What are the Steps When Buying a Home in Canada?
It is not a surprise that most Canadians consider buying a home in Canada as major component of their life goals. Becoming a homeowner in Canada is an outstanding achievement but is also accompanied by many responsibilities. When you’re buying a house in Canada, it’s not just about getting a mortgage and paying the price of the house. Since this is likely one of the most crucial money decisions you’ll make in your life, it’s wise to learn as much as you can and get ready before you start the process.
How Much Do I Need to Buy a Home in Canada?
Buying a home in Canada can be really exciting, but it’s not the right choice for everyone. Before you make the decision to buy, it’s a good idea to think about all the costs and what you’ll need to do when you’re in the process of purchasing a home. If you’re not sure where to start, one way to begin is by making sure that your monthly housing expenses (mortgage and utilities) don’t go over 35% of your total monthly income. Also, your total monthly debt, including your mortgage and other debts like credit cards and loans, shouldn’t be more than 42% of your monthly income. Top of Form
Look at your current spending and debts and compare it to your savings and investments. Figure out how much you can comfortably spend on your housing each month without hurting your finances, and also think about how much you need to save upfront to make that happen.
How Do I Build Up My Savings to Buy a Home in Canada?
One of the initial steps towards becoming a homeowner in Canada is setting aside money for a down payment. When buying a home in Canada, you need to have at least 5% of the home’s price as your down payment. If your down payment is less than 20%, you’ll also need to buy mortgage default insurance.
If you aim to meet your savings objectives, consider arranging automatic transfers to your savings account every time you receive your paycheck. A Tax-Free Savings Account (TFSA) is a great place to stash away your lump sum without fretting about getting taxed on your savings. You can also save up using a Registered Retirement Savings Plan (RRSP). If you’re a first-time home buyer, the Home Buyer’s Plan (HBP) lets you take out up to $35,000 from your RRSP without any tax implications to help you buy your first home
Which Expenses Will I Incur When Buying a Home In Canada?
Being ready to purchase a home involves a key element: understanding and sticking to your budget. It’s crucial to create a practical budget that covers all the potential expenses of buying a home rather than just focusing on the house’s price tag. In your budget, be sure to include these expenses and anticipate allocating between 3% to 5% of the home’s purchase price for these extra items:
- Land transfer tax
- Home inspection
- Title insurance
- Harmonized sales tax (HST) fees/New build goods and services (GST)
- Adjustment costs
- Land Registration
- Home Insurance
- Legal fees
How Do I Choose The Perfect Mortgage in Canada For My Needs?
When it comes to financing your home in Canada, you’ve got various loan options depending on your lender and whether you meet the pre-qualification. Doing some research ahead of time is a smart move so you can make the best choice for your finances. Your decision about the kind of mortgage and how long you’ll take to pay it off (amortization period) will significantly impact your finances and how well they fit your budget. Don’t rush into a mortgage just because it has the lowest interest rate; it might not always be the best deal for you.
When you’re applying for a mortgage in Canada, one of your initial decisions is to pick between a variable or fixed rate. Here’s the scoop: with a variable rate mortgage, your interest rate can change, but it’s always the prime rate plus or minus a set amount. This relationship to the prime rate remains the same throughout your term. On the other hand, a fixed-rate mortgage means your monthly payment and interest rate stay constant for the entire mortgage term.
Variable rates are usually slightly lower than fixed rates because they’re less risky for lenders. However, it’s not a guarantee, so be sure to do your homework before making the choice that suits you best.
How Do I Identify the Right Broker or Lender in Canada?
When you’re deciding on a lender or broker to guide you through the home-buying process in Canada, it’s always important to do your homework and get a good grasp of the advantages and drawbacks of each mortgage option you’re thinking about before making any final choices. Take a close look at the following factors as you evaluate your options:
Other Expenses
Many hidden costs can sneak into your mortgage, and if you’re too focused on low interest rates, you might overlook them. From underwriting and application fees to appraisals, broker charges, and settlement costs, it’s essential to be mindful of these additional expenses when you’re comparing lenders.
Negotiations
Canadian law mandates that lenders provide thorough estimates, and borrowers have the legal right to negotiate for more favourable terms, especially if they have a strong credit score or plan to make a substantial down payment. If you’re a responsible borrower with the upper hand, you can request improved interest rates or even reduced fees. Staying with your current financial institution might also score you better rates.
Rate Locks
After discovering terms that suit you, ask for a written rate lock, which serves as a legally binding contract specifying the loan’s duration and the agreed-upon interest rate. It’s important to find out if the lender imposes an extra fee for rate locks so you can factor it into your projected expenses.
Selecting The Best Deals/Rates On Specific Loan Products
If you’re a borrower, you can hop online and research to see the interest rates each lender offers and what kinds of loan products they have. You can also compare these products with what’s available from other lenders. Remember, interest rates change regularly, and promotions can pop up and disappear, so keep your comparisons up-to-date and precise.
Customer Service
When applying for a loan, prepare for a mountain of paperwork and information gathering. That’s why it’s vital to pick a lender who can streamline this process and is easy to work with. Having a reliable partner who’s willing to answer all your questions can make a world of difference in smoothing out the process.
Looking for the best loan rates? First, check with your regular bank or credit union where you do your everyday banking. They might have exclusive rates or deals for their clients. If you’re open to an online relationship, consider online lenders. They usually have fewer expenses, which means they can offer lower rates and fees. However, remember that if you prefer a lender who can guide you in person and address your questions face-to-face, an online lender might not be the best fit for you.
How Do I Obtain My Mortgage Preapproval in Canada?
Getting a mortgage in Canada involves a lot of paperwork, so it’s a good idea to be prepared before you start the preapproval process. Take some time to make sure you’ve got the following documents ready before you move forward:
- A void cheque
- Current employment details such as a T4, a letter from your employer or a pay stub
- Investment and savings statements for the last 90 days
- If you intend to utilize the Home Buyer’s Plan, proof of withdrawal from your RRSP
- If you are using a financial gift from a family member, you’ll need a letter indicating the gift is not a loan
- Other income sources like business income or investments
- An inventory of all other assets and debts in your name, like cars or car loans
Even though it might feel overwhelming, getting preapproved for a mortgage in Canada is a smart move when considering buying a new home. Mortgage preapproval means the lender has agreed to lend you a certain amount for purchasing a home (with some conditions like a property appraisal). While it doesn’t guarantee a specific interest rate or mortgage from that lender, it provides a clearer understanding of your affordability, making it easier to navigate the housing market.
The approved mortgage amount you receive hinges on both the property’s value and the size of your down payment. Before a lender approves a loan, they want to ensure you can cover all the expenses tied to the loan and the home purchase. Being well-prepared gives you the best shot at success.
What Should I Consider When Hunting For a Home In Canada?
This is the enjoyable part of the journey! However, it’s even more fun and far less stressful when you’re well-prepared before you dive into countless real estate listings or explore your favourite neighbourhoods in search of options.
Before you start looking for a new home in Canada, there are several factors to think about. Taking some time to address these considerations in advance will make your search more effective:
– Determine the features you want in a home. How many bathrooms and bedrooms do you need? Is a garage a must-have? Maybe a pool is on your wish list? Examining similar homes in your preferred neighborhoods is essential to ensure your wish list aligns with your budget.
– Don’t forget to factor in your daily commute to work and visits with family and friends. This will help you identify areas that suit you best. Additionally, consider amenities such as school districts, shopping convenience, and access to public transportation.
– Before deciding to buy in a particular neighbourhood, it’s wise to do your homework on property taxes. This way, you’ll clearly understand what those costs will be like.
– The Canadian housing market is highly competitive right now, so be ready to act swiftly. The better prepared and organized you are, the greater your chances of securing your dream home.
How Do I Make My Offer?
Once you’ve found the perfect home, things can speed up, but no need to stress! Your realtor will handle the paperwork and suggest a price along with any conditions. Remember that Canada’s competitive housing market means you might not secure the first home you bid on, but persistence pays off. If your offer is accepted, you’ll make a deposit to the seller (applied against the home’s purchase price), arrange mortgage financing through your mortgage broker, and schedule a home inspection if needed.
You might need to adjust your offer after the home inspection, should you opt for one. When all is set, you’ll finalize your financing and, with a real estate lawyer’s guidance, make your down payment and transfer the home’s title into your name. The entire process typically takes around 30 to 60 days, depending on the purchase offer terms.
How Do I Complete The Home Purchase in Canada?
The home closing process in Canada may seem a bit perplexing, but it’s a crucial part of buying a home. Being ready for the closing day is vital to ensure a smooth process for both you and the seller. During closing, you’ll go through some legal and financial documents. These include the agreement transferring property ownership from the seller to you and the agreement with your lender outlining the terms and conditions of your mortgage.
Typically, the final document review and signing will occur at your lawyer’s or notary’s office, often a few days before the official closing date. On closing day, your lawyer, notary, or closing agent will transfer the closing funds to the seller’s lawyer, register the property transfer and mortgage, and hand over the keys to your new place.
Make sure to bring a cashier’s check or evidence of a wire transfer for the closing balance (the statement of adjustments of the buyer), along with two forms of ID and proof of property insurance. Your real estate agent will assist you in carefully reviewing all documents and verifying that your personal information is accurate on all forms.
Final Thoughts
Purchasing a home in Canada doesn’t have to feel overwhelming or stressful. Proper preparation and a clear understanding of each step can make your experience much more enjoyable. If you’re considering starting your home search, contact our team. We can assist you in understanding mortgages and preapprovals and guide you through the home-buying process with confidence.