Overpaying for a house?

[Rathji]

I have recently began investigating purchasing a home for my expanding family. In the process I have started to think buying something with a suite or 3 might be a good idea. Help pay down the mortgage and build equity etc. I have looked at all types, suites in basements, both sides of duplexes with suites etc. I would be a first time home owner so I may have to bring some family in as co-buyers to help with the down payment.

I have looked up tax assessments on the properties I am interested in, and they all seem to be well below the asking price of the house. I have noticed that they price the house so that the mortgage payments would be matching the rental income they is coming from the units. In some cases it is even 20-25% higher.

How reliable is a tax assessment in determining value? Is it normal to price this way in the market? Even if this is a fair value for the home, is this a good time to be buying a home as an investment or will the market ever soften enough to change these prices?

If there are any people experienced in buying or selling these types of homes any input would be greatly appreciated. Right now I would love to be able to make this work, but not if it leaves me owing a mortgage that is worth more than my home for the next 10 years.

[Eric Vail]

The tax assessment is usually lower than the actual market price for a home.

[Winsor_Pilates]

tax assessments are not made at current market times. So in a rising market, they will always be low.

I don't know about the exact dates in Calgary, but in Van your 2008 tax assessment is actually the value in July 2007.

I would take my time if I were you. Calgary is really slow right now, and you don't have to rush into anything. Wait for the right deal, and prices might even go down more.

[photon]

Tax assessment is pretty much worthless for determining sale value. A good realtor should be able to tell you what the fair market value for a property is, keeping in mind that fair market value is what a specific kind of home is going for at any time, nothing more.

If anyone could crystal ball and tell you if we've hit the bottom of the market yet or not, they wouldn't be posting here Personally I think it's a great time to buy, right now there's twice as many houses on the market as there "should" be and while sales are still decent there's so many houses for sale you've got a better chance of finding someone who really HAS to sell and getting something below market value.

As to if the market has lots more to go down or not, you'll find huge differences of opinion on that here

As for the part with suites, the big issue is zoning and if the suites are legal or not, as well as the suites have to be done with specific things (windows sizes, etc). If not then you run the risk of running into problems with the city if someone calls them because they don't like you having tenants. Again a good Realtor should be able to help with this in finding out what's legit and what's not. Legit is of course more expensive.

First time home owner, I think there's something where you can borrow money from your RRSP to help buy as well.

[Winsor_Pilates]

As a first time homebuyer, you may be able to get 95% financing too if you want to put less downpayment.

[ken0042]

Originally Posted by Eric Vail

The tax assessment is usually lower than the actual market price for a home.

Except right now the opposite is usually true. If I could sell my house right now for the assessed value, I would in a heartbeat.

My house is assessed at about $30K over what I could get for it right now. I'm basing selling prices on what houses are going for on my street. (There's some turnover right now.)

However as others have said there's no reason not to have a realtor do some work for you as a buyer. He only gets paid by the seller when you buy. It isn't often you can get expert advice at no cost to you- take advantage of it.

[troutman]

Get advice from a realtor. When you are buying, you don't pay the commission. PM Nabber, or PM me for some referrals.

[maverickstruth]

Also a prospective first-time home buyer here -- we're basically in a not very good rental situation right now (concerns about major mould problems, among other things) which has us looking to move. Figured that since we can afford it, and so as to not just have to pick up and move again in a year or two anyway, we'd start looking at getting ourselves into some condos, especially with the prices having dropped as much as they have. Unfortunately, our lease is up at the end of August, which doesn't give us a lot of time to watch the market to see if it will bottom out further. But it's better than living in an unhealthy environment

I'll jump in with a couple of things I've found out, and then ask a question or two of my own

Someone mentioned the RRSP First-Time Home Buyer's Plan. My rough understanding of how this works is that you can (one-time only, and only if you haven't owned a home in the last 5? years) withdraw from your RRSP an amount of up to 20k per person (so two co-signers on the loan could have a total withdrawal of 40k) to be used toward a new home purchase. It's basically a way to minimize the amount of loan you have to take by borrowing from your RRSP rather than the bank. And, of course, the repayment terms are nicer when you're paying yourself back rather than the bank The benefit of this is that repaying that 'loan' doesn't count against your contribution room for your RRSP. -- Note that this is all my understanding from what my research has told me, our resident financial advisors can probably clarify some points and correct me if I'm wrong

That said, now it's time for my question. As a first-time home buyer, I'm pretty much in the dark about what to do. I mean, I know the basic steps (get pre-approved, find a realtor you trust, set your criteria, start looking, find something, yada yada yada) but don't really know where to begin. Figured that the almighty brainpower of CP might be able to help me out in that regard. We've got a realtor lined up (haven't yet given them the word 'go', but will be doing that in the next week or so), but other than that and looking through MLS listings, we're in a standstill. We know our budget, and the online calculators have said that we'd most likely get preapproved for far more than we're looking to take as a mortgage, but don't know what to do next. Is it best to do the mortgage searching ourselves? Or go to a mortgage broker (if so, recommendations welcome!)?

We're in a situation where we really don't have many connections in our network in Calgary (having just been students and starting into the workforce, most everyone we know is still renting and quite happy to remain so), and we're not in a position to be asking family for advice, so any words of wisdom or recommendations or the like would be more than welcome!

[Mike Oxlong]

For years the City's tax assesments were low. Now they are too high.

Like other's in this thread have said hire a realtor. They can let you know the market value of a house. Best thing about it is when you are buying a house it doesn't cost you a thing.

I'm a mortgage broker and I would be happy to answer any of your financing needs at all. I sent you both a PM. My services are free for you as well and I can often find you a better rate than the banks offer. Let me know if I can help out with anything.

Good luck!

[Slava]

^ Maverickstruth if you need help with the homebuyers plan let me know. You have the jist of it there. Basically you contribute to your RRSP and pay if off over the next 15 years interest free. Those repayments are not tax deductible like your normal RRSP contributions (because you are repaying the loan). If you take out $40k then you would have to contribute about $2600 per year back to your RRSP's and desginate it to the homebuyers plan repayment. If you don't designate this, or contribute it back then you are taxed on that amount as additional income.

In order to borrow the money from the RRSP it has to be in there for 90 days prior.

Like I say any questions feel free to ask!

[Teh_Bandwagoner]

Gov't of Canada website has a really good breakdown of how the Home Buyers' Plan works, with examples and everything!

http://www.cra-arc.gc.ca/E/pub/tg/rc4135/rc4135-e.html

[MaDMaN_26]

Some of you might find this link handy or interesting.

http://dmzwww2.gov.calgary.ab.ca/fai...rchOptions.asp


It allows you to see the property tax assessment on any home you have the address for...

And this one has a breakdown by community to see if your community or the one your looking at has a trend.

http://www.calgary.ca/portal/server....omparisons.htm


As for the question about using a broker or shopping mortgages yourself. I say it depends on your time. If you have the time definitely shop mortgages yourself at the same time use a broker. No rule says you have to go with a Broker you have asked a quote from, shop him or her just like you would shop a bank... and tell them you plan on looking around for yourself. My experience is they usually can get you a decent deal, but the last time I re-mortgaged I just called up CIBC told them they said they could knock .75% off prime in an open mortgage and they said no problem... I wish I had said a full percent as when I talked to them the week before they had actually said .5% off prime was the best they could do... so I lied and caught them in their lie. Also go to different banks with the other banks offer. I'd always knock a bit more off the offer too in case they just want to match it. It's like bouncing between Soundsaround and Visions on a Saturday getting them to lowball each other on those speakers you want.

A Realtor once told me that there has never been a 5 year period in the last 50 some years (he said I could pick any start and stop date as long as it was five year spread) where fixed mortgages out performed open or floating mortgage rates... so as long as you are ok with the interest moving and your payments fluctuating a little, that is maybe the way to go as well. In the end though you have to do what your most comfortable with... no sense being stressed or worried about it.

*****EDIT*****
Oh and whatever you do NEVER EVER use the sellers Realtor to help you buy, I have had friends and heard of others doing this and 1 person can not act on the needs of two conflicting parties if things go wrong... can't tell you how many times a selling Realtor has talked some one I know into using them as their buying Realtor as well and ended up getting screwed around on possession date or money or something. It is a scam and should be against the law, but don't do it.

*edit* just read Fotze's advice to maybe do this... each to their own and if the sale goes without a hitch then its no biggy and will save you some cash, but the moment something goes wrong you are screwed. I have watched my best friend go through this as well as a guy from work and then have heard stories about others. I really think its bad idea for that sake of saving a thousand bucks or whatever the "deal" might be...

[ken0042]

Regarding shopping around the mortgage. While I agree it's good to shop around, and tell the bank/broker you are shopping around, do not let them do a credit check on you until you are ready to go with them. 2 or 3 inquiries on your credit report aren't that bad, but when you hit the 7th bank and they see 6 other requests for credit on your file, that raises red flags because they don't know if you are getting mortgage rates, or just bought a new Corvette.

[MoneyGuy]

Originally Posted by ken0042

Regarding shopping around the mortgage. While I agree it's good to shop around, and tell the bank/broker you are shopping around, do not let them do a credit check on you until you are ready to go with them. 2 or 3 inquiries on your credit report aren't that bad, but when you hit the 7th bank and they see 6 other requests for credit on your file, that raises red flags because they don't know if you are getting mortgage rates, or just bought a new Corvette.

Better yet, use a mortgage broker. The broker will shop the market for you and do one credit check, instead of shopping around yourself and having multiple financial organizations doing multiple checks.

The advice a few posts up by Fotze about avoiding mortgage insurance is one of the best recommendations you'll read on here. I detest mortgage insurance and have made it my mission in life to educate people about this crappy product.

I'm also not a big fan of the first-time homebuyer's plan, except as a last resort if that's the only way you can buy the house. If you can avoid, don't borrow from your RRSP. There is a cost, and that is reducing your retirement income.

[maverickstruth]

Thanks for all the advice and comments everyone -- keep them coming!

A follow-up question about mortgage insurance. I was under the impression that if you're purchasing with less than 20% down, you're basically required to have it. Accurate? Inaccurate?

[ken0042]

I thought the threashold for mortgage insurance was 25%.

Anyways, you are confusing two different products:
CMHC Insurance- required by the bank. Protects the bank in case you default.
Mortgage Life insurance- pays off the house if you die.

It's the life insurance that we're telling you to avoid. Get life insurance elsewhere.

[MaDMaN_26]

Originally Posted by MoneyGuy

Better yet, use a mortgage broker. The broker will shop the market for you and do one credit check, instead of shopping around yourself and having multiple financial organizations doing multiple checks.

My experience is Brokers get a better commission with one lender and so tend to favor that lender, if its a .1% difference to you yet a $200.00+ commission difference to the broker... I'm betting they go with the bigger paycheck... I say this because brokers always seem to go with a first national or the like and I have found the big banks can offer a similar deal or in my latest case a better one... but I don't know that just seems to be that way.. and I assume because first national pays them better.

Maybe you would know this Moneyguy, could a person not request their own credit report and shop around with it in hand. When the lender asks to check your credit you hand them it and say assume this is correct, if I use you of course you will be able to check it in your system and if they don't match your under no obligation to honor any verbal deal we have...

I would think they should be able to quote you based on that...

[maverickstruth]

Originally Posted by ken0042

I thought the threashold for mortgage insurance was 25%.

Anyways, you are confusing two different products:
CMHC Insurance- required by the bank. Protects the bank in case you default.
Mortgage Life insurance- pays off the house if you die.

It's the life insurance that we're telling you to avoid. Get life insurance elsewhere.

Yeah, the government reduced it to 20% just over a year ago -- hopefully we'll be above that threshold, but it all depends.

And thanks for the clarification -- will definitely skip the life insurance.

[Russic]

This thread is golden ... the wife and I are beginning to look for houses in the coming weeks. Just trying to contact a realtor now.

[Slava]

^ I wouldn't skip the life insurance entirely...you will want some protection there; just don't buy the life insurance from the bank/mortgage company. If you need someone to get your insurance through feel free to PM me.