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BUYER APPRAISAL
Home Buyers, Why do you need a Real Estate Appraisal?
How much does it cost if you overpay
for that home or condo?
Could there be a problem when one
pays the top price in a market?
Could there be a problem when one
pays the top price in a market? Lets
take the Jones's, they just purchased a condo for $210,000 in a hot
market. Because they were in a bidding war, they paid about
$10,000 more than what similar condos were selling for, hence
$10,000 over market value. They were banking on putting 25% down ($52,500)and
getting a 75% mortgage ($157,500).
The appraiser does not create value or guess at
value, he does a market analysis on facts. The interpreted
facts tell the appraiser that other condos similar to the one the
Jone's bought have sold for and have a market value of $200,000.
Mortgage companies, banks and other financial
institutions in Canada lend up to 75% of the lesser of the sale
price or appraised value. Since the value based on sales facts
was $200,000 then the maximum uninsured conventional mortgage
is $150,000. Now the Jones have two options: a) increase the down payment from $52,500 to $60,000, or
b) obtain an insured high ratio mortgage of
$157,500 which has a loan to value ratio of 78.8% (157,500 divided
by 200,000) and pay additional insurance premium costs. With a 78.8%
loan to value ratio the loan premium cost would be $1,177.50
($157,500 x 0.75%). This premium cost of $1,177.50 plus interest
will be rolled into the mortgage. Therefore the cost of
borrowing an extra $7,500 is $1,177.50 plus interest over the life
of the mortgage. WHEW! That's a hefty cost!
Insured high ratio
mortgages
Sample Table of Insurance Premiums |
|
Loan to value ratio |
Premium |
| Up to and including 65% |
0.50% |
| Up to and including 75% |
0.75% |
| Up to and including 80% |
1.25% |
| Up to and including 85% |
2.00% |
| Up to and including 90% |
2.50% |
| Up to and including 95% |
3.75% |
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