SPECIAL REPORT
Finding the right
home
10
Becoming a
home owner
Buying a home takes preparation and
expert advice.
13
What to do when
you’ve outgrown
your home
Move or renovate? Read about the
experience of the Briand-Rancourt
family.
15
Buying a cottage: Can you
make your dream a reality?
Many people dream of buying a secondary residence. The
question remains: can you afford it?
16
18
With the arrival of spring, you may be
thinking of buying your first home,
making a wish come true or even finding
your dream home. A down payment
is central to any of these projects. Our
experts answer your questions.
In 2012, the residential real estate market started to shift,
raising a few concerns. We’ll discuss the real estate trends
for 2013.
All about down
payments
The residential real estate
market is at a turning point
SPECIAL REPORT
Becoming a
home owner
The real estate market is booming. At the same time,
the government has tightened mortgage financing rules.
Buying a home in this environment takes preparation and
expert advice.
Annie Boutet
Step 1:
A realistic
budget
Step 2:
A pre-authorized
mortgage
Step 3:
The right real
estate agent
“To find out how much financial flexibility
you have, you need a budget that takes into
account all your regular expenses and, most
importantly, your lifestyle: outings, restaurant
meals, etc.,” says real estate agent Louise
Baker.
“People aren’t going to stop going out altogether. Even with an unrealistic budget, some
home buyers may be able to get a mortgage,
but they’ll be in the red within a year.”
A pre-authorized mortgage increases the buyer’s
credibility by revealing their financial resources.
It also proves they have the down payment in
hand. “Tighter mortgage financing rules have
imposed a higher down payment and reduced
the number of years you have to pay off the mortgage,” says Baker. “This makes it even more
critical to demonstrate your borrowing capacity.
A pre-authorized mortgage also guarantees
the interest rate for a specific period of time.”
A good real estate agent will provide advice
and follow-up so you aren’t doing things by
trial and error. Their role is to direct buyers to
properties that meet their needs and are listed
at a fair market price.
“You should find an agent who is able to advise
you and make the sale without pressuring you,
an agent who comes with good references,”
Baker says. “It’s easy to find comments online
on the quality of an agent’s work.”
Common mistakes of first-time home buyers
Inexperience and ignorance of the
market can lead to common mistakes
by first-time home buyers:
1
Relying on family and friends instead
of going to a real estate professional.
Louise Baker,
A real estate agent can explain the
real estate agent
property’s strengths and weaknesses,
whereas your loved ones may have a biased opinion. During
the inspection, real estate agents can settle any buyer/seller
10
Desjardins and Me
Vol. 8, no. 2, March-April-May 2013
disputes about factors that can affect the selling price. Lastly,
real estate agents have legal insurance to cover the buyer
should problems arise.
2
3
4
Asking a relative or friend to inspect the house. This type
of technical inspection should be performed by an expert.
Deciding too quickly and buying your “dream” home
without evaluating what you really need.
Offering more than you can afford given your actual
lifestyle, and finding yourself house poor.
SPECIAL REPORT
Step 4:
The right house
THE right house is out there for everyone, our
expert says, but you usually have to visit quite
a few. Think you’ve found the one? Take the time
to think about it, at least overnight, and make
sure the location and size fit your lifestyle and
that the price and quality are acceptable.
“I never sell a house after one visit,” says
Baker. “If the buyer realizes after the sale that
the neighbourhood, size or other features aren’t
right, they’ll soon want to sell it. Ideally, you
shouldn’t sell within three years of buying a
property. Otherwise, you’ll make next to nothing
given the purchase costs.”
Falling in love
with a house:
Myth or reality?
“You can fall in love with a house,” says
our expert. “But it’s a little like a relation­
ship. You have to love the house, but it also
has to meet your needs. In other words,
you have to listen to both your heart and
your head when buying a home.”
As for the notary…
You should plan on paying the notary
$1,500 for discharging the old
mortgage, registering the new
mortgage and preparing the deed
of sale.
What about building?
You’ve decided to hire a contractor to build your dream home. However,
the dream can turn into a nightmare if you aren’t prepared for everything
the adventure entails. Here are a few pros and cons:
Pros
■■
■■
You can choose your location, within
reason. “As a rule of thumb, I tell
people that the land shouldn’t cost
more than 25% to 30% of the total
cost of the project,” says Moreau.
You can choose the type of house
and how it’s laid out. So you’ll have
the house you want, within the limits
of your budget. “You should take the
time to look over the plans and
specifications,” adds Moreau.
Cons
■■
■■
■■
■■
Supervising the work and preventing
cost overruns can be very stressful.
You need to be available to make
decisions, as there will be numerous
issues to settle: countertops, cupboards,
showers, etc.
You will need iron discipline. “You
have stick to the initial plans in order
to stay within the contractor’s quote.
More expensive options are always
tempting,” says Moreau.
You’ll have to deal with any problems
that arise throughout the project.
The extras
Those famous “while we’re at it” moments! They can quickly drive up the final bill. Such as
those pretty $4 handles you need 32 of. All those little things can add up. “Realistically,
you should allocate 10% of your total budget for extras,” advises Moreau.
Thérès Moreau,
a personal finance
advisor at Caisse
Desjardins de la
Chaudière
Vol. 8, no. 2, March-April-May 2013
Desjardins and Me
11
SPECIAL REPORT
Step 5:
The inspection
Unless you’re a construction expert, a house
inspection is critical. Given that you’re considering investing $200,000 or more, this $500 fee
is negligible. By having a thorough inspection
done, you’ll find out whether buying the property is a smart decision: you’ll uncover any
issues with the property, and determine if any
renovations are needed or improvements can
be made.
Step 6:
A visit to the notary
The advantage of using a real estate agent is
that they know all the legal aspects of buying
a home—so you’ll know your purchase offer
complies with the rules. “The real estate agent
will also prepare your file for the meeting with
the notary.” All you have to do is pick up the
keys. ■
Start-up costs
“You should plan to spend around $4,000 to cover transfer, inspection and appraisal
fees, tax adjustment, moving expenses and connection charges for electricity,
telephone, Internet and other services. But with today’s house prices, people who
have saved for a down payment rarely have more than a few thousand dollars
to cover start-up costs,” says Thérès Moreau, a personal finance advisor at Caisse
Desjardins de la Chaudière.
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12
Desjardins and Me
Vol. 8, no. 2, March-April-May 2013
SPECIAL REPORT
What to do when
you’ve outgrown
your home
What happens when your living situation changes—be it going
through a separation, having a new baby, blending two families,
or having a parent move in—and your home no longer meets
your needs? Do you move, or do you renovate? Here’s what
the Briand-Rancourt family did.
Annie Boutet
In the fall of 2010, Christine Briand and
Benoit Rancourt decided to move in together
and blend their families. But with seven children
between them, ranging in age from 7 to 20,
finding a new home was no small challenge!
After months of looking, the couple realized
they wouldn’t be able to find anything big
enough for under $500,000, which was out of
their budget. Their solution: renovate Benoit’s
house.
(Almost) anything goes!
“Benoit’s house was going to be easier to renovate to meet our needs. Plus, it’s right across
the street from the elementary school,” said
Christine. Another factor in their decision:
Renovating meant they could choose their own
materials instead of having to make do with an
expensive ready-made solution.
Benoit, who was trained as a civil engineer
and studied architecture, was able to draw up
Five of the blended family’s seven children. The three
eldest: Geneviève, 11 years old, Myriam, 18 years
old, Jeanne, 10 years old. The younger two:
Marie-ève, 9 years old, and Élizabeth, 7 years old.
The two other children who weren’t available for
the photo are Christine’s son Benoit, 20 years old,
who is studying in Japan, and Clémence, 13 years old.
the plans himself and make sure they met the
couple’s needs. The family’s first requirement:
eight bedrooms, so everyone could have their
privacy. Benoit also planned lots of space for
common areas, including three living rooms, so
that some could relax while others watched TV.
“We also needed more than one bathroom,
to prevent lineups in the morning. We have two
right now and we’re planning a third. Plus we
needed to expand the dining room to accommodate a table that could seat nine,” said
Christine. In order to add that many rooms and
make sure they were big enough, the family
decided to excavate the basement, build an
extension on the new foundation, and add a
second story.
From the drawing
table to reality
Christine Briand and Benoit Rancourt’s renovation challenge: to find a home for two adults and seven
children ranging in age from 7 to 20! They wanted an eight-bedroom solution to ensure each family
member maintained their privacy.
However, once the project got underway, Benoit
and Christine hit a few bumps. First challenge:
the hoops they had to go through to get their
plans approved by the city. When they submitted
them in the spring of 2011, the couple found
out they would need an architectural integration plan. After that, the project would need to
be submitted to a committee for approval. The
result: instead of getting their renovation permit
in the spring, like they had planned, they had
to wait until September.
Next came the excavation work, building the
exterior frame, and putting in insulation, which
didn’t get started until October 1 and had to be
finished before the first signs of winter. Was the
family discouraged? “Of course,” said Christine
with a laugh.
Vol. 8, no. 2, March-April-May 2013
Desjardins and Me
13
SPECIAL REPORT
Between working full time, taking care of
seven children and seeing to all the daily household chores, reality finally caught up with the
couple. “We got behind schedule, so we had to
hire more subcontractors than we had planned,
which increased costs,” said Christine. They
were funding the project with a home equity
line of credit and the expected profit from the
sale of Christine’s house—but it was no longer
enough. In the middle of the renovations, the
couple had to have the house reassessed in
order to get another loan.
By Christmas, Christine and Benoit were
completely exhausted and were considering
giving up on the renovations. To stay motivated,
they decided to take a break until April.
For example, they built the dining room from
the outside and took out the interior wall only
once it was finished. And to avoid disruptions to
life in the house, the second story was initially
connected to the ground floor by an outdoor
staircase.
During the renovations, the new family also
had the added stress of getting used to living
together and dealing with two different value
systems and parenting styles. But the exper­
ience led to some good surprises: they noticed
their kids were becoming more independent,
and the older ones were looking out for the
younger ones. “We really developed some great
chemistry,” said Christine.
Right now, everyone is counting down the
remaining days until the work is done. But in
A year and a half of renovations
the meantime, some patience is still required,
Living on a construction site is a big challenge,
with as many as three kids sharing a bedroom,
especially for such a big family. For a year and
and Christine and Benoit sleeping in the
a half, the couple really had to work at keeping
playroom next to the furnace. “My husband
everyone’s sanity intact. “We planned everything
and I are dreaming of a big bedroom with a
so that the renovations would have as low an
closet. It’s our ray of hope in this project,” says
MDJP13-021
• annonces
prix lipper • INFO: np/gl
impact• desjardins
as possible,”
explained •Christine.
Christine. ■
And what about their relationship?
Of all the challenges their relationship has faced,
Christine and Benoit say this renovation project is at
the top of the list. Preventing it from destroying their
relationship has required a lot of courage, patience,
open-mindedness, humour and love, they say.
PUBLICATION: desjardins & me • VersION: anglais • FOrMAT: 8,375" x 5,229" • COULeUr: cmYK • LIVrAIsON: 5 mars • PArUTION: tbd
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14
Desjardins and Me
Vol. 8, no. 2, March-April-May 2013
SPECIAL REPORT
Buying a cottage:
Can you make your
dream a reality?
Many people dream of buying a secondary residence. A cottage on the water?
A condo near the ski slopes? The question remains: can you afford it?
I
t’s a fact: cottages near major resort areas
are becoming less and less affordable. “The
more attractive the site, the more expensive
the property. This is the case for both lakefront
and riverfront properties. Plus, many people
are looking for a place to live year-round,
meaning luxury cottages,” says Louise Baker.
Two popular types of property
Cottages with country charm for $150,000
and under and luxury, waterfront homes for
$300,000 or more are the most popular. Interested in the latter category? To restrict the
search, you should decide whether you prefer
a lake or river where motor boats are allowed.
You should also be comfortable with having
neighbours nearby, as is often the case in cottage
country. And are you looking for a spectacular
view or easy access to the water?
Of course, the first step is to talk to your
finan­cial advisor, because there are specific
criteria that apply to secondary residences. “For
exam­ple, you would have trouble getting a mort­
gage for a $100,000 cottage with a surface
well and no septic system,” adds Ms. Baker. In
fact, many low-end cottages don’t meet mortgage financing standards, so buyers have to
be able to buy them using only their savings.
A reasonable distance
You may get tired of travelling to and from your
cottage after a year or two. People often lose
interest when the cottage is more than two
hours away.
“Buyers probably need to visit a prospective
secondary residence even more often than a
principal residence before buying. I’ve seen
people look for a cottage for three years without
success,” adds Louise Baker. This is another
reason why it’s important to clearly determine
your needs in order to limit your search radius
and avoid too many unproductive visits. ■
SELLING ONE OF YOUR TWO RESIDENCES
Many people know that a principal residence is generally tax-exempt, but few are
aware of all the rules that apply.
By Angla Iermieri, Financial Planner, Desjardins Group
A principal residence is a residential buil­
ding used for personal purposes by an
individual, their spouse or their children
during the year. It can be a single-family
dwelling, condominium, cottage or apart­
ment, in or outside of Canada.
You can designate only one principal
residence per year, per couple, to benefit
from a tax exemption. If you own only
one residential building in which you
normally live, the capital gain will be
entirely exempt.
If you own two or more residential
buildings (e.g., a house and a cottage), it
is to your advantage to designate one of
them as your principal residence. When
the property is sold, you must designate
it as your principal residence for one or
more years in order to benefit from a
total or partial tax exemption. You must
declare this on your income tax return for
the year the property is sold by filling out
the appropriate forms. When the owner
dies, the executor of the estate chooses
for the deceased, who is presumed to
have disposed of all of his or her assets.
When deciding which property to design­
ate, it’s important to consider the capital
gains on each in order to make the best
tax choice. If, as shown in the example
here, the capital gain on your house in
town is lower than that of your cottage,
you should designate the cottage as your
principal residence for one or more years
in order to enjoy the capital gains tax
exemption.
Buying property
outside the country
If you plan to buy property in another
country, you should consider the
repercussions. Discuss with your tax
specialist the consequences for a
Canadian of owning a building in the
country in question, which may have
a tax treaty with Canada. You should
perhaps talk to a tax specialist in
that country to find out about local
requirements, such as property and
succession taxes, recognized types
of wills and so forth.
Vol. 8, no. 2, March-April-May 2013
Desjardins and Me
15
SPECIAL REPORT
Jean-François Hébert,
Personal Finance
Advisor,* Caisse
Desjardins de
Saint-Hyacinthe
All about
down payments
In recent weeks, “for sale” signs have been popping up
everywhere. With the arrival of spring, you may be thinking
of buying your first home, making a wish come true or even
finding your dream home. A down payment is central to any
of these projects, but it can raise a number of questions.
By Jean-François Binette
Can I buy a home without making a down payment?
Regardless of what you’ve heard, you always
need a down payment. Under the government’s
new, stricter rules, if you want to reduce the cost
of your mortgage loan, your down payment has to
be at least 20% of the purchase price or market
value of the property, whichever is lower.
The bigger your down payment, the less interest
you’ll pay.
However, if you haven’t saved up enough capital,
you can consider taking out mortgage insurance
with the Canada Mortgage and Housing Corporation (CMHC) or Genworth Financial Canada. For a
non-refundable premium, these organizations will
insure your loan, allowing you to reduce your
down payment to 5%.
Borrowing costs are higher than with a conventional
loan, but you can buy a home sooner, without the
20% down payment normally required, and you
can take advantage of today’s low interest rates.
Think about it!
In some cases, your financial institution may give
you a 5% cash rebate, equivalent to the minimum
down payment.
The source of your down payment can vary: your
savings, a gift from a loved one or security on an
investment or property
“The idea that you can buy a property without a down payment is a myth!”
*Mutual fund representative for Desjardins Financial Services Firm Inc.
16
Desjardins and Me
Vol. 8, no. 2, March-April-May 2013
SPECIAL REPORT
Can I use the Home Buyers’ Plan (HBP) to buy
part of my spouse’s home?
With the HBP, designed for first-time homebuyers, you may be able to withdraw money
from your RRSP for your down payment.
These days, it’s common for people to buy a home alone. Sometimes, a spouse or partner
can move in later and use the HBP to buy a share of the home. Here’s an example:
Geneviève Lessard
Personal Finance Advisor,*
Caisse populaire
Desjardins de
Cap-Rouge
“Start early and save for your down payment
in an RRSP or TFSA!”
Martine and Jasmin are a couple, living separately, with no children. Martine owns
a bungalow, but her partner has always rented an apartment. They’re planning to
live together in Martine’s house, starting in July. She will sell 40% of her home
to Jasmin.
The Canada Revenue Agency, which administers the HBP, stipulates that neither
you nor your spouse or common-law partner can own the qualifying home
more than 30 days before the withdrawal is made.
In this example, nothing indicates that Jasmin has ever owned a home or that
Martine and Jasmin are spouses. Since they have no children and haven’t been
living together for 12 months, they’re not considered to be common-law partners.
Therefore, if Jasmin meets the eligibility criteria, he can use the HBP to withdraw
money from his RRSP.
If Martine and Jasmin were married or in a common-law relationship, Jasmin couldn’t benefit
from this tax option.
Remember:
The buyer’s civil status and history as a homeowner are two factors that can affect
eligibility.
Jonathan Fournier
Personal Finance Advisor,*
Caisse populaire
Desjardins des
Quatre-vents
I own a mortgage-free home, but I have
no medium-term liquidity. How can I buy
my dream cottage?
Even if you have no medium-term liquidity,
you can still make your dream come true. Since
your principal residence is mortgage-free,
why not take advantage of the Versatile Line of
Credit?
The Versatile Line of Credit is secured by your
current home. We offer financing of up to 80% of
the value of your principal residence. This is a
preauthorized amount that you can use for any
project at any time, including buying a secondary dwelling and paying the associated start-up
costs.
For example, if your current property is
worth $250,000, we could offer you a line of
credit of $200,000, secured by your principal residence. You can use this amount to
finance 100% of your dream cottage, or
the 20% down payment.
“Using the equity in your current home is a great way to finance your project.”
Vol. 8, no. 2, March-April-May 2013
Desjardins and Me
17
SPECIAL REPORT
The residential
real estate
market is at
a turning point
Is a period of price correction to be expected?
Don’t worry.
By Hélène Bégin, Senior economist, Desjardins Group
D
espite a yellow flag being raised,
the favourable economic environment will help avoid the slump we
experienced in the 1990s. However, the
gradual market slowdown will continue
in 2013.
Disquieting level
of household debt
Residential sector fundamentals seem
solid: historically low mortgage rates, an
unemployment rate of below 7.5% in
Quebec and a relatively high number of
intentions to buy. The only problem is the
level of household debt. A gradual rise in
the Bank of Canada’s key lending rates
would have put a damper on borrowing, but
world economic and financial uncertainty
had already weakened the Canadian
economy.
The federal government chose another
way to slow borrowing. It reduced the
maximum amortization period from 30 to
25 years for mortgages with down payments between 5% and 20%. Home sales
decreased nearly everywhere across the
country after this rule came into effect,
and there has been a downward trend
ever since.
Fewer first-time home buyers
The shorter amortization period mainly
affected first-time home buyers, who
generally have less money for a down
18
Desjardins and Me
Vol. 8, no. 2, March-April-May 2013
payment and a more limited budget for
mortgage payments. First-time home
buyers often buy condominiums because
they cost considerably less than singlefamily homes, which have become pro­hi­
bitively expensive for many young families.
Even though high-priced units are popular
with baby boomers, condos are still a
product for first-time buyers.
The result: condo sales have declined
more than house sales since summer 2012.
For example, condo sales in Montreal
and Quebec City dropped 29% and 41%,
respectively in December, compared to
13% and 32% for houses. As sales decreased, the number of both new and
resale condos on the market rose.
Will prices hold up?
No overall decline in residential real estate
prices is forecasted for Quebec. Condo sales
represent only 20% (30% in Montreal) of
the province’s real estate market, which
is dominated by single-family homes.
Plus, there is still a slight shortage of
single-family dwellings, whose prices
have risen around 3%. In 2013, price increases for all types of homes will track
the forecasted inflation rate of 2% to
2.5%. The overall state of the residential
market will depend on house prices,
because condos make up too small of a
share of the market, despite significant
growth in recent years. ■
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