Posted on: 03-06-04 21:49:37
A friend bought a house last year for $265,000. He is now offered $380,000 after a year. He wants to buy another house for $260,000 in the suburbs and posket the difference.
Question:
1. Is the mortgage transferrable?
2. What are the tax implications if he has sold after a year.
3. What should he do first, sell or buy?
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Quote:
Orginally posted by The Canadian Immigrant
A friend bought a house last year for $265,000. He is now offered $380,000 after a year. He wants to buy another house for $260,000 in the suburbs and posket the difference.
Question:
1. Is the mortgage transferrable?
2. What are the tax implications if he has sold after a year.
3. What should he do first, sell or buy?
1. Most of the mortgages are transferrable and portable. You have to find out by the terms of the mortgage as mentioned in the mortgage documents about the features it offers.
2. If it was his 'principal residence' then there are no tax implications and he does not even have to report this income in tax return.
3. It does not matter. But he should try to match both the closing dates so that he can move from one house to other at the same time as it is the most convenient way.
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This proves my point which I had mentioned in my earlier post that in order to create wealth in Canada, you need to buy house instead of renting.
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You can email me directly with the details and other questions to help me advise him properly.
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Pramod Chopra
Senior Mortgage Consultant
Mortgage Alliance Company of Canada
Thank you very much Pramod!
Last question, does he have to pay any penalty/fee to the bank?
This is for a Chinese friend who is not too net savvy!
Thank you in anticipation.
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Quote:
Orginally posted by The Canadian Immigrant
Thank you very much Pramod!
Last question, does he have to pay any penalty/fee to the bank?
This is for a Chinese friend who is not too net savvy!
Thank you in anticipation.
Again, the terms of mortgage would tell you whether there is a penalty or not. However, I am 100% sure then would be penalties for breaking the mortgage contract which could be 2-3 months simple interest on the remaining balance or the interest rate differential. And depending on the interest rate he is presently paying and the time remaining in contract, these penalties could be anywhere between $2000 to $5000 ( A very conservative guess). But why does he need to cancel the mortgage and pay penalty, if he can switch the same mortgage to the new property.
He needs to see the mortgage terms or contact the bank and find out. Alternatively, if he is in Toronto or GTA, he can call me and I can see what is best for him.
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Pramod Chopra
Senior Mortgage Consultant
Mortgage Alliance Company of Canada
Canadian Immigrant asked: What should he do first, sell or buy?
Reply:
Excellent question and perhaps the most frequently asked one. Here is an expert out of my Realty Times Newsletter:
http://realtytimes.com/c/amitkalia
For homeowners aiming to sell their home and buy another, it's the classic real estate, which came first, the chicken or the egg, question - buy or sell first?
If you sell first, you may find yourself under a tight deadline to find another house, or be forced in temporary quarters. If you buy first, you may be saddled with two mortgage payments for at least a couple months. You may need the money from the sale of your original home in order to pre-qualify for a loan for your new home. You may be facing a job relocation and need to sell quickly.
There are many variables involved; there is no universal correct answer. It basically comes down to your specific circumstances.
Dan Gregor, a Realtor in Pickerington, Ohio, says there is generally less pressure when you sell first.
"It really comes down to risk," Gregor said. "It's whether you want the risk of owning two houses, or possibly none at all."
Gregor says that if you have the money to make two mortgage payments, the pressure is off. But if you need to sell your house in order to qualify for a loan, then you have no choice - you'll have to sell first.
"You can write contingent contracts, but if you really want the home, you'll pay a premium - that's if the seller will even entertain a contingent offer," he says.
And if you go ahead with a contingent offer, then you may end up settling for less for the house you're selling in an effort to get it sold quickly.
Gregor says for most people, the stress level is lower when you sell first.
"You have time to get pre-approved for your mortgage and see all the housing options in the price range you'd like to buy," he said.
When your selling house is in contract, he suggests you pick the three best homes of those you've viewed and prepare to make an offer on the one that best meets your needs.
"The absolute worst that can happen is the right home isn't available," Gregor said. "You end up in a short-term rental with the cash in your pocket and pre-approved financing for the balance you need. So you look like a cash buyer when you make an offer on the home you finally decide on."
But brisk selling conditions in some parts of the country require more aggressive tactics.
Brett Furman, a broker in suburban Philadelphia, says the strong market dictates that homebuyers focus on buying first, and selling later.
"The housing market in the suburban Philadelphia market is moving very quickly," said Furman. "Normally we advise our buyers to sell their home first and buy second ... However with the faster moving market, we are advising many of our buyer clients to obtain a mortgage commitment that is not contingent upon selling their existing house."
In their book, House Selling for Dummies (Hungry Minds Inc., 1999), Eric Tyson and Ray Brown "strongly recommend" that you sell first.
"Even in good real estate markets, sales frequently drag on much longer than you expect," the authors say. "Selling in a weak market usually compounds the problem. Homeowners tend to overestimate their house's resale value and underestimate the length of the selling process - a fiscally deadly one-two punch."
But selling first isn't the perfect solution. Some of the issues that may come up include:
Being forced out of your house before you have a new place available. Where will you live? Where will your kids go to school?
Having to move twice. Do you want to go through the hassle? Where will you store your extra furniture while you live with family and friends or rent an apartment?
Not being able to find a house you like. How long are you willing to live in temporary quarters until you find a suitable house?
Whichever way you go, it always seems to work out in the end, at least in Gregor's experience.
"I've been in the business for 30 years," he said. "We've never had anyone out on the street and the vast majority of our clients that make double moves are those building new homes that had to have their property sold first."
Written by Michele Dawson
July 14, 2003
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