10 Steps to Buying a Home in Canada

MONEY & FINANCE

Congratulations! You’re thinking about buying a home. From the nerves to the excitement, it’s normal to experience a spectrum of feelings when making this life-changing decision. Whether you plan to raise a family, retire, or rest, a new home is the place to settle down and live a new type of life.

You’ve decided that you want to buy a home, but you still don’t know how to do it. With everything you have to consider and all the paperwork, you may feel overwhelmed. But don’t worry, we are here to give you 10 concrete steps to buy a home in Canada:

1. Save Money for a Down Payment

A property’s minimum down payment depends on its purchase price.

According to the Financial Consumer Agency of Canada: if the purchase price is less than $500,000, the minimum down payment is 5%; for a purchase price between $500,000 to $999,000, the down payment will be 5% of the first $500,000 plus 10% of the remaining amount; a property with a purchase price of $1,000,000 or more requires a minimum down payment of 20%.

You will be required to pay for CMHC insurance if your down payment is less than 20%. You can calculate your minimum down payment and required CMHC insurance by using the WOWA Mortgage Down Payment Calculator.

If you are a first-time homebuyer, you may qualify for the Home Buyer Plan, which allows you to withdraw up to $35,000 tax-free from your registered retirement savings plan (RRSP) to buy or build a home, repayable within a 15-year time frame. It is a good idea to contribute to your RRSP if you are a first-time homebuyer as the $35,000 tax-free amount can be allocated to your total down payment in the future. 

Alternatively, you may be eligible for the First-Time Home Buyer Incentive Program, which allows you to essentially sell 5% or 10% of your home to the government to receive a down payment on your loan.

2. Manage Your Budget

Following a realistic home purchase budget can help you buy a house more quickly than anticipated. Take your numbers seriously! Your budget needs to account for all costs including the mortgage down-payment, land transfer tax, legal fees, and possible renovations.

Your ability to make a large down payment affects your affordability because larger down payments lower your mortgage payments while smaller down payments accrue expensive mortgage insurance. The major mortgage lenders in Canada are the big banks: RBC, BMO, Scotiabank, TD Bank, and CIBC. Mortgage affordability is calculated based on the following criteria:

  • Down-payment amount
  • CMHC insurance premium
  • Household income
  • Property taxes
  • Monthly debt obligations (student loans, credit cards, car loans, etc.)
  • Property location
  • Choice of home type (detached/condo)
  • Condo fees
  • Heating costs

More information on the specific criteria used by top Canadian banks for mortgage affordability can be found on WOWA’s Mortgage Affordability Calculator Page.

Save between 1.5-4% of your home purchase price for future closing costs; some of these costs include legal fees, land transfer tax, property tax, title insurance, and inspection fees.

3. Reduce Your Loan Risk

When a bank evaluates you for a home loan, three primary objective factors contribute to your interest rate. One we have already looked at is your down payment, but the two other factors are your credit score and your ability to make monthly payments. These two factors ultimately are a representation of your mortgage risk to the bank. By building your credit score and maintaining a stable job, you can improve your odds of being improved and even reduce your interest rate.

If you haven’t had the opportunity to build your credit score in Canada, you can take advantage of the CMHC Newcomers Program. By providing your international credit card or confirmation of rental payments for the previous 12 months plus one other financial obligation, the CMHC will evaluate your creditworthiness, which lenders can use for your mortgage eligibility. The program also offers a series of fact sheets and guides that can help lead newcomers through the process of renting or buying their home.

4. Check Home Prices to See Which Locations You Can Afford

Although an overview of the Canadian Real Estate Market as of June 2020 showed the average home selling price in Canada to be $538,505, the province you choose can have a significant impact on the average home price. You can view how the average home prices have moved over time on WOWA’s Canada Housing Market News Report

As you can see, home prices vary significantly even between cities. Understanding the local housing economy of your desired location is an important consideration to make.

5. Get a Good Real Estate Agent

Choosing a good real estate agent might be a daunting task, but it’s very important when buying a house—especially if you are a first-time buyer. How do you choose a good agent who will prove to be a key asset in your home-buying process?

The best real estate agents typically have a blend of experiences in the local real estate market, closed multiple deals of the type of home you want to buy, pay attention to your specific ideal home requirements, have an excellent track record, and have great communication and negotiation skills. And don’t discount the importance of personal chemistry between yourself and the agent! Like anything else, it is best to compare your options before making a decision. The best place to do this is no other than WOWA, our online marketplace that provides you with an easy way to choose from the best real estate agents in Canada.

6. Get Your Mortgage Pre-Approved

The next step is to get your mortgage pre-approval process started. What does it mean for your mortgage to be pre-approved? It simply means a potential mortgage lender has gone through your finances and decided on the maximum amount they are willing to lend you at a specific interest rate. The advantages of getting a mortgage pre-approval include knowing your maximum mortgage amount, proper estimation and scheduling of mortgage payments, and locking in an interest rate for between 60 and 120 days.

Before getting your mortgage pre-approved, ensure that you’ve checked your credit report for errors and that you have a good credit score because this can determine your eligibility and loan amount. 

Factors considered during the mortgage pre-approval process include your down payment, income, debts, and current assets.

Some smart questions to ask your lender during the pre-approval process include the possibility of a pre-approval extension, whether the pre-approved mortgage rates are affected by changes in interest rates, and how long the pre-approved rate will be guaranteed. 

7. Visit at Least 20 Properties Before Deciding

Can’t decide whether you want a condo, townhouse, or detached house? It is common to have a lot of questions, especially if you are a first-time homebuyer. What better way to answer these questions than comparing the features of various potential homes? Visiting multiple homes not only allows you to potentially find the best one for you, it gives you information on the prices and qualities of similar homes. 

Even if you think you’ve fallen in love with the first house you view, resist the urge to put all your cards on the table—visit as many homes as possible before making a choice. Open houses along with incorporating the advice from your real estate agent will help you properly evaluate potential homes and choose the one best suited for you. 

8. Negotiate Home Prices to a Slightly Lower than Market Value (If possible)

When you’ve found a property that ticks all the right boxes for you, negotiating the home price is the next step, which is done through your real estate agent. This may be an uncomfortable process if you aren’t familiar with the housing market, so here are a few tips to help you negotiate like a pro and get the best prices:

  • Remember that the seller wants to sell at the highest possible price, so you can get a price lower than the asking price if the market is cold
  • Research the market: is it a seller’s market (fewer homes on the market) or a buyer’s market (more homes on the market)? A buyer’s market gives you more power.
  • If you know that the seller is moving due to a time-sensitive issue such as divorce or job relocation, leverage this information to negotiate a lower selling price
  • Conduct comprehensive research on home prices in the locality of your home purchase and value the home at slightly lower than the market price (although not too low!)

Following these tips should help you get a good bargain.

9. Ensure that the Contract is Explicit and Clear

Renovation Plans: After getting a good bargain, ensure that any renovations to be made are clearly stated and planned to be carried out in earnest. Try to get estimates from reliable contractors and assume an error in both the quoted budget and time frame. For example, if they tell you the renovation would take 2 weeks, work with a time estimate of about 3.5 weeks.

Refinance and Prepayment Costs: A mortgage will keep you tied down for a long time. If you want to adjust your mortgage or pay part of the principal amount early to reduce your interest costs, you should not let your decision at the time of closing haunt you for your entire mortgage term.

Ask your broker about anything in the contract you don’t understand or have little information about. You should have a full understanding of your mortgage contract before signing anything. 

10. Preparing for a New House: Tie All Your Loose Ends

When you’re finally ready to move, expect to be busy all the time! Understandably, it’s easy to forget important things like redirecting your postal packages to a new address. Canada Post provides you with a mail forwarding service that helps solve this problem and can be put in place starting from the move-in date. This way, you wouldn’t be missing any important personal or business mailings such as licenses, tax slips, and health card renewals. There are two options provided: mail forwarding for moves, and mail forwarding for temporary relocation. Since you are moving to a new home and won’t be returning to the former address, the first option is more suitable.

As of July 2020, Canada Post has put out a disclaimer to customers to anticipate possible delays as measures necessitated by the COVID-19 pandemic means that it now takes longer to process parcels. However, you can track items by using referencing numbers and delivery notice cards.

You can also save yourself from the extra stress by working with a reliable moving company that provides a moving truck, book movers, moving boxes, junk removal service, and more. This way, you simplify the moving process and can move in a smart, economic, and quick manner.

Lastly, don’t forget to check quotes for car and home insurance for your new home location and get internet access immediately after moving in.

Conclusion

Moving to a new house can be associated with a lot of stress, but having a plan makes the process easier. Saving for your down payment and closing costs, reducing your mortgage risk, having a workable budget, working with a good real estate agent, getting a mortgage pre-approval, visiting various homes, proper negotiation, having clearly-stated mortgage details, and properly preparing for the move are all essential steps to take when buying a home in Canada. We hope that you will take all of these steps into careful consideration and wish you a smooth success for your buying journey. 

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