“Existing home sales have been strong from a historic perspective through the first four months of 2011. Expect the pace of sales to remain robust through the spring, as the economy expands and home buyers continue to benefit from affordable home ownership opportunities,” said Toronto Real Estate Board (TREB) President Bill Johnston.

Market conditions tightened markedly over the last year. April 2011 sales accounted for 62 per cent of new listings during the month – up substantially from 53 per cent in April 2010. Tighter conditions resulted in the average April selling price growing by nine per cent annually to $477,407.

“The number of listings has been below expectations so far this year. Increased competition between home buyers has led to an accelerating annual rate of price growth,” said Jason Mercer, TREB’s Senior Manager of Market Analysis. “The strong price growth experienced in April should result in more listings and more balanced market conditions.” (Source: Toronto Real Estate Board)

“Isn’t it about consistency?” asks Bryan Yetman, chairman of the Insurance Brokers Association of Ontario (IBAO). “If we have a philosophy that we don’t use credit scores for one product, shouldn’t we extend it to those buying another product?”

In the IBAO survey, 75 per cent were unaware that a poor credit score could lead to higher home insurance rates and 76 per cent wanted to extend the ban on their use. The group has launched a consumer website, www.soaringinsurancerates.ca, with two goals: (1) Educate people about the practice; and (2) Urge them to reach out to their local MPP, demanding a ban.

Credit scoring for home insurance can raise premiums for those with low to moderate incomes. The burden falls more heavily on widowed and divorced couples, newcomers, the unemployed, young people with limited credit histories and small business owners tapping into credit lines to keep their firms afloat. Most Ontario home insurers are using credit scores to increase rates by up to 100 per cent for customers who don’t measure up. This adds to the cost of living for people already facing price increases for gasoline, electricity and other daily staples.

When you apply for credit, the lender asks permission to check your credit score. You must agree before the application goes ahead. When you apply for home insurance or renew a policy, most insurers don’t ask permission to check your credit score. That’s why consumer awareness is so low. “The way the application is worded, it gives the impression that credit scores will be accessed only at the time of a claim,” Yetman says.

Not many companies send explicit letters to customers, as Co-operators General Insurance did when adopting the practice in June 2009. “If you do not allow us to access your credit score, we will respect your wishes,” said Coseco Insurance, a Co-operators affiliate. “However, we will not be able to provide an accurate or competitive premium that reflects the risk we are insuring. As a result, you will not receive the best possible premium available.” This means you can have excellent credit and still pay higher premiums if you deny access to your credit records by your home insurer.

The Ontario government passed new rules last September to stop auto insurers from requiring customer consent to collect credit data before providing a quote or offering to renew a policy. Politicians were concerned about the right to privacy. They also felt there was little research, especially in Canada, showing a poor credit score was linked to the frequency and severity of insurance claims.

So, why allow the practice to continue at all? What difference does it make that car insurance is mandatory for drivers, while home insurance is optional for property owners and renters? Home insurance is mandatory for those who are still paying off mortgages or using lines of credit secured by their home equity. Lenders insist they have an insurance policy before approving a loan. Meanwhile, renters would be crazy not to insure their belongings from theft and damage from water or fire.

Credit reports can be wrong. I often hear from people struggling to erase mistaken information from their records. Ontario’s two credit bureaus, Equifax and Transunion, don’t make it easy to check your credit record for free by mail. Their websites showcase the charges you have to pay for instant access to your credit record. At least a credit record is based on facts, which can be amended or changed. That’s not the case with a credit score – a newer measure not governed by any provincial legislation.

With a credit score, judgment comes into play. The credit bureaus blend your credit history with other factors to come up with a three-digit score, using computer algorithms not disclosed to the public.

If you’re turned down for home insurance because of a credit score, you may find other companies won’t take your business. You could be blackballed and forced to self-insure. There isn’t a non-profit insurer of last resort that makes coverage available to everyone, as the Facility Association does with car insurance.

Let’s stop using credit scores in insurance. It’s unfair and hurts consumers. (Source: Moneyville)

When you buy a home, the purchase price is just the beginning of the costs you’ll incur. In most jurisdictions, buyers must pay a land transfer tax, which can amount to several thousand dollars. For those buying newly constructed homes, you’ll have to pay 5 per cent GST (though depending on the purchase price, you may be eligible for a rebate). Other one-time costs include legal and inspection fees. (Realtor commissions come out of the seller’s take.) In addition to a monthly mortgage payment, owning a home means you also have to shoulder various ongoing costs, including annual property taxes (rates vary by municipality), utilities and maintenance. When you buy a condo or townhouse, maintenance is included in monthly strata fees. If you buy a house, you have keep in mind that you will be responsible for any necessary fixes that crop up along the way. Though some repairs are fairly inexpensive, others can put a big dent in your bank account.

By far the most significant upfront cost is the down payment. The minimum down payment you need to get an insured mortgage is 5 per cent of the purchase price, but if you can put 20 per cent or more down, you don’t need to be insured, and therefore won’t have to pay the premium. If you’re a new homeowner, your down payment will come from your savings and investments or, if you’re lucky, a family gift. Experienced buyers, meanwhile, can rely on the equity from their previous property.

Unless you’ve got deep pockets, the budget for your first home will depend primarily on how much financial institutions are willing to lend you – and on what terms. The size of the mortgage for which you can get pre-approved is the maximum amount you can reasonably be expected to repay with interest over a set period of up to 30 years. Estimates such as these, which you can come up with on your own by plugging a few numbers into one of many online mortgage calculators, are very general, and don’t account for crucial determinants like credit history.

Just because you are pre-approved for a certain amount doesn’t mean you should plan on spending it all, though. When a financial institution calculates the amount it is willing to lend you, it does so based on what it thinks offers a comfortable ratio between income and expenses. But while lenders will let this number – called the debt service ratio – reach higher than 40 per cent, you might want to think about giving yourself an even bigger cushion.

Another important consideration is that the interest rate you negotiate when you first buy your house isn’t set in stone. When your mortgage is up for renewal – typically after five years, though the length of the term varies – you may find that interest rates have increased substantially. That means that if you don’t leave yourself enough breathing room, you could wind up in a very tight spot. You don’t want to be forced to sell your home in a rising interest rate environment, when housing prices are trending down.

As any mortgage broker will tell you, there are plenty of ways to play around with the numbers and secure financing for the home that you want. But no matter what the calculator says, you have to be honest with yourself. Beyond the incidental costs associated with owning and maintaining a home, don’t forget to think about your lifestyle, and how much you’re willing to sacrifice. While you may be able to technically afford the house of your dreams, will buying it mean that you can no longer go to the movies or take vacations? (Source: MoneySense Guide to Buying and Selling Your Home reprinted via The Globe and Mail)