The Bank of Mom and Dad

Another interesting topic that came up at CPFC15 was the concern that First Home Purchasers are relying more and more on Parental help with the transaction (monetary help, as well as advisory help).

Bank of Dad

The Bank of Dad (Always Open)

I have spoken a few times about how both sets of parents helped my wife and I purchase our first home (leading to the Best Financial Advice Given, ever), and I don’t think parents helping kids buy their first homes is a new thing. In our case my parents helped us to make sure that we didn’t have to pay CMHC Loan Insurance premiums, and my wife’s parents helped with furniture purchases and repairs in our first home.

Is this a good or bad thing? As usual, it all depends on the situation.

In my opinion this is mostly a good thing (if the parents can afford to help out their kids, however, if the parents have to borrow money to do this, it is a very bad idea), but there are scenarios where this might not be the best idea:

  • If the parents are loaning the entire down payment on the house for the children, this is a bad thing. I always espouse that with all things people are much more diligent and attentive to a debt if they have “skin in the game” (i.e. their own money is part of the purchase). It also might create a sense of entitlement in the children, assuming their parents will continually bail them out in hard economic times.
  • The money loaned can simply allows the “kids” to become very house poor, and ties them down to a home that symbolizes being broke (to them).
  • If the money is loaned because “the kids” don’t have a very good credit rating, and can’t get a mortgage without a large down payment (or worse without a co-signer). Most times a bad credit-rating is earned, and maybe they really are a bad loan candidate ?

Families and money sometimes are a very bad mix, both parents and children should think carefully before there are large monetary transactions “between them”.


Land Transfer Tax (don’t forget it)

The Land Transfer Tax is one of those interesting pains in the arse (in Ontario) that bites you when you are thinking about buying a house or property. I was very lucky that when I bought my first house, I didn’t have to pay the land transfer tax, because I had used a Ontario Home Owner Savings Plan (long since gone), which had this as its major bonus (for 1st home buyers only) not having to pay the Land Transfer Tax. This forgiving of the Land Transfer Tax on first homes has been replaced by the  Land Transfer Tax Refund for First-time Homebuyers (please read that carefully).

Unfortunately the second house I bought I had to fork out my land transfer tax, and I grumbled a great deal about it. This cost is one of those forgotten costs that is rarely spoken of, until closing costs are discussed (the danger is you might buy less house if you thought about it as part of your purchasing price), but you should think about it before you make an offer on a house.

Financial Calculator

You could try to calculate your Land Transfer Tax with a Calculator

From an Ontario Government page, the tax is calculated in the following way:

The tax rates on the value of the consideration are as follows:

Amounts up to and including $55,000 -0.5 %

Amounts exceeding $55,000 up to and including $250,000 - 1.0 %

Amounts exceeding $250,000 - 1.5 %

Amounts exceeding $400,000 where the land contains one or two single family residences – 2.0 %

For the definition of “single family residence,” as defined in subsection 1(1) of the Act please see the end of this bulletin or the Act.

On the basis of that simple formula for residential properties, you could put this in your Excel-like spreadsheet and get the right answer (based on the calculation proposed on the government web page):

=IF(B4<=55000,(B4*0.005),IF(B4<=250000,((B4*0.01)-275),IF(B4<=400000,((B4*0.015)-1525),((B4*0.02)-3525 ))))

Where the B4 cell holds the actual selling price of the residential property.

An example output might be:

Price $500,000.00
Land Xfer Tax $6,475.00

Easy enough to figure out, but don’t forget it is there! If you are buying a  $1/2 Million dollar house $6475 may seem like chump change, and if you think so, please stroke me a cheque for that amount, and see how it feels then.


House Poor ?

Nobody Calls it House Poor?

That is an expression that you don’t hear much these days, and I wonder why it seems to have evaporated as a term when purchasing a house? Very rarely do I hear of Realtors using this expression to dissuade potential buyers from binding themselves up in too much long-term debt (if anything the opposite is true). My guess is the code phrase to other realtors would be for buying too much house now, might be “buying a house they can grow into“.

With  the current rate of interest for mortgages, it seems like a great idea to take on as much house as you can especially if you are young because you have so many things ahead of you:

  1. You will need more space because you are going to have kids
  2. You will make more money soon, because your career is only starting
This House MIGHT be a bit of a stretch for you, but you can grow into it.

This House MIGHT be a bit of a stretch for you, but you can grow into it.

Yes, a real estate agent told me that, in 1990 when we were looking at our first house, but I didn’t fall for it, and back then our first mortgage rate was 12.9% so we locked in for 5 years (that was a great deal back then!).  We didn’t actually over buy at the time, because with interest rates so high, adding more to the principal meant a higher monthly payment.

These days you can get a mortgage at 2.95% (at best), thus adding more principal wouldn’t change much. You might even be tempted to borrow more money to:

  1. Get some new appliances for your house
  2. Consolidate your credit card debt
  3. Add in your moving expenses, land transfer taxes and maybe a nice vacation
  4. Add in your Student Loans

At that rate of interest why not?

Allow me to be clear in my answer, “What are you NUTS ?!?“. We are living with historically low-interest rates, which will eventually go up, what do you do when that happens? Assuming the rates can’t go up because of the fragile economy is going to catch a bunch of folks off guard is my guess.

Anybody else ever heard the expression House Poor lately?



Things to Look For When Browsing for a New House

It’s been a while since Mrs. C8j and I purchased the Big Cajun Estate (actually about 13 years ago now), but I noticed that many folks are talking about what to look for in a house when you are out buying a house, so I’d like to pass on a few of the things that I (or friends of mine) learned while looking for the “house of their dreams“, or maybe just the “house of their reality“.

Being On the Level is Important

One of My Favorite Albums – Status Quo – On The Level

Mrs. C8j and I were looking at a very nice house one time, and the visit was going well until I walked into one of the bedrooms. I had had a few late nights, so I suddenly felt off kilter, like I was about to fall over, so I sat down on the bed. Mrs. C8j wandered in and had this odd look on her face and said, “What is with the floor?”.

I stood up and realize that the floor actually sloped into one of the corners and that “off kilter” sensation I had, was the floor itself not being level.

Bring a level with you to a house viewing and start checking if walls are actually vertical and if the floors are level, you may be surprised what you find.

Look for a Flush of Success

Plumbing is really important in your house (anyone who says otherwise hasn’t had to snake out a backed up toilet) so the old trick of flushing toilets and seeing if the water pressure drops is a great tip, but I find if you simply wander around the house constantly turning on and off taps and flushing toilets you will annoy the vendors to no end (or at least their sales rep). Also look for water stains behind toilets and if you are in the basement see if you can see under bathroom floors to see if there have been any “floods” in the house.

Model Home Sounds Nice Doesn’t It?

Never buy the Model Home, I have written about this before, but seriously, this house was slapped up quickly and may not even be to code.

Bluffing Works in Poker and House Buying As Well

definitely NOT the Big Cajun Estate

More than once, I have made off-handed comments to my wife while looking at a house, which I thought were innocuous, but which has caused an outpouring of information from the vendor.  This won’t work with real professionals who know how to sell, but if you are dealing with folks who are “doing it themselves”, sometimes an innocent sounding comment can give you a lot of information.

An example might be a comment like “What is that smell?”, when you walk into the basement, if the vendor replies quickly with “What smell, I don’t smell anything, there are no smells here, not an odor to be smelled!”, and get very nervous, you should pursue this a lot more. If the vendor sniffs with you and shrugs their shoulders, then maybe there isn’t anything to worry about, but who knows?

Notice What is On the Walls

Mrs. C8j and I looked at a house once, and in the master bedroom, was a large framed photo, of a buxom woman, topless in the middle of a tropical lagoon setting, smiling at the camera. Mrs. C8j didn’t really notice, but let me tell you, I didn’t miss it. I smiled knowingly, and as we were finishing our viewing, the home owners came home and I was surprised to see that the buxom model in the picture was in fact one of the homeowners.

As we left Mrs. C8j asked me why I had that goofy grin on my face, so I explained what I had seen. To this day she claims I am making this story up. Yes, this story has nothing to do with buying a house, just a funny story I like to tell, but we also didn’t buy that house.

 Photographic Memory

I don’t remember details much (even less as I grow older), but if you can convince the vendor, bring a video camera and tape your visit, so you can go back over the house later. We still have the video from when we had the house inspection done on the Big Cajun Estate, and noticed lots of things that were different, nothing big, so no point in calling the lawyers, however, good to know in case something bigger had happened. You may not be able to convince your vendor to allow you to videotape, but the vendor may also have a video they will give you of the house, either way, good to have a video of a possible future home.

Which House Did I Buy?

If you buy a house, or a town house, make sure you bought the house you want (and not another house accidentally). A dear friend bought his first town home, after seeing 3 different homes in the same housing complex, but it was only on the day he moved in that he realized that he hadn’t bought the house he thought he had. Saying on move in day, “I don’t think this is the house I bought” is a little late to notice your error. Before you sign anything make sure you are buying the house you want.

Who do You Work For?

I always have an issue if you end up using the same agent as the vendor for your purchase. Who is your agent really working for? I am sure most agents would “poo poo” my concerns, but I am a naturally untrusting person, this just seems wrong to me.

Hopefully your purchase will go smoothly, but remember to be thorough in your due diligence before buying.



Replace Old Windows?

This week I continued replacing the old wood windows that came originally with my house and as I found out last year, none of the windows in my house (Model Home Version 0.1 for our area) were very well insulated (if at all), which in itself suggests the “investment” in new windows will be a good choice, however, if we ignore the shoddy workmanship of the builders of my house, the question arises, does it make sense to replace old windows in a house?

In my case, I think it is an easy yes:

Lousy Windows

If your windows look like this, replace them!

  • Aesthetically the old windows were not very pretty, and would be a sticking point should we want to sell this house. Many house buyers would see the old windows as they walked into the house and would dismiss the house off-hand, without even looking closely at the rest of the house (which isn’t in great shape in other ways, but that is for another story).
  • The continued up keep of old wooden windows is an investment in time and labour I was not willing to continue with (well Mrs. C8j did the painting and upkeep, but I am pretty sure she agrees with my evaluation).
  • The fact that the new windows are an upgrade in performance ( for keeping out sunlight, and heat) will help with cooling the house in the summer (the lack of insulation in the old windows make this point even higher in importance), and keep in the house in the winter.

I am not going to do the math on when the windows will “pay for themselves”, because I view those claims as a bit trite, the windows needed replacing, and I don’t think, in this case, it is a frivolous home expenditure. Still have more money to drop into the remaining windows, but for now, this needed to be done as well.


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