Evaluating Mortgage Insurance Options

You are at the lending institution signing all the mortgage documents and are asked if you want mortgage life insurance. The process seems simple enough, complete a questionnaire and for a few dollars a month you have coverage.

This very important question is often not given much consideration.

This article is aimed at educating the consumer about the various choices available for mortgage life insurance.

If you are obtaining insurance through a bank it falls under the category of a group mortgage insurance policy. The alternative is securing a customized, individual private insurance policy.
Provided are comparisons between the two opportunities.

An individual policy allows the policy holder to choose the beneficiary for the insurance proceeds. If you obtain mortgage insurance from the bank, because the mortgage lender is the policy holder, they automatically become the beneficiary of the proceeds.

If you are in good health and don’t smoke you will pay less with an individual plan. Mortgage insurance made available through banks will only consider the age of the borrower to determine rates, there is no preferred rate for “healthier” individuals.

If a borrower purchased term insurance, the rates are guaranteed for the entire term (typically 10 or 20 years). Most insurance policies with banks are not portable, so if you either pay off your mortgage or change lenders, the current policy would be terminated. If you change lenders and have since become uninsurable you will not be granted coverage. If you are able to obtain coverage, the new policy will come at a higher cost because the applicant’s age has increased.
An individual insurance policy holder can select any insurance amount. A group mortgage insurance policy will only cover the exact amount of the mortgage (no more, no less). The benefits of mortgage life insurance with the bank will decrease over time since your mortgage is being paid down, however, the cost remains level over the term. This is referred to as a decreasing term policy. The monthly payments are fixed but the benefit is declining because the insurance is in place only to pay off the existing mortgage, which is decreasing with each mortgage payment.

An individual policy allows the insured the ability to customize their plan by having the flexibility of incorporating the following: waiver of premium, child term, spousal term, guaranteed insurability, etc. Guaranteed insurability is important with term insurance. For illustrative purposes, if you select a term of ten years and after that time frame require continued protection, if this feature isn’t included in your policy, the insurance company can decline you coverage (if there is a change in your health). Keep in mind that a new term will cost more because of the change in age. Conversely, the bank insurance policy offers limited benefits.
An individual policy is available up to age 70 for term, 85 for permanent and 85 for universal life insurance. Many companies will not insurance clients beyond the age of 65 and coverage will end at age 70.

Premiums for an individual policy are guaranteed for the term of the insurance policy. On the other hand, premiums paid through a mortgage lender are on a group basis and therefore can be increases on a group basis if the experience of the group becomes unfavourable. For example, if the lender raises charges for the whole group, premiums can fluctuate.
The underwriting process for private insurance is done at the time of purchase. This means that there is virtually no chance of the insurer refusing to pay a claim should the need arise. This is in sharp contrast to the bank insurance which is not underwritten until someone dies. This means that the health questionnaire that was completed when you took out the policy will only be reviewed at time of death. If there is any reason to question the accuracy of the information, a claim may be denied.

The bank can collect premiums for years which would mistakenly lead the consumer to believe there is a valid, enforceable policy in place. Unfortunately this is not always the case. There are numerous horror stories of the insurance companies reneging on their obligations. There was an incident where a couple worked hard to able to afford to buy a home. They took out joint life insurance policies at their bank. Premiums were being deducted on a monthly basis. The husband unfortunately fell ill was hospitalized and subsequently passed away. The wife went to the bank with insurance forms in hand, hopeful of having the balance of the mortgage paid off. She shockingly learned her husband had been rejected for coverage. The wife demonstrated payments were taken out of her accounts. The bank staff apologized for the error and offered a refund of the premiums. Angered and feeling cheated the wife retained a lawyer to resolve this dispute. One year later, she could barely afford the mortgage payments plus she found herself with a legal bill of $25,000. If an applicant is going to be denied coverage it stands to reason this should be known from the onset. Unfortunately there are more and more “escape” clauses that allow claims to be disallowed which makes the insurance companies billions of dollars.

As a rule of thumb it is prudent to have insurance to cover major debts such as a mortgage. Don’t simply add mortgage insurance to your mortgage payment without giving this issue careful thought. There are good reasons to consider other options. Private insurance offers numerous benefits at usually no additional costs. Please take stock of your insurance needs and make certain you obtain adequate coverage for your largest investment.

Setting the Stage: 3 of 3

Does Home Staging Works?

Feel free to click below and leave us your thoughts under comments.

Setting the Stage: 2 of 3

Does Home Staging Works?

One more episode to come...

Setting the Stage: 1 of 3

Does Home Staging Works?

Well, watch and find out...

UFFI ~ Urea Formaldehyde Foam Insulation

UFFI’s origins can be traced back Europe where in the late 1950’s it was developed as a means to insulate difficult to reach cavities in house walls.

The ingredients typically consist of a mixture of urea formaldehyde resin, a foaming agent and compressed air. When this mixture is injected into the wall, urea and formaldehyde unite and “cure” into an insulating foam plastic.

In Canada, UFFI was approved for use in exterior wood-frame walls only. It has a good R value rating which is used as a measure to evaluate the insulation’s ability to resist heat flow.

Formaldehyde is colourless, but has a very strong odour. Formaldehyde is both a naturally occurring chemical and an industrial chemical. It can be found in diapers, cosmetics, paints, cigarette smoke, dry cleaning chemicals, gas appliances, wood stoves, fireplaces, no-iron fabrics, paper products, exhaust from fans and glue from particle board and plywood.

Typically formaldehyde levels in houses are .03 to .04 parts per millions. By contrast, typical levels in a smoking section of a restaurant would be .16 parts per million. Houses with new carpeting can also reach these high levels.

The rate at which formaldehyde gases are released from materials into the air depends largely on the temperature and humidity. The higher the temperature and humidity, the more gas is likely to be released.

Urea formaldehyde foam insulation was used primarily in the 1970’s in Canada. This was a period where there was a push to have more energy efficient homes. During this period there were financial incentives offered by the government to improve the insulation levels in homes across Canada. The government program was called CHIP (Canadian Home Insulation Program) and UFFI became an important insulation product for existing houses. There were an estimated 100,000 homes in Canada that were insulated with UFFI.

UFFI was also used throughout the United States during this same period. It has been used for over three decades in Europe and is still considered today to be one of the best insulation solutions for existing dwellings.

UFFI was banned in Canada in December, 1980.


Why was UFFI banned?

During the insulation process, there would be an excess of formaldehyde added to ensure complete “curing” with the urea to produce the urea-formaldehyde foam. That excess was given off during the curing almost entirely within one or two days of injection. If the UFFI was properly installed there may have never been any problems. However, there were instances where UFFI was either improperly installed or used in locations where it should never haven been. One of the first problem cases stemmed in the United States. This involved an inadequately ventilated, air-tight mobile home with a poorly mixed, half-formed UFFI.

A lab study in rats which produced nasal cancer in a formaldehyde environment where there was high levels added to the concern. There were numerous home owners that reported respiratory difficulty, eye irritation, running noses, headaches and fatigue.
The Canadian health authorities became concerned about the possible health risks and consequently banned the use of UFFI in December, 1980.

The Federal government set guidelines to remove UFFI where the formaldehyde gas was .1 parts per million or greater. This was a very conservative figure. The interesting challenge became apparent as houses were being tested, they couldn’t find any UFFI insulated homes with gas levels above .1 ppm. In reviewing several thousand files, there was not one house with levels of formaldehyde that remained above .1 ppm. (If there was an atypical reading that was over .1 ppm another reading was taken and invariably would produce a result of less than .1 ppm).
The presence of UFFI does not affect the level of formaldehyde in the house. However, if UFFI comes in contact with water or moisture, it could begin to break down. In these instances, UFFI should be removed by a specialist and the source of the moisture problem should be repaired.
In one of the longest and most expensive civil cases held in Canada, which took eight years to settle, it was concluded by Quebec Superior Court, that not only was there no basis for a settlement but the plaintiffs were required to pay the majority of the costs.

It appears that urea formaldehyde foam insulation has not been the health concern that it was initially thought to be. However, anytime there is a health risk, it is best to err on the conservative side.

When I first began my real estate career, UFFI was a much debated and controversial topic. Concerns of cancer and other health issues made it very difficult to sell a home which was insulated with UFFI. Even if the UFFI was removed, fetching market value because of the perceived problems was very difficult. Most buyers shied away from these homes. It was mandatory prior to 1993 for a mortgage insurer to have the seller sign a declaration stating that to the best of their knowledge and belief there was no UFFI used to insulate the home. Since 1993, a UFFI declaration has not been required.

Although, the focus on UFFI isn’t nearly what it used to be, as a seller the stigma may still hinder marketability. If your home does have UFFI you should enjoy your home and be assured that it is not the problem it was once feared to be.

Understanding Foreclosures, Power Of Sales, Tax Sales, And Tax Liens

We are a team of real estate agents and we get numerous calls from buyers looking to buy properties at prices substantially below market values.

Many buyers inquire about power of sale properties believing it will be sold at deeply discounted prices. One of the fallacies or misconceptions about a power of sale purchase is that the lender is only interested in selling it at a price that will allow them to recoup all mortgage and legal costs.
This article will help you better understand the various government initiated property sales and what opportunities exist as a potential investor.

There have been many television programs, seminars, and books that teach investors how to buy properties significantly below market values. Typically, these properties are either foreclosures or tax auctioned properties. These opportunities are mostly found in the United States (although there are tax property sales in Canada).

Foreclosures

In the United States, the lenders typically foreclose on the rights of the previous owner if they are in default on their mortgage. Once this process is completed, it enables the lender to sell the property at any price they desire. This is in sharp contrast to the power of sale process, which I will discuss later in this article.

Tax Sales

Tax sales allow the tax department to sell the properties in order to recover outstanding tax bills. There is usually a public auction held and the highest bidder is awarded the property. Typically, a deposit is required and the balance is due within a two week period. This procedure varies from municipality to municipality.
Quite often these properties are vacant land (such as bush lots and timberland), farms, cottages, houses and commercial or industrial properties. Whilst it is possible to buy these properties at well below market values, they are usually not located in highly marketable neighbourhoods. In Ontario, an individual would have to be at least two years in arrears before the local government could force a tax sale.

Tax Liens

A tax lien is an government program that allows investors to pay back taxes on properties in tax arrears. The property owner than has a certain amount of time to pay back the taxes plus a very high interest rate or forfeit the property. If the money is paid back, all the money is sent to the investor (usually with a very high return on their investment). If the owner does not pay, the investor can foreclose on the property and receive it free and clear. Typically tax liens are not exercised in Canada.

Power of Sales

As eluded to earlier, in Ontario most lenders utilize the power of sale remedy as a means of enforcing a sale against a mortgagee (borrower) who is in default.
I will outline the duties of the mortgage holder in Ontario when a property owner has not made his required mortgage payments. It is important for a mortgage holder to do the following once in possession of the property:

Provide an accounting to the borrower

Ensure that the property is being reasonable managed and maintained

If a property is being sold under power of sale there are some duties that a mortgage holder has to adhere to. The seller must try to attain a reasonable offer. Reasonable implies an offer that is representative of market value. The reason for this requirement is that in contrast to the foreclosure process any funds, after all costs have been adjusted for, will be returned to the mortgagee (borrower). If there is a shortfall after the sale, the lender can proceed to sue the borrower for any deficiency. The lender before putting the property for sale will typically obtain three independent appraisals. This will provide them protection should a mortgagee (borrower) later decide the property was sold substantially below market values.

Additionally, all lenders sell properties in an “as is”, “where is” condition. They are not in the business of selling homes and as such do not make any expressed or implied warranties about the state of the property. The buyer is required to do their own due diligence which includes hiring a professional home inspector to satisfy themselves of the structural integrity of the property.

It is surprising to see so many people who wait until the bank is knocking on their door before they take initiative. Usually, at this point in time, it is too late.
If you have equity in your home and you are experiencing financial hardship, I would advise moving decisively with a plan of action so that you minimize any unnecessary costs. This can include either selling or refinancing your home. Once it is in the hands of the banks, costs can be sizeable.

If you are a buyer looking for a deal, power of sale properties should be included in your search but understand the limitations.

How To Protect Yourself When Making An Offer

As a Real Estate agent after viewing numerous homes, you have finally found the "perfect" home. There are feelings of both excitement and anxiousness. It is time to submit an offer. This critical part of the buying process has significant ramifications. In today's complex and rapidly changing real estate market, it is imperative you have a realtor that will protect your most prized investment.

This article will discuss the essential clauses that should be part and parcel of any offer.

All offers will spell out the usuals-offering price, deposit and closing date. However, there is much more that needs to be incorporated into your offer to make sure your interests are fully protected.

If you are looking to secure a mortgage and have a pre-approval from a financial institution, it would still be prudent to include a financing condition clause. The typical time frame is 3 to 7 business days. If for whatever reason you couldn't arrange financing, then your deposit would be returned in full. Often times a purchaser mistakenly believes a pre-approved mortgage is a guarantee of a mortgage approval. If you review the fine print you will notice most pre-approvals have many conditions. If these conditions are not met the final mortgage approval may not be granted.

Another imperative condition to include in an offer is a home inspection clause. This clause allows the purchaser the right to hire a professional home inspector who will conduct a home inspection of the subject property which typically takes 2 to 4 hours. The inspector will review the major components of the home including the roof, the furnace, electrical system, plumbing and exterior foundation. If for whatever reason the purchaser is unhappy with the outcome of the inspection he can nullify the transaction. Often times if a home inspection reveals a deficiency the purchaser may obtain an abatement (price adjustment) from the vendor.

An often overlooked clause is the chattel warranty clause. This typically applies to the appliances and ensures that the appliances remaining on the premises will be in good working on closing. If an appliance is not working you will have legal recourse against the vendor. In many instances no mention is made of chattel warranties and the purchaser is at risk should the appliances not be operative.

The right to view the property one or two further time(s) should be inserted in the offer. This allows the purchaser the opportunity to visit the property prior to closing typically for the purpose of taking measurements or showing the property to other family members. In many cases it is advisable to have the purchaser view the property just prior to closing to ensure that there are no significant changes in the condition of the property. The purchaser is in a position of strenght prior to closing and should any problems arise it is easier for the purchaser's lawyer to remedy the situation.

Typically, a survey is required by both the solicitor and the lender. Therefore you should include a survey clause to satisfy both of these parties. In the event a survey is not available you can still obtain title insurance which will guarantee you "good title" to the property. Prior to title insurance, if a survey wasn't available then either the purchaser or vendor would've had to bear the cost of a new survey. (A survey is the accurate measurement of both land and building made with the aid of instruments.)

Today with the increasing number of homes being purchased as grow houses (marijuana operations), it is essential to have a clause stating the property was never used as a grow house. I have seen instances where this clause was not inserted and unscrupulous sellers do not disclose this pertinent fact.

The primary concern with a grow house is the potential structure damages that can be sustained. Whilst, a home inspector should be able to see tell tale signs, there have been instances where it has been overlooked.

If appliances are included in the agreement of purchase and sale, it is recommended to obtain in writing the make, model and serial number of the appliances. Although uncommon, I have unfortunately seen appliances being switched for inferior products.

Today, insurance companies view some dwellings as more high risk and consequently obtaining insurance is not necessarily a given. For example, if an older home had knob & tube wiring, many insurance companies because of safety concerns, would shy away from insuring the property. Consequently, it is advisable to include a 3 to 5 business day condition that ensures the purchaser can obtain home insurance coverage.

It is also standard practice to include today a current value assessment (CVA) clause. This protects sellers, brokers and sales representatives should property taxes change materially in the years to come. In some municipalities, there were significant increases in property taxes when properties were being reassessed. This of course is beyond the control of the sellers or agents.

Many times we also include a clause stating the property is to be left in a clean, debris-free condition on closing. This will if nothing else create an awareness for the sellers that the property should be left neat and orderly for the new homeowners.

If you are buying a condominium you want to ensure the sound financial health of the condominium corporation. Any offer should be conditional upon obtaining a status certificate from the condominium corporation and having your lawyer review and be satisfied with such documentation. This certificate highlights many important aspects of the condo corporation such as the current amount of money in the reserved fund, if there are proposed increases in the maintenance fees, if there are any special assessments being contemplated, and the outcome of any engineering studies determining the adequacy of the reserve fund.

I have seen situations arise where special assessments in excess of $10,000 are levied against each unit owner. By reviewing all pertinent documentation this will ensure there will be no costly surprises.

If you are unsure or uncomfortable about any aspects of the offer you may want to include a clause stating that it is conditional upon your lawyer reviewing the offer and being satisfied with the same, failing which the offer shall become mull and void. This will allow your lawyer the opportunity to review the offer and if any changes need to be made your lawyer can make such changes to the agreement of purchase of sale. If the other side objects to such changes then you can void the agreement. This will give you peace of mind when you are submitting your offer.

Each offer is unique and consequently conditions and clauses will vary. However, the clauses discussed in this article are viewed as indespensable clauses and should be (when applicable) incorporated in your offers!

MoneyTips[1]: Get Discounts For Your Home Insurance!

A simple call to your insurance agent after watch this video clip can save you hundreds and even thousands of dollars per year. Do it now!!!

Do You Understand Your Home Insurance Policy?

One of the often overlooked aspects of a home purchase is a home insurance policy. If you are placing a mortgage on a property, the lender will require evidence of home insurance coverage before they will advance funds.

Many homeowners innocently assume that all possible “risks” are covered by a home insurance policy. Unfortunately, the realization that this is not the case, typically occurs after a claim is denied.

Home insurance policies come in three types of packages. The most basic form of home insurance covers or protects the owner only against risks named in the policy. There is potential for significant risk for losses not listed in the policy. This is the cheapest form of coverage (as long as no claims are made).

A mid-range policy is defined as broad range coverage. It allows for basic coverage of the content of the house plus all risks on the building. It should be noted that all risks does not imply every possible cause of damage. It includes all risks except those specifically excluded from the policy. It is imperative to read the policy carefully to understand the coverage.
The third and most comprehensive insurance policy covers both buildings and contents for all risks that are not specifically excluded.

Typically, most policies will have limits on the claim amounts for computers, laptops, furs, jewelry, coins, stamps, and cash. If you have valuables that fall in these categories it may be prudent to obtain individual coverage.

Most standard home insurance policies do not cover floods, earthquakes, sewer backup and other natural disasters. You can purchase special riders to obtain coverage for the above risks.
It is important to also analyze the payment of claims options. The less expensive cash value coverage will pay out the depreciation value. For example, if a homeowner was making a claim for a 20 year old roof, they may receive only 10%-20% of the cost of a new one. If you purchase replacement coverage, the insured will receive the actual replacement cost of the item (with no deduction for depreciation) up to a maximum dollar limit. If you want to purchase coverage beyond the face value of the policy (the maximum dollar limit), you can purchase what is referred to as the guaranteed (or extended) replacement coverage which will cover the total cost of replacement even if it exceeds the policy limit.

An insurer should also consider obtaining supplementary coverage for additional living expenses and rental loss of supplementary income (such as basement rent).

If you are conducting business from your own residence, it is important to make mention of this in your home insurance policy to ensure there will be coverage for items such as equipment, contracts and banking records.

If you own a condominium, the condominium insurance policy will not cover individuals for liability inside their unit, losses to their belongings or required improvements. Consult with your insurance agent to ensure you have an adequate condominium insurance policy.
The last component of insurance that requires careful evaluation is the liability component. Most policies today for both homeowners and condo owners carry a standard one million dollar coverage (or $500,000 in less expensive policies)

Today, it has become more commonplace for the courts to award a seriously injured party millions for damages. Based on this information, it has been recommended to get an umbrella policy covering all policies (such as car, home, rental property, snowmobile, etc.) for an additional million dollars coverage. The cost is nominal and it may keep the under-insured away from the bankruptcy courts in the event of a successful claim.

Some final points of consideration:
It is imperative not to lie on an application form. State the intended purpose of the premises. If you aren’t honest, you may obtain a cheaper premium, but you will never collect on a claim.
Property that is illegally acquired, stored or moved is not covered.

If the property is going to be vacant, please notify your insurance agent to obtain special coverage. Failing to do so may result in a claim being denied. If a home is vacant for more than 30 consecutive days, all insurance coverage stops. For this reason, if a homeowner knows his dwelling will be vacant for an extended period (beyond 30 days), he should request a vacancy permit which will provide most of the coverage he had. The insurance company is not obligated to grant you a vacancy permit. Normally, a vacancy permit is limited to three months and a premium is charged.

Under most insurance policies, if your home is unoccupied for more than 4 consecutive days during the winter, insurance companies will not cover water damage caused by freezing due to troubles with any part of the plumbing, heating or central air conditioning systems (and in some instances appliances). A claim will be denied for the above reasons unless it can be demonstrated a competent person made daily house visits to ensure the heat was being maintained.

The message is that it is critical to not take home insurance for granted. It is imperative you purchase the right policy that protects all your needs.

Tax Deductible Mortgage for Canadians

Is your mortgage tax deductible?
In 2002, Vancouver based financial planner Fraser Smith wrote a book called The Smith Manoeuvre which explains to the reader how the interest paid on a mortgage can be tax deductible.

In the United States, mortgage interest has always been tax deductible. This has been one of the significant advantages to homeowners with a mortgage in the United States.

Currently the interest paid on a mortgage for a principal residence in Canada is not tax deductible. However, any interest on a loan taken out for investment purposes (i.e. mutual funds, stocks, etc.) is deductible. The key to the Smith Manoeuvre is what is coined “a readvanceable mortgage” where the financial institution is willing to loan an amount equal to the mortgage principal that is being repaid every month. A readvanceable mortgage is defined as a multi-component mortgage. One component of this mortgage must be a line of credit. In this scenario, the principal you pay down you will re-borrow in the form of a line of credit. This money will then be re-invested which is tax deductible. It is important to understand the concept behind the Smith Manoeuvre is not debt reduction but rather debt conversion (good to bad debt).

For Revenue Canada purposes the mortgage statement must be broken down into two parts. The traditional mortgage statement and the LOC (line of credit) which shows the interest paid during the course of the year for investment purposes. This is the amount that can be deducted for tax purposes. Today, there are several mortgage lenders with products tailored for the Smith Manoeuvre. One of the lender’s requirements is that the individual must have at least a 20% or greater down payment (conventional mortgage). Other lenders will affect the Smith Manoeuvre with a higher ratio mortgage (less than 20% down payment). It is important to analyze each of the lender products carefully to see which one best suits your needs.

The Smith Manoeuvre is ideal for Canadians who require a mortgage to purchase their home. Interestingly, there are approximately 10 million home owners today. One third are mortgage free, one third hold investment properties (which may or may not have mortgages), one third own homes with mortgages on the property. This is ideal for the individuals who have an existing mortgage. Today there are approximately 400 brokers/lenders in Canada who are skilled in advising clients on the Smith Manoeuvre.

What kind of savings can a homeowner anticipate?

If an individual is carrying a $200,000 mortgage with a 6% interest rate, the interest expense in the first year would be $11,755.96. Typically, this would not be tax deductible. If you were able to position it so that this amount is tax deductible, and assuming you were in a 40% tax bracket, then you would receive a tax refund for the year in the amount of $4,702.38.

As stated earlier, in Canada, the key to making the interest expense tax deductible is structuring it so that the money is used for investment purposes. The Smith Manoeuvre accomplishes this objective. Loans for car acquisitions, vacations, home and consumer purchases are not tax deductible.

What are the risks with this strategy?

The tax savings is the key component to this plan. However, one must not forget that this is still a leveraged investment and the individual must be mindful that there is inherit risk with any type of leveraging. If you are risk averse, you will not stomach well significant fluctuations or swings in the value of your portfolio. It is critical to discuss these concerns with your financial advisor. As a rule of thumb, the investments should yield returns greater than the after tax cost of borrowing. For example, if your cost of borrowing is 6% and you are in the 40% tax bracket your investment should yield a return greater than 3.6%. This typically means investing in a safe and conservative mutual fund. GIC’s will not accomplish this goal because of their lower returns and interest income implications.

It is also important to know with the Smith Manoeuvre you never reduce your debt. As stated earlier it is debt conversion. If you borrow, for example, $200,000 to buy a home and pay it off in twenty-five years you still owe $200,000. The reason is the entire principal has been re-borrowed. This amount in theory should represent investments that are valued at much greater than the $200,000 since you have been steadily investing money over the duration of the mortgage. Keep in mind, you can sell the investment at anytime to pay off the loan.

The Smith Manoeuvre is complicated enough that if an individual is contemplating this tax savings vehicle, it is highly recommended to seek professional advise.

What To Look For Before Hiring A Contractor

Most homeowners, at some point, will require the services of a contractor. The need could be small or it may involve a substantial renovation. It is a fact that contractor fraud in the home improvement business is consistently one of the most inquired and complained about industries with the Better Business Bureau. The victims are not only the “gullible old ladies”, because many folks are trusting in nature, everyone can be a potential candidate to be taken advantage of.
Once a decision has been made that the services of a contractor are required, it’s a decision that should not be rushed into.

For smaller projects, the contractor may be able to undertake the entire work requirements on his/her own. For larger projects, the contractor will typically take charge of the whole project. Often times, projects of this magnitude may require the services of architects, designers and various sub trades people. The contractor may oversee the entire project, which would include but not be limited to obtaining all necessary permits, hiring the sub contractors and the supervision of the work.

Finding a Contractor
This is obviously a crucial element of the project. For starters, ask your family members, friends or neighbours to see if they can recommend a contractor. Other sources include: local homebuilder and renovation associations; your neighbourhood building stores, and contractors listed on the internet.

Questions to Ask
It is important to find out as much as you can about the contractor. The contractor should have no reservation about answering your questions. These questions should include:
How long has the contractor been in business?
What do they specialize in?
Have they done similar work before?
Will they be using their own team or will they sub contract all or part of the job?
Will they provide a written contract?
What kind of warranty do they offer and what does it cover?
What timeline or work schedule will they adhere to?
Who will be responsible for obtaining all required permits?
Do they carry worker’s compensation and liability insurance?
When and how do they clean up the project?
If a contractor can’t confidently answer these questions and doesn’t seem to have sufficient knowledge about the technical details of the job, this should send off warning/alarm signals that this may not be the contractor for you.

An important intangible but often underestimated aspect of this decision making process is the ability to get along with the contractor. Numerous situations came up with contractors and invariably plans change, problems arise, etc and the working relationship you have with the contractor is of utmost importance. If the communication channels are strained with the contractor it can become very tense. You also need to have unwavering trust in the contractor that they have your best interest at heart. They will be responsible for many financial decisions and the element of trust must be present.

Ultimately, the contractors you interview should be able to provide numerous references from past clients who have had similar work performed. I would call these references and ask specific questions about their experiences with the contractor and their trades people. Ask them amongst other questions if there were any problems, was the work completed on time, would they hire the contractor again. If you can visit completed projects, this would be strongly recommended. Remember, typically (one would assume) referrals supplied by contractors should be satisfied clients. The random sampling of calls you make hopefully are an accurate representation of how the majority of the contractor’s clients felt about the services rendered. It would also be advisable to check with the Better Business Bureau to see if any complaints were filed against the contractor.

Getting Estimates or Quotes
As a rule of thumb, it would be prudent to get at least three independent quotes for any project. You can then compare all three quotes. For projects more substantial in nature, you will require detailed drawings and specifications. This would typically mean acquiring the services of an architect or designer. Even for a smaller project, written specifications are needed. Be as concise as you can be with respect to the type of finishes you want, the type of flooring, the brand of doors, windows, etc.

Keep in mind for larger projects it may take the contractor up to three weeks to prepare a detailed, written estimate. Quotes can either be fixed quotes or cost plus method. A fixed quote includes all the materials, labour, equipment and fees, plus contingencies, overhead and profit. Allowances may be established for items yet to be selected. This allowance would serve as an estimate only and would be later adjusted when a decision has been made. In a cost plus contract, the contractor is paid for labour, materials, equipment plus a percentage for overhead and profit. This arrangement is quite open ended, consequently the end figure could vary significantly. Always leave a contingency for unforeseen costs.

Don’t always go with the lowest price. It may be unrealistically low. This low price may be because the contractor either misunderstood the project, or the contractor may be simply trying to gain a competitive edge over his/her competitors by quoting artificially low. Either way, you can anticipate additional costs or you may end up with an unsatisfactory job.

It is important to get all agreements in writing. Don’t do cash deals as there are many risks and pitfalls that may negate the perceived savings. For example, without a written agreement cash advances may be unprotected. There are numerous stories where the client advanced sizeable amounts of cash to the contractor and the contractor never returned to the site. Also, a cash deal will give you no legal recourse if the contractor does an unsatisfactory job or if they walk off the job before finishing it.

Once the job is completed, the contractor will often ask you to sign a certificate of completion. Before you sign this document, make sure the work has been thoroughly inspected. If there is still outstanding work be sure to note it and do an appropriate holdback.

Holdbacks
A builder lien holdback is used for the sole purpose to ensure sub contractors and suppliers have been paid so that they don’t subsequently place liens on the property to secure payment. If there are no sub contractors or suppliers, this holdback will not apply. Please note, the builder’s lien holdback cannot be used to correct deficiencies.

A deficiency holdback lien is used when the project is substantially finished but there is still some incomplete work. It is standard to holdback a reasonable amount to cover the costs of this pending work.

A seasonal or delivery holdback is defined as a holdback that could not be completed because of the time of the year or because products weren’t readily available. In these instances, it is commonplace to do a holdback equaling the cost of the remaining uncompleted work. Lastly, it is important that the contractor has worker’s compensation and third party liability insurance for all the people on the job. Don’t just take your contractor’s word, ask to see the certificate. Two million dollars is standard coverage.

There are many hardworking, honest and reputable contractors that do high quality work and use good materials and provide solid value at reasonable pricing. This article will hopefully ensure that those are the folks you ultimately end up dealing with.

Find more info on certiified improvement home contractors visit: http://www.contractors.com.

Zero Money Down Problems.

During late 2004 and 2005 buyers in most of the Misery Map(States that got affected the most: Califoria, Nevada, Wash., Florida) have lost equity on their peak of market purchases. In fact, 14% of homebuyers in 2005 put zero money down, and had no equity to lose. That’s backing $215 billion in mortgages, and it doesn’t take too much intuition to figure out who they are: mostly subprimers on the Map of Misery. In fact faced with a 10% mortgage payment and negative equity snake eyes, these desperate homeowners will either turn over the keys or be forced to do so, and sooner rather than later. Just think about it, why would these home owners care about foreclosing when they have nothing to lose? This is what happens with way too much hype on owning a property with zero down. For U.S. that is, those sub-prime lenders just interested in making ka-ching ka-ching. Don't us smart Canadians feel proud now.

Understanding The Sub Prime Mortgage Market US and Canada!

What is a sub prime mortgage?
A sub prime mortgage is a loan that is categorized as riskier in nature. The borrower would typically not qualify for a mortgage through regular, traditional channels such as major banks due to either poor credit or non verifiable or low(er) income. This market was created for the many, high risk buyers. Rates for these mortgages were considerably higher than those offered to the blue chip customers.

These loans amounted to an astounding 20 percent of the total volume of mortgages written in the United States. This represented a mind boggling one trillion US dollars.

The lenders were typically offloading these sub prime mortgages to institutions who would package them as mortgage backed bonds. The high returns offered by these bonds made them a very attractive vehicle for investment funds. There was an incredible amount of money flowing into these funds.

This was a profitable business for many - wall street brokers who packaged and sold the bonds and the debt rating agencies who received substantial fees for making the bonds appear to be solid investments. Large investment dollars were pouring in from Canada, Europe and Asia.
Good times wouldn't last forever. The combination of higher interest rates and lower home values have taken its toll on the sub prime mortgage market. The number of foreclosures are up 93 percent from 2006. Some lenders have been forced out of business because of the insurmountable losses. At the worst possible time, lenders have tightened their lending practices which make it more difficult for individuals and companies to secure credit. This restrictive lending style can have an enormous negative impact on economic growth.

What affect will this have in Canada?

One byproduct is that lenders may tighten up lending practices globally which would not be immune to the Canadian marketplace. Secondly, because Canada's prime trading partner may be heading into a recession, it may have an impact on the Canadian economy. An individuals net worth in the United States is largely tied to their real estate holdings. As prices drop, many will be more cautious of consumption patterns. This will have a detrimental affect on the economy.

Are there similar risks in the sub prime market in Canada?

The U.S. sub prime market is wreaking havoc. Do the same risks exist in Canada? There are some key differences between the sub prime markets in Canada and the United States. The total percentage of the sub prime market is approximately 5 percent in Canada which is in sharp contrast to the 20 percent sub prime market in the U.S. According to the Canadian Association of Accredited Mortgage Professionals (CAAMP), the mortgage arrears in Canada is at or near record lows of less than one half of one percent (.5 percent).

In Canada, the approach tends to be a more conservative one. There is less emphasis on gaining market share for the risky sub prime mortgage business. In the U.S., clearly the war for the sub prime mortgages, may have been a reason for some careless and wreckless loan granting. Also, the lending practice in Canada is not to use option adjustable rate mortgages for the sub prime borrower. This reduces the risk with any loan. When I say option adjustable rates or so call teaser rates that U.S lender offers, which doesn't exist in the Canadian mortgage market, what it is is you can lock in at 2.5% for the first 3-6 months, afterwards it will jump back on to the regular sub-prime rate at 6-10% whatever amount of interest the lender charges. Just imagine yourself the difference it makes on your monthly payments once the regular rate kicks in.

Adrienne Warren, a Scotiabank senior economist, believes that the Canadian housing market has been less speculative than the U.S. market. He further believes real estate investments in Canada have been by in large less active, overbuilding less prevalent and less high risk lending. A strong job market and lower interest rates should help sustain the Canadian real estate market.
Mortgage interest is tax deductible on an Americans principle residence. This is another significant reason why Americans are encouraged and motivated to buy a home (sometimes prematurely). The U.S. housing affordability is at its worst level in two decades. In Canada, affordability is still very much present as the overall real estate picture is better than the 1989 period when there was a significant spike in prices. Currently, the U.S. household debt is a staggering 25 percent higher per capita than that of the Canadian household.

The real estate market in Canada has been going strong for 9 years, and for 2007 it was a record breaking year for amount of real estate solds. It is difficult to predict when the market will show signs of a slowdown. I believe given the demand for real estate in our current market, the low unemployment figures and the availability of affordable housing, the market will continue to flourish despite the struggles of our southern neighbour.

My first post!!!!

First try doing this blog stuff, like the title said, "its my first post."

I hope everyone will enjoy my blog, what it would cover mostly in the area of financial, real estate, and my personal interest/hobbies that I'll be posting on this blog.

My web title,"to help others." What I truly wish for to achieve for this blog is for others to understand better about their finance, real estate, and their self-help education.

Got to thank blogger for this opportunity to share our lives with others.


Thank you!!!