OACIQ buyer's guide
In this guide, you will find the main steps to take before, during, and after the acquisition of your property as well as many practical tips that will help you conclude your real estate transaction in a satisfactory manner.
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DID YOU KNOW THAT :
How credit rating impacts a property purchase
Most people don’t know their own credit rating or understand exactly how it’s calculated. But the credit rating plays a critical role in our lives after adulthood. You need it to carry out most financial projects or get key services, and the credit rating is decisive when it comes time to apply for a mortgage.
Whether your credit rating is good, average or poor, find out what impact it has on a potential property purchase and what solutions are available to improve your score.
Contents:
- What is the credit rating?
- Credit rating and buying a home
- Improving your credit rating to buy a property
- Conditions to qualify for a mortgage
- The credit rating: A key role in buying
What is the credit rating?
Also known as the credit score or debt rating, this is a 3-digit number calculated using a mathematical formula and based on data from each person’s credit file. In Canada the credit rating is determined by two main private credit bureaus: Equifax and TransUnion. They gather information from creditors, and then store and share information about each individual’s credit rating.
The credit rating is used to measure solvency, or creditworthiness and is mainly based on:
- Bill payment history (35% of the credit rating)
- Account history (date of opening)
- Amount of credit available (credit use)
- Types of credit used (number and variety of creditors)
- Recent credit activity (new requests or applications)
Thus, the credit rating is changeable: an individual can gain points by acting responsibly or lose some through poor credit management. It’s positively or negatively impacted by the individual’s payment and lending habits. Paying bills late or getting close to your credit card limit can lower your credit rating. Paying bills on time, every time, can improve it.
The credit rating ranges from 300 to 900. Equifax explains that ratings of 660 to 724 are generally considered good, 725 to 759 as very good, and above that as excellent.
The credit rating’s role
The reason for the credit score is to determine a person’s ability to meet their financial commitments. Lenders, telecom companies, insurers, renters and government agencies use it to assess the level of risk in granting a loan. Therefore, having a poor credit rating can be an obstacle to getting credit or some services.
Knowing your credit rating
There are different ways of checking your credit rating. First of all, the customers of some banks, including Desjardins, can view their credit rating at any time through their online account. The rating is updated monthly.
Second, it’s possible to get your credit rating directly from Equifax or TransUnion. Ordering your credit file has no impact on your credit rating. It’s even recommended to check it often to get a clear view of your financial situation and to detect any potential fraud attempts.
An individual has several credit ratings, depending on the company calculating it. Therefore the credit rating that’s available for you to look at is for information purposes only.
Credit rating and buying a home
Buying a home often involves a mortgage loan. Few people have the funds to buy a property in cash. So the dream of being a homeowner generally involves borrowing from financial institutions or private lenders. There will be more or fewer options available to you depending on your credit rating.
Minimum credit score
There is no specific credit rating that gives access to a mortgage to buy a house. Each lender determines their minimum credit score for accepting a loan request.
Despite this, according to Equifax, anyone with a credit rating under 560 could have trouble being approved for credit.
Its impact on buying a home
The credit rating comes in when buying a property requires a first mortgage, a new loan or a renewal. It not only influences a person’s ability to get the mortgage but also the loan’s characteristics.
The higher your credit score, the more mortgage and interest rate options are available to you. Equifax considers that a score lower than 660 (the bottom limit of the “good” category) could close the door to some credit options. However, there is no “magic score” to access better mortgage conditions, terms or interest rates.
To sum up, if you’re buying a home, the credit score can impact your:
- Eligibility for a mortgage
- Loan conditions
You should know that the credit score is only one of the factors taken into account in determining an aspiring homeowner’s creditworthiness.
Benefits of a good credit rating when buying
Financial institutions look at a person’s credit record and use the credit score to decide whether or not to grant a loan, but they also use that information to determine the interest rate they will offer. In this way, people with a good credit rating are likely to benefit from a lower interest rate than those whose risk level is considered higher.
A better interest rate lets you:
- Save money on the amount of interest you pay for the mortgage
- Decrease the length (term) of the loan
- Get greater buying power to get your dream home
Options for buying a home with poor credit
A low credit rating doesn’t necessarily mean having to give up on the dream of buying a house. You simply have to explore other options.
First, this may seem obvious, but if you can pay off the whole amount of the sale, without borrowing, then the credit score no longer matters. It’s also possible to make a higher down payment. With a lower credit score, lenders will prefer a down payment of 20% minimum.
If you already own another piece of real estate, it is possible to benefit from the equity to finance your new purchasing project. This is known as mortgage refinancing. It involves using the difference between one property’s market value and the balance of the mortgage as the down payment on another property.
Another option is to get someone to cosign or guarantee your mortgage. The cosigner becomes a co-owner, while the guarantor becomes responsible if you miss any mortgage payments.
Finally, there are alternatives to explore if your credit rating doesn’t reach the minimum required by type A lenders (conventional, major lenders). You can then look into B lenders, also known as private lenders or higher-risk lenders. Mortgage brokers specialized in poor credit records can generally refer their clients to this type of lender. However, this solution is often expensive. In addition to a higher interest rate and a shorter term (often 1 year), it is sometimes necessary to pay a file opening fee and, often, a 20% down payment is required.
Improving your credit rating to buy a property
Knowing that the expenses involved in a mortgage from a B lender can be much higher, it’s often more advantageous to delay your buying plans to give yourself time to improve your credit rating. If you follow best credit practices to the letter, you may see the first improvements in a few months, and a real improvement after about 1 year.
Since credit bureaus and lending institutions do not reveal the formulas used to calculate their credit ratings, it’s not possible to know exactly how your actions will increase your score.
Here are strategies to improve your credit score by staying disciplined:
- Keep an eye on your payments
- Concentrate your payments on one or two credit cards, maximum
- Pay off your debts in full rather than the minimum payment if possible
- Activate a system of electronic warnings (for exceeding a transaction limit or when a payment date is approaching)
- Use automated payments for some bills (insurance, phone, Internet, loans, etc.)
- Increase your credit limit and use 30% to 35% of the limit (do not go over!)
- Keep unused accounts open to create a longer credit history
- Vary the types of credit you use (credit cards, credit line, car loan, etc.)
- Limit the number of credit requests you make (these are visible in your credit report)
- Demonstrate financial stability (stable address and job, and regular income)
- Check for potential mistakes and fraud in your credit report
Doing several of these at once will let you see results faster. And don’t hesitate to register for a credit improvement assistance program or ask a financial advisor or mortgage broker for advice on your personal situation.
Conditions to qualify for a mortgage
In addition to the minimum credit score, there are other factors involved in determining whether or not someone qualifies for a mortgage lender’s requirements for buying a home. This is especially true for people whose credit rating is slightly lower than average.
Here are a few examples:
- Amount of the loan
- Amortization period
- Type of real estate being considered for purchase
- Debt-to-income ratio
- Employment record
- Current debts (credit lines, credit cards, student loans, car loans, etc.)
- Result of a “stress test” that looks at an individual’s tolerance to fluctuations in the interest rate
In short, there are several other factors that enter into the decision of what type of mortgage will be given and by who.
Familiarize yourself with mortgage terminology!
The credit rating: A key role in buying
It’s undeniable that the credit score plays a front-line role when you’re planning to buy a home. It has a direct impact on the loan conditions you’ll be offered, as well as the rate, term and amount. What’s more, poor credit can close the door to conventional lenders.
That’s why it’s to your advantage to adopt sound financial habits and to keep your credit record clean. You can do this by paying your bills on time, respecting your credit limit, having a budget and building a contingency fund.
Don’t forget that it’s never too late to improve your financial situation and to take your credit in hand. You could see the benefits faster than you think!
Do you have real estate to sell? Our team is there to get you the visibility and support you need to sell broker-free and commission-free. Discover all our tools and services by scheduling a call with one of our advisors or watching our videos on the steps involved in selling.
Did you know the most common mistakes?
1. Inadequate Mortgage
Most people are unaware of the simple way to calculate the monthly amount they can afford to purchase a property. Brokers use a calculation called the ABD ratio (amortization raw of debt) to establish this amount. Without forgetting that, you must also take into account other costs such as: transfer taxes, notary fees, moving costs, etc.
2. don't Having a Pre-Approval Mortgage Loan
For this process you must provide information such as your income certificate and the amount of your down payment to your financial institution.
If your dream home has several competing offers, a mortgage pre-approval could give you the advantage.
However, according to SCHL, this pre-authorization should not be considered as a guarantee of obtaining a mortgage loan.
3. Not knowing what you're looking for
Have a list of your daily priorities with your family on hand. For example, the number of bathrooms, bedrooms, garages or not, or the distance to places like grocery stores, schools and banking institutions, etc. Without forgetting the amenities offered by the new neighborhood.
4. Refuse the Pre-Purchase Inspection of Property
Never take for cash the report of a previous inspection, or the excitement of other buyers to hurry up and submit a promise to purchase. You should always do your own pre-purchase inspection. So, before presenting a promise to purchase, make sure that a qualified inspector bound by bond requirements will perform a complete pre-purchase inspection of the property. This investment could save you several thousand dollars.
5. Negotiating with your heart and not your head
Never allow your emotions to override your reason. Some sellers may attach a real sentimental value to their home, in other words, they are unable to take their feelings out of the equation. It should be kept in mind that this sentimental value for them has no financial value in the eyes of buyers and can hinder negotiations;
Did you know that a mortgage pre-approval gives you more credibility ?
Although in a multiple or conditional offer situation a mortgage pre-approval does not guarantee that you will be able to purchase the home of your dreams, but It can give much more weight and credibility to your offer.
Do you know the difference between “mortgage pre-qualification”
and “mortgage pre-approval ?
Mortgage Loan Prequalification
1. This is an initial mortgage pre-approval step
2. You meet with a mortgage broker or advisor
3. You will be asked for information about your assets and liabilities Without asking for evidence of your finances
4. They do not carry out a credit check,
5. You will be given an estimate of the amount you can claim.
6. There are no promises and/or commitments from the lender, their assessment may change when they have more information about your financial situation and your credit history/rating.
Mortgage Pre-Approval
1. The lender will then ask you for documents relating to your assets, your income and your liabilities.
2. He will also have access to your credit report
3. The lender will then determine the maximum amount it is willing to lend you, subject to certain conditions.
4. With written confirmation or a certificate from the lender, You will be able to lock in a mortgage rate against increases for a certain pre-established time.
The Benefits of Mortgage Pre-Approval
1. Saves time: gives you an idea of the amount of the house and the potential amount of monthly payments.
2. Lock in the mortgage interest rate in the event of an increase between 90 and 120 days. And If mortgage rates go down, it will adjust your rates downward accordingly.
3. Realtors Take You Seriously: Realtors don't want to waste their time on buyers who aren't "financing ready." So we consider you a serious buyer.
4. Sellers are willing to negotiate and prioritize your purchase offer. They may also be willing to negotiate price and other terms that they won't do with a buyer who doesn't have one.
5. No commitment, it’s free and without penalties if you choose to change lender or postpone your purchasing plans.
The Mortgage Loan Pre-Approval Process
The time needed is 1 to 2 days.
the lender will ask you for the following documents:
Photo ID and social insurance number.
Proof of income, pay slips, T4 slip or notice of assessment.
An employment letter stating your current position, salary (temporary or permanent) and length of employment.
If you are self-employed, your business financial statements.
Proof of deposit: Recent bank and investment account statements.
Other proof of assets if you have them
Debts and Liabilities: Credit card balances, lines of credit, student loans, car payments, personal loans, spousal or child support, current monthly mortgage or rent obligations.
Additionally, the lender will perform a credit check with your consent.
Lenders will review your credit report to determine your creditworthiness. If you are applying with a spouse or partner, they will also be required to provide all of the documents listed above.
However, it should be noted that
A mortgage pre-approval does not guarantee that the mortgage lender will approve your final application. The lender may change their mind about lending you money:
Changes in your financial situation. For example :
If you lose your job or change jobs
if you don't pay the bills on a loan.
Your credit score has dropped because you have added new debt, a new credit card, a new line of credit, a new car lease, etc.
Or if the house does not pass the assessment:
If it has defects or if it is valued at a lower price than what you negotiated to acquire it. To avoid problems, you can request an assessment before making an offer or include appraisal conditions in your purchase offer.
Add a financing condition: in your “offer to purchase”, add financing conditions (EX: Subject to mortgage financing approval by the lender).
Which is protection against liability if your mortgage loan application is refused.
Reinstate your pre-approval: If you can't find a home that satisfies you within the rate lock period (90-120 days), You can reset your pre-approval to extend the rate lock if the lender allows it. If your financial situation has changed, the lender may decide to start the approval process again.
HBP or Home Buyers Plan
HBP or Home Buyers Plan is a government program that allows new buyers like you to access property. So as owners you accumulate funds for your retirement with (RRSP).
Can HBP Suit Me ?
It is suitable for most buyers. With the HBP, your dream of becoming a homeowner comes true and also allows you to save thousands of dollars in tax refunds. With the HBP you can withdraw up to a maximum of $35,000 tax-free from your RRSP for the purpose of purchasing your home. So for two working people, the tax refunds can be close to 20,000, which is enough to buy your first home.
What happens if I have never contributed to an RRSP ?
You don’t have an RRSP? You don't have the money you need to contribute to an RRSP? Don't be discouraged, there is a solution...
If you earn or have already earned income entitling you to contribute to an RRSP, there is therefore the possibility of HBP. In fact, by contributing as much as possible to your RRSP, you obtain significant tax refunds!
In fact, you can borrow an amount equivalent to your unused RRSP rights from the past from your financial institution (up to $35,000 / Max HBP) to contribute to your RRSP.
1st, you benefit from a significant tax deduction and thus receive a considerable tax return, which you will use for the purchase of your house.
2nd, after a period of 90 days, you can withdraw the amount contributed to your RRSP (tax-free) and repay your loan. And you will have almost 18 years to reinject the funds into your RRSP, interest-free. the method is elementary, but the results are extraordinary!
self-employed workers
Did you know that the mortgage interest on your home is deductible from your income?
In fact, a new position from Revenue Canada following a decision by the Supreme Court of Canada means that unincorporated self-employed workers can now use the strategy called "segregation of money" and thus transform the non-deductible mortgage interest on their personal residence into deductible interest.
Staggering Figures
Referring to the table below, we see that an individual who has chosen to amortize his residential mortgage of $150,000 (at an average rate of 6%) over a period of 20 years, will be able to deduct from his income, over time. years, the imposing sum of $106,388.
By using a tax rate of 45%, the taxpayer will eventually end up $47,875 richer after tax. Additionally, the cost of using this strategy varies from very low to zero! SO...
what is it cash damming strategy ?
Usually, the unincorporated self-employed worker uses his gross income (turnover) to pay for his current operating expenses and finances his major personal expenses, such as the mortgage on his home.
By using the “cash damming” strategy", the same individual will use the gross income of their business to accelerate the payment of their personal mortgage and will henceforth finance 100% of their operating expenses. In doing so, it will gradually transform non-deductible interest (mortgage) into deductible interest
(loan for business purposes).
Example of Mr (x)
Mr. (x) is an unincorporated self-employed worker and as part of his profession, he incurs $75,000 in business expenses (rent, salaries, supplies, etc.) which are, until now, paid from his income professional gross of $200,000. Mr. (x) has also just acquired a new residence for which he will assume a mortgage of $150,000.
With the "cash damming” strategy", Mr. (x) will use the portion of his income that would normally have been used to pay his business expenses, to make an additional mortgage payment on his house.
Then, the financial institution will allow Mr. (X) to use a mortgage line of credit for an amount equivalent to the additional mortgage payment he has just made.
Thus, John will be able to use his mortgage line of credit to pay for his current business expenses.
And since the amounts borrowed on the mortgage line of credit will have been for business purposes, John will then be able to deduct the interest on the amount borrowed from his income. He will therefore have transformed non-deductible interest (residential mortgage) into deductible interest (line of credit for business purposes).
With annual business expenses of $75,000, Mr. (X) will therefore take barely 2 years to completely transform his initial mortgage of $150,000 into a mortgage line of credit, thereby making the interest deductible for the entire duration of the term. remaining life of the debt.
This is how Jean will recover more than $47,875 net of tax!
What about an employee and the income property?
An employee, just like a self-employed worker, who owns or acquires an income property, can use a different version of the “cash damming” strategy to transform the non-deductible interest on their residential mortgage into deductible interest.
Indeed, in such a situation, the individual will then only have to use the portion of their rental income which would normally have been used to pay the operating expenses of the rental property (taxes, insurance, maintenance, payments mortgages, etc.) to make an additional mortgage payment on his personal residence. In other words, just like Mr. (X), once this additional payment has been made, the individual will then use his mortgage line of credit to pay the current disbursements for his income property.
And since the amounts borrowed on the mortgage line of credit will have been for business purposes, he will have gradually transformed non-deductible interest (residential mortgage) into deductible interest (line of credit for business purposes).
HOWEVER considering that there are other strategies aimed at maximizing the tax advantages of “cash damming” strategy, we advise you to consult a professional who will be able to implement a strategy perfectly adapted to your needs, taking into account takes into account, among others, the following cases:
• The situation where the spouses are co-owners;
• Personal and business expenses (example: automobile);
• The GST and QST collected on your sales within the framework of your profession;
• The rules surrounding the sharing of family assets; Etc...
A very profitable Move / If more than 40 KM
If you are in the situation that you must relocate to another municipality following obtaining a new job or a transfer (voluntary or involuntary) to another establishment of your current or future employer. Probably for practical reasons, you will consider selling your current home to move closer to your new workplace.
In such a situation, the real estate broker's remuneration, as well as all moving costs, could become entirely deductible from the income earned at your new place of work. Isn't that great?
Here are the details :
Federal and provincial tax laws provide that when an individual changes his place of residence in Canada because he is or will be employed in a new place of work, or because he will operate a business in a new place of work, he can deduct eligible moving expenses including the remuneration of the real estate broker to the extent that his new residence (house, rented apartment, condo, etc.) allows him to be at least 40 kilometers closer to his new place of work ( whether the job is full-time or part-time).
We can therefore see that many costs are eligible for deduction; even the notary fees and the transfer tax of the new residence can be deducted, if the old residence is sold and a new residence is actually acquired.
A Gift that falls from the Sky
It is important to note that if this situation applies to you (during the last 10 years) and you were eligible for these deductions but failed to claim them, you can ask Revenue Canada and Revenu Québec a retroactive reimbursement
Finally, your deduction cannot exceed the amount of your income earned at your new place of work. However, you can carry forward any unused portion to subsequent years or until your income at your new place of work allows you to deduct it.
Note that the move does not need to be made in the same year of the change of workplace, but must have occurred because of the change of workplace.
Expenses to expect when buying a property
• Inspection by a building expert
• Opening of the mortgage file at the bank
o Conventional loan (20% cash)
o Loan insured by CMHC (less than 20%)
• Deposit on the promise to purchase
Expenses to be expected upon signing the deed of sale
• Notary fees
• The distribution (refunds) of taxes:
o The calculation of the reimbursement to the seller (if applicable) will be made from the date of occupancy and you will have to reimburse the seller for the number of days already paid by him, for the following property taxes:
Municipal taxes and school taxes
• Heating oil tank:
o If the property is equipped with oil heating, the seller must have the tank filled on the same day as the deed of sale and bring the invoice to the notary which the buyer must reimburse in full.
• Electricity (Hydro-Québec) and gas (Gaz Métropolitain) meters:
o The buyer and the seller must notify Hydro-Québec and Gaz Métropolitain (if applicable) of the date of the change of ownership so that the meters can be read on that date, and so that the amounts can be charged respectively to the buyer and the seller on the date of occupation of the property.
• Home Insurance :
o Please remember that when signing the deed of sale, you will need to provide proof that home insurance is in force, for an amount equivalent to or greater than the mortgage in place.
Expenses to be expected after signing the deed of sale
• Rights on real estate transfers or “Welcome tax”:
The municipality in which you moved will send you a transfer tax bill, within four (4) to six (6) months following the signing of the deed of sale, and this is calculated based on the price of sale and according to the following scale:
0.50% on the first $50,000
1.00% on the bracket from $50,000 to $250,000
Province of Quebec, excluding Montreal:
1.50% on the portion exceeding $250,000
Montreal only:
1.50% on the bracket from $250,000 to $500,000
2% on the portion exceeding $500,000
CALCULATE MY TRANSFER RIGHT
https://www.impot.net/fr/immobilier/mutation/
Assistance programs available.
Federal financial aid
• Tax credit for the purchase of a first home (CIAPH)
• CMHC’s (( chezsoidabord )) program
• Home ownership plan (RAP)
• Partial reimbursement of the CMHC mortgage loan insurance premium for energy-efficient homes
Provincial financial assistance
• Reimbursement for charging stations (fully electric vehicle or plug-in hybrid
electric vehicle)
• Novoclimat 2.0
• Rénoclimat
• Heat green
• RénoVert tax credit
• Tax credit for bringing residential wastewater treatment installations up to standard (This tax credit applies for the years 2017 to 2022 only.)
• GST and QST rebate: new housing and major renovations
• Éconologis – Seasonal program (October to March) to help save energy for households with modest budgets
Quebec Housing Corporation (federal/provincial assistance)
• RénoRégion
Aims to financially assist low-income homeowners who live in rural areas to carry out work to correct major defects in their residence.
• Home adaptation for disabled people
• Program for residences damaged by pyrrhotite
Hydro-Quebec
• Free personalized report of your electricity consumption:
“Better consume” residential diagnosis
Gaz Métro
• Addition of new devices ~ Replacement of existing devices (hot water boiler, hot air heating, water heater, combo system)
• Programmable electronic thermostat (Incentive amount of $25 for the installation of an Energy Star certified programmable electronic thermostat and
$100 for the installation of an Energy Star certified smart thermostat.)
• Low-income household supplement
City of Montreal
Municipal programs
• Acquisition of a property
• Renovation programs
o Customized renovation
o Major residential renovation
o Bonus for cooperatives and non-profit organizations
• Foundation stabilization
• Urban housing for families
Other programs
• Housing adapted for independent seniors
• Home adaptation for disabled people
• Social and community housing
• MTL condo access program
City of Laval
o Subsidies to citizens
Renovation Québec financially supports municipalities that adopt a program aimed at improving housing in degraded residential areas.
