Do you need title insurance for a new-build home?

mortgage Leslie Morris 28 Feb

The housing supply shortage is one of the top issues in Canada’s real estate market. To address it, cities like Calgary are seeing a massive boom in new-build housing.

New construction offers many advantages, like more energy-efficient heating and cooling systems. Their titles can also feel less risky to transfer. After all, if the land was previously vacant, there’s no chance of unpermitted work from a previous owner causing losses for new buyers.

But did you know that new builds carry most of the same title and off-title risks as existing homes? Here’s why.

the home may be new, but the land isn’t

Even unimproved land belongs to someone. The land for the new construction may have changed hands several times before the developer bought it. Every transfer of the land can add defects to the title. Those defects can cause losses for the people who buy homes built on that land. On top of that, both the municipality and the developer might make a mistake or miscommunicate, which can end up causing a problem with the property.

Here are just some of the issues that can cause losses for owners, even on new constructions:

  • Zoning mistakes, which can happen on either the municipality or the developer side.
  • Setback agreements the developer didn’t know about, which results in homes built too close to the road.
  • Pre-existing liens, for example from property tax still owed by the previous owner.
  • Errors in the registration of the title.
  • Pending legal action against the property that the developer didn’t know about.
  • Builders’ liens, if the developer wasn’t able to fully pay a supplier or contractor.

subdivisions can add extra complications

When an owner buys a property in a subdivision, they’re getting the title to that specific property. But all the land in that subdivision would have been under one original title before it was parceled out. The problem is, if someone has a claim against that original title, every property in the subdivision could be subject to it.

If the land for the subdivision was assembled from existing properties, that can add complications to the title of the assembled land. Those issues can then impact the new properties parceled out of that assembled land.

The developer could also make mistakes setting the property lines in a subdivision. If that happens, or if there are issues with the Real Property Reports/surveys conducted for any of the properties, the owners of those properties could have to deal with the consequences down the road.

how can title insurance help alberta’s new housing starts?

Title insurance is a great solution for new construction because it can cover homebuyers for the risks associated with all properties, risks introduced by subdividing land, and even title fraud. A title insurance policy protects the insured for as long as they have an interest in the property. It also works as a better closing solution than Western Conveyancing Protocol alone, or gap-only insurance.

Builders help with some of the risks of new construction by issuing a Real Property Report to the owner. It’s a useful document, but it has a limited scope and doesn’t offer owners any recourse if an issue comes up. It also becomes obsolete if an owner puts up a new exterior structure, like a fence or a deck. A title insurance policy covers the outside elements of a property as well as the home itself, which means it still provides protection to future buyers if the current owner adds structures.

post construction endorsement

FCT offers more protection on new construction with our Post Construction Endorsement. It advances the policy date by one year for 14 covered risks, including encroachments, work orders and zoning bylaw violations.

That means the policy covers any later improvements to the property the developer had contracted for before the closing date. Owners can take possession of their new-build home knowing that FCT is here to help handle surprises down the road.

Enjoy more protection for new-build home purchases with a residential title insurance policy from FCT.

4 Key Things to Know about a Second Mortgage

financial Leslie Morris 8 Feb

A second mortgage is a mortgage that is taken out against a property that already has a home loan (mortgage) on it. Generally people take out second mortgages to satisfy short-term cash or liquidity requirements, have an investment opportunity or to pay off higher-interest debts (such as credit cards and student loans) that a second mortgage might offer.

If you are considering a second mortgage for any reason, here are a few key points to keep in mind:

Second Mortgages and Home Equity: Your second mortgage and what you can qualify for hinges on the equity that you have built up in your home. Second mortgages allow you to access between 80 and 95 percent of your home equity, depending on your qualifications.

For example, if you seeking 95% Loan-to-Value loan (“LTV”):

House Value = $850,000
95% LTV (maximum mortgage amount) $807,500
less: First Mortgage ($550,000)
Amount Available Through Second Mortgage $257,500

Second Mortgages and Interest Rates: When it comes to a second mortgage, these are typically higher risk loans for lenders. As a result, most second mortgages will have a higher interest rate than a typical home loan. There is also the option of working with alternative and private lenders depending on your situation and financial standing.

Second Mortgage Payments: One advantage when it comes to a second mortgage is that they have attractive payment factors. For instance, you can opt for interest-only payments, or you can select to pay the interest plus the principal loan amount. Work with your mortgage broker to discuss options and what would work best for your situation.

Second Mortgage Additional Fees: A second mortgage often comes with additional fees that you should be aware of before going into the transaction. These fees can vary widely but often are a percentage of the mortgage. Other fees to consider include appraisal fees, legal fees to set up the second mortgage and any lender or broker administration fees (particularly with alternative or private lenders).

Second mortgages are a great option for many homeowners and, in some cases, may be a better solution than a refinance or a Home Equity Loan (HELOC). If you are interested in learning more or want to find out if a second mortgage is right for you, don’t hesitate to reach out to me today.