homes on the market. Unfortunately, potential buyers will not be charmed by that "lived-in look." Realtors know that they will only see details that need TLC...ASAP.
Here are a few simple DIY projects that you can pass on to your clients. These little fixes will rejuvenate some common trouble areas and make homes more appealing to fussy buyers.
1) Busted tiles are not classy. Oops. Did an anvil drop on that tile countertop? Tile holds up almost indefinitely to all kinds of wear-but sadly, as you may have seen in your years on the job, tile cracks if something heavy is dropped on it.
What you can do: It's relatively simple to replace broken tile: remove the grout, mask the surrounding tiles with tape, loosen the tile, chisel out the pieces, set the new tile, fill the perimeter with new grout and allow the grout to dry. Goodbye, shabby tile.
2) Scratches and dings and gouges, oh my! We know your brother-in-law didn't mean to run into the built-in bookshelves drawer with the recliner. While a droll family memory, there's no value-add for the prospective home buyer, so it's probably best the seller get rid of any and all visible scratches, dings and gouges.
What you can do: Minor scratches can be wiped clean with mineral oil, lightly sanded with fine grade sandpaper and sealed with polyurethane. Scratches that penetrate the finish can be filled with a like-colored furniture repair stick. The product consists of wax and putty, and is easy to apply. Follow with a coat of polyurethane.
Not quite a gouge, but deeper than a scratch? Use wood putty in a matching color. Gouges also can be treated with wood putty. Make the repair, let it dry and apply the polyurethane.
3) Counter intelligence? Bags of groceries, stubborn food stains and the occasional misfire with a kitchen knife are all to blame for laminate or Corian counter surfaces looking scuffed and sad. Fortunately, there are simple solutions that won't leave home sellers with an empty wallet.
What you can do: Laminate is a repair-friendly surface: a color-matched repair pen or paste will camouflage most scratches. Be careful not to overfill, and gently sand the excess when dry. The remnants of past meals can be removed using a paste made from baking soda and water. Leave the paste for a few hours and wipe away. No need to rub or scrub.
Minor scratches on Corian can be treated by using a mild abrasive liquid cleaner on a damp sponge, rubbing over the scratch in small, overlapping circular motions, and rinsing with clean water. Be sure to wipe the surface completely dry, and repeat if the blemish is still visible. Deeper scratches should be treated following the manufacturer's instructions.
That was easy, wasn't it?With a little elbow grease and a modest investment of time and money, you can bring the life back to worn surfaces.
Conduct a thorough visual inspection of your home's perimeter to identify areas where the heavy snows of this winter might prevent snow melt and roof run-off from draining safely away from the foundation. Dig out any areas of concern
Ice build-up and heavy snow can tax a roof's drainage system during winter. Now is a good time to visually inspect eaves troughs and downspouts for ice damage, leaks, and sagging.
Tour your yard and check trees and shrubs for winter burn and ice damage. Prune any dangerous limbs right away and mark others for removal when weather warms, but before trees awaken from their winter sleep.
One item that ranks high on purchasers' lists of concerns isdamage from a previous fire, whether they voice it or not. The damage from a fire can be severe enough to render the structure unsafe if not properly repaired - a surprise no one needs!
There are some signs we watch for since unfortunately not all homeowners disclose properly and others are unaware of the true history of the home.
There are laws preventing a vendor from knowingly withholding any information that they know can adversely affect the safety of a home, but just as buyers should beware, real estate professionals should also beware of the signs that might indicate there had been a fire in the home.
Know the Signs
One of the biggest places overlooked is the attic - burned attic members, ash and painted attic structure are easy giveaways - that most homeowners and certainly buyers would miss.
When listing or showing a property, watch for the following signs that a structure may have experienced a fire - tips from the Lighthouse Inspection's team of qualified home inspectors and countless home inspections performed throughout Ontario;
Floors / Walls and Ceilings- Watch for new or warped materials, stains or uneven textures
Roof- New shingles on part of the roof, or areas of wear that seem inconsistent with the rest of the roof can be cause for concern. Staining - from smoke - around vents can also be a tipoff.
Exterior- Watch for warped vinyl siding, eaves and soffits, discoloured aluminum siding and trim, stained masonry - particularly above doors and windows, and evidence of sections that have been replaced.
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It has been a long snowy winter with little snow melt between storms. Once the snow starts to melt quickly around the foundation it may cause water leakage into our basements. The following are some tips in avoiding a soggy basement:
1) Make sure all snow piles are away from the foundation. 2) Make sure all downspouts have extensions that drain well away from the foundation. 3) If you are able to, make sure all gutters are free of ice and debris so the water drains out the downspout instead of spilling over next to your foundation.
Damp basements are one of the most common problems that effect homes. This includes old houses and new. Many damp basements can be improved simply and inexpensively just by improving the water drainage along the outside. It is worth investigating a little yourself before calling in a water proofing company.
Most basement foundation walls are considered damp proof - not waterproof. Only properties wrapped with a plastic-type, PVC or rubber membrane around the outside of the foundation wall will have a reasonable chance of resisting water penetration. Properties built before 1993 had no foundation membranes, unless installed at a later date. It is very important to ensure that rain and snow runoff drains well away from the foundation. Improper grading, prolonged or heavy rainfalls, overflowing gutters and improperly positioned downspout leaders are the most common reasons for basement leaks.
This year the deep snow cover on our roofs blocked many roof vents, allowing attics to warm up and melt the snow above. Water seeping down the roof under the snow will freeze once it reaches the cold roof overhang known as the eaves.
Ice dams are the large build-ups of ice found at the edge of the roof. A small amount of ice may not cause an immediate problem, but if the ice continues to build up, it will block the water flow off the roof, causing water to back up under the shingles and leak into the soffit area, or into your house.
Cracks are common in all types of foundation walls, and they can leak if the grading around the foundation is poorly sloped. Old foundations are much more porous than newer concrete ones and can leak even without any cracks.