29 Oct

What is Title Insurance?

General

Posted by: Chanele Langevin

Title insurance can easily seem like another unnecessary add-on to the already complicated and costly process of buying a house, but nothing could be further from the truth. It can help speed up the process of closing on your new home, while protecting you and your heirs against a variety of unforeseen and expensive risks. It offers cost-effective, long-term, powerful protection, but there is a great deal to know about it.

Your notary or lawyer is a fantastic resource to learn about this vital protection for you as a homeowner—we’ve compiled some of the most frequently asked questions they receive:

• What is title insurance?

Title insurance is insurance that protects against losses from defects in your title—the legal ownership of your property. These defects can include issues with the property survey, the registration of your land title and problems you did not know you inherited from a previous owner, like back taxes or improper renovations. Title defects are unpredictable and expensive, but title insurance lets homeowners protect themselves.

• Are title insurance and home insurance the same thing?

It is common to confuse home insurance with title insurance, or to assume because you have home insurance, you are fully protected. But they cover completely separate risks, and even their premiums work differently.

Home insurance deals with your home’s physical structure, and the items inside it. Title insurance deals with your legal ownership of the property, even if it is an empty lot. Home insurance covers potential future physical damage to the home, or losses to replace stolen insured items. Title insurance covers (apart from future fraud) losses from issues that already existed, but that you did not know about.

Here is a classic example of the difference:

*Are you out money because your shed flooded or got broken into? You may be covered by home insurance.

*Are you out money because the shed turned out to be on your neighbour’s land (a mistake by the surveyor) and you had to move it? That may be a title insurance claim.

What is covered by title insurance?

Most title insurance policies cover losses from problems that already exist but that you do not know about.

If the survey for your property was not done correctly, you will not know until you are forced to move the shed you unwittingly built on your neighbour’s land.

If the previous owner of your home did renovations without a permit, you will not know until the city forces you to bring your home up to code.
If the previous owner left taxes on the property unpaid, or there were taxes that were not addressed or correctly levied on the property when the deal closed, you will not know until the government comes looking for those back taxes.

Title insurance may cover your losses in each of these scenarios, and many more. Another notable point of coverage is title fraud—a thief using your identity to borrow money against your home, or even sell it out from under you.

What is NOT covered by title insurance?

It is important to remember title insurance coverage often depends on whether or not an issue was known about when you bought the policy. While you can always get owner’s title insurance at any time, it’s best to get your policy as you are buying the house. That way, any issues you learn about afterward can fall under its umbrella—coverage almost never applies to title defects you knew about before getting the policy. There are some instances where title insurance can still protect you from a known title defect, but it is important to ask your lawyer or notary.

Title insurance covers the legal existence of your property, not the property itself. The losses it covers will often originate from something physical—moving a shed, bringing your home up to code—but the coverage comes from the title defect that led you to be responsible for the cost, not the issue that incurred the cost.
Here is a quick example: A couple finds a leak in their roof and has to pay to have it repaired, as well as fixing the water damage the leak caused before it was discovered. Does title insurance apply?

• It can, if the previous owner had done work involving that roof without a permit. The covered risk is from the previous owner’s lack of a permit, not the possibility the roof might leak.
• If the previous work had a permit, or if the old owner never did work on the roof, title insurance unfortunately can’t cover the losses from repairing it.

The most common coverage confusion we see comes from this perceived grey area between home and title insurance. Just because the builder or previous owner did a shoddy job doesn’t always mean title insurance can cover the losses. When the government makes you bring a previous owner’s build up to code, always verify if the work was properly permitted—if it wasn’t, your next call should be to your title insurer to make a claim.
If your neighbor makes a claim against you, for instance alleging your new garage extension encroaches on their property, the issue title insurance checks for is the property survey, not the garage itself.

Is title insurance mandatory?

Yes and no. There are two types of title insurance policies: one that protects the lender and one that protects the property owner—you. The law does not make either mandatory, but most lenders will require you to buy the lender policy as part of securing your mortgage from them. The owner policy is optional, so it is important to make sure your notary or lawyer includes an owner’s policy as well when you close on your home.

One more huge point in favour of an owner policy is that it lasts as long as your title does. If you refinance your mortgage with a different lender, they will get you to buy a new lender policy, but you will never need to buy a new owner policy on the same property—you are still covered. Always make sure when you are discussing with your notary or lawyer that you are talking about an owner’s title insurance policy, and never be afraid to ask questions about the coverage.

Written by My DLC Marketing Team

7 Oct

Your Credit Rating: The Four C’s

General

Posted by: Chanele Langevin

Buying your first home is an incredible step in life, but it is not without its hurdles! One of which is demonstrating that you are creditworthy, which all comes down to your credit rating. This is how lenders and credit agencies determine the interest rate you pay, or whether you will qualify for a mortgage at all.

As mortgage rules continue to change, the credit rating is becoming even more important as a higher credit rating could mean a lower interest rate and save you thousands of dollars over the life of your mortgage.

If you’ve never given much thought to your credit rating before, don’t worry! It is not too late and we are going to take through everything you need to know. The most important of which is that, in order to qualify for a home, you must have a credit rating of at least 680 for one borrower.

There are several attributes that factor into your credit score, and these are commonly referred to as the “Four C’s” and consist of: Character, Capacity, Capital and Collateral. Let’s take a closer look at each:

Character

The character component of your credit score is essentially based on YOU and your personal habits, which comes down to whether or not it is in your nature to pay debts on time. Some of the components that make up this portion of your credit score viability, include:

  • Whether you habitually pay your bills on time
  • Whether you have any delinquent accounts
  • How you use your available credit:
  • Quick Tip – Using all or most of your available credit is not advised. It is better to increase your credit limit versus utilizing more than 70% of what is available each month. For instance, if you have a limit of $1000 on your credit card, you should never go over $700.
  • If you need to increase your score faster, a good place to start is using less than 30% of your credit limit.
  • If you need to use more, pay off your credit cards early so you do not go above 30% of your credit limit.
  • Your total outstanding debt

Capacity

The second component relating to your credit rating is your capacity. This refers to your ability to pay back the loan and factors in your cash flow versus your debt outstanding, as well as your employment history.

  • How long have you been with your current employer?
  • If you are self-employed, for how long?

Don’t be confused as capacity is not what YOU think you can afford; it is what the LENDER thinks you can afford depending on the debt service ratio. This ratio is used by lenders to take your total monthly debt payments divided by your gross monthly income to determine whether or not you are able to pay back the loan.

Capital

Capital is the amount of money that a borrower puts towards a potential loan. In the case of mortgages, the starting capital is your down payment. A larger contribution often results in better rates and, in some cases, better mortgage terms. For instance, a mortgage with a down payment of 20% does not require default insurance, which is an added cost.

When considering this component, it is a good idea to look at how much you have saved and where your down payment funds will be coming from. Is it a savings account? RRSPs? Or maybe it is a gift from an immediate family member.

Collateral

Collateral is something that is pledged against a loan for security of repayment. In the case of auto loans, the loan is typically secured by the vehicle itself as the vehicle would be repossessed and re-sold in the event that the loan is defaulted on. In the case of mortgages, lenders typically consider the value of the property you are purchasing and other assets. They want to see a positive net worth; a negative net worth may result in being denied for a mortgage.

Overall, loans with collateral backing are typically more secure and generally result in lower interest rates and better terms.

There is no better time than now to recognize the importance of your credit score and check if you are on track with the Four C’s and your debt habits. A misstep in any one of these areas could be detrimental to your efforts of getting a mortgage.

If you are not sure or want more information, I would be happy to discuss your credit further and answer any questions you may have.

written by My DLC Marketing Team