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Feeling like you’re ready to purchase your first home but not quite sure where to start or how it all works? We’ve got you covered with this step-by-step guide to buying your first home in Canada. Learn more about the process, what questions you should ask and how you can get started on planning for your dream home today!
Find A Real Estate Agent
A real estate agent plays a key role. They can help you find properties that meet your needs, facilitate communication with sellers and navigate the home buying process with ease. Before selecting an agent to represent you, shop around and speak with a few who come recommended by friends/family so you can find someone with the right credentials and expertise. The agent is usually paid for by the seller so this service may not even cost you a penny as a buyer and could make all the difference on your journey toward homeownership.
Determine How Much You Can Afford
In today’s market, being realistic about your expectations is so important. As home prices continue to rise, it’s very common to have a list of needs/wants that are far outside the reality of your budget. Take some time to calculate the costs you’re going to encounter as you pursue homeownership to make sure you’re financially prepared to take on the task and move forward on the path toward your dream home.
The amount of debt you’re carrying as you enter this process will have a big impact on how much money you’re able to save up for a down payment and what kinds of rates you’ll have access to based on your ability to manage that debt. Take a long, hard look at your personal finances to determine how you’ll balance your current debt repayment plan with the purchase of a new home and all the costs that come along with it (legal fees, closing costs, emergency repairs etc.).
Having a down payment saved up is a crucial part of the home buying process. In Canada, the absolute minimum down payment you can have is 5% (for homes $500,000 or less). This is often one of the biggest hurdles for new homeowners as saving up this money can take a long time. If you’re still very much in the daydream phase of owning a home, this is your reminder to create a savings plan and start putting away money so when you’re ready to move forward, you have the finances to back you up! If you’re concerned about saving the funds for a down payment and want to explore other options, you may consider purchasing with no down payment at all.
Other Home Buying Costs
Aside from the price tag of the home itself, you’ll encounter other fees as part of the buying process that you’ll want to be prepared for in advance.
If you decide to pursue a home inspection, you’ll have to pay for it upfront so be prepared to have that cash available. In Ontario, a home inspection will likely cost you $300 – $600 or more. In today’s hot real estate market, many buyers are opting to skip home inspections entirely so as not to put a damper on their chances of securing the home because of conditions. Be very careful how you approach this area and don’t feel pressured to opt out of an inspection if you’ve deemed it an important part of your home buying process.
Title insurance is designed to protect lenders and buyers from financial loss due to defects in a title to a property. The most common claims filed against a title are back taxes, liens and conflicting wills. It’s essentially an insurance policy that protects you as the homeowner against challenges to the ownership of your home or from problems related to the title to your home that you may be unaware of. The policy provides coverage against losses due to title defects, even if the defects existed before you purchased your home. It’s not mandatory, but it’s often recommended. You can expect to pay around $300 on a home that is purchased for $500,000.
Once the sale of your new home is finalized, it’ll be your lawyer’s job to calculate the adjustment costs. These are costs that have been prepaid by the seller like property taxes, utility bills, lawn care etc. When it comes to metered services like gas and water, the meters are read on closing day to ensure the total owed by both buyer and seller is accurate down to the last penny. You’ll want to speak with your lawyer about these costs in advance to get a better understanding of how the process works and what you can expect to pay.
In general, you can expect to encounter around $1,500 worth of legal fees as you move through the home buying process. This will cover very important research, the creation of specific legal documents and the processing of funds once things are finalized.
Get A Mortgage Preapproval
Most Canadians think the very first step to buy a home is to contact a real estate agent and start looking at houses, but that’s simply not true. The very first phase of the home buying process is the planning stage and this includes getting preapproved for a mortgage before you even start to look at houses. Once your down payment is ready to go, the first call you should be making is to your financial institution to talk about mortgage preapproval, not a real estate agent.
Shop For Houses
Once you have a clear picture of your personal finances, it’s time to start looking for houses. The house you choose now will have an impact on your lifestyle and finances for years to come. Take extra care to write out a list of things that are important to you so you can find a house in your ideal location that checks off all the necessary boxes.
Things To Consider When Looking For A House
Location / Neighbourhood
Do you want to live in a bustling downtown area or somewhere more secluded and quiet? Are old brownstones more your vibe or would you prefer a subdivision? Will your proximity to services or shopping play a role in your decision?
If you’re raising children or plan to soon, you’ll want to look at the schools in your preferred areas to see what they offer and what their boundaries are for students. If you have kids who are currently enrolled in school, you may want to keep them in the same school, which could also be a determining factor when it comes to relocation options.
Nearby Transit Options
Your proximity to public transit may be an important factor to consider. Which transit routes do you use frequently or require easy access to? Is being close to a bus stop important for your commute? Do you want to be near a subway station or streetcar stop? These are all questions you should ask yourself before choosing a neighbourhood.
Starter Vs. Forever Home
If you’ve planned for this to be your starter home, you’ll be looking for something that’s simple and works in the moment. If you planned for this to be your first and forever home, you’ll be more concerned about future growth and how it will meet your needs as you age and your lifestyle changes. Be sure to determine which path you plan to take with this house so you can ensure you’re asking the right questions and looking for the right criteria to suit each option.
How Long You’ll Live In The Home
The amount of time you plan to spend in this house will determine how it’ll need to function and for whom. Whether you intend to stay for 5, 10 or 25 years, having an idea of what path your life is moving toward for each of those milestones will help. Do you plan to have kids in the next few years? Are you hoping for a work promotion that may require you to relocate elsewhere? Is this a chance to invest in real estate so you can upgrade in the near future? You’ll also want to consider your age and needs that may arise as a result of that as well.
Commute To Work
Factoring in your commute to work is always a smart move. The last thing you want is to realize your dream home is a 2-hour commute to work each way in heavy traffic. Consider how you plan to commute (car, bike, public transit) and what an acceptable commute time looks like to you before you choose an area to look at houses. It may also be wise to check your route options on Google Maps in advance to help you get a better idea of what your commute will actually look like.
Is The Home Big Enough To Grow Into?
After spending all this time looking for your first ever home, the last thing you want is to move in and discover it’s a pretty tight fit. Your home should be a place that can grow with you as you age and your lifestyle changes. This doesn’t mean you need to purchase a four-bedroom, two-bathroom house for yourself and your partner, it just means you need to think about how your life may change over the course of time and whether this house has the ability to grow with you in that respect.
Take Advantage Of First-Time Home Buyer Incentives
Incentives, tax credits, rebates and other offers are available for first-time home buyers who meet eligibility criteria so it’s important to look into these options in advance as they may help lessen the financial burden of homeownership.
The First-Time Home Buyer Incentive helps people across Canada purchase their first home by offering 5% or 10% of the home’s purchase price to put toward a down payment. This addition to your down payment lowers your mortgage carrying costs, making homeownership more affordable. Learn more about this incentive to determine if you qualify and get more information about how the program works.
The Home Buyers’ Amount offers a $5,000 nonrefundable income tax credit amount on a qualifying home acquired during the year. For an eligible individual, the credit will provide up to $750 in federal tax relief. Learn more about The Home Buyer’s Amount to determine if you qualify and get more information about how the program works.
You may also qualify for a rebate of part of the GST/HST that you paid on the purchase price or cost of building your new house, on the cost of substantially renovating or building a major addition onto your existing house, or on converting a non-residential property into a house. GST/HST New Housing provides all of the details on this rebate.
There are also grants and loans available through Canada Greener Homes that are helping Canadian homeowners across the country improve the energy efficiency of their homes and reduce their energy bills. Eligible homeowners will be able to receive grants and loans to make energy-efficient retrofits to their homes. Go to Natural Resources Canada to get more details.
Choose Your Mortgage Type
When it comes to choosing your mortgage, you’ll be presented with multiple options and it’ll be up to you to choose which one works best for you.
An open mortgage will allow you to pay off your mortgage in full or in part at any time without any penalties. A closed mortgage, on the other hand, offers limited options to pay off your mortgage in full or in part but it typically comes with a lower interest rate as a tradeoff.
A conventional mortgage requires a down payment of art least 20%, resulting in a loan that is equal to or less than 80% of the lending value of the home. If having a 20% down payment just isn’t possible for you, you’ll want to consider a high-ratio mortgage which means the loan will be over 80% of the lending value of the home. A high-ratio mortgage will also likely require mortgage insurance as a result.
Fixed Rate/Variable Rate
There are different rates available to you when you choose your mortgage. A fixed rate means your interest rate will stay the same for the whole term of the mortgage (however long you may have selected). A variable rate means the interest rate fluctuates with the market rates so it could change many times during your term and brings with it risk.
Make An Offer On A House
At this point, you will have your personal finances in order, have chosen a mortgage that works best for you and found a home that fits your budget! Now it’s time to make an offer and close the deal on your dream home with confidence.
Once you’ve found the home you want to buy, you’ll need to give the seller an offer to purchase (also called an “agreement of purchase and sale”). An offer to purchase is a legal contract that should be carefully prepared by your real estate agent and/or lawyer (or notary in Quebec).
You should automatically expect to negotiate, especially in today’s hot real estate market. While this process can be stressful, it’s truly about getting both the buyer and the seller what they need. It’s important to note that the contract only becomes final once all conditions are met so you’ll have to have patience and roll up your sleeves for this part of the process, as things may not be as straight forward and simple as you thought they would be.
Home Appraisal And Inspection
A home appraisal is an unbiased estimate of the value of a home that’s conducted by a third-party appraiser. Your lender will order it to ensure that the home is worth what you’re paying for it, within reason of course.
The home inspection allows buyers to learn about major and minor issues with a home before purchasing it. In today’s hot real estate market, including a home inspection contingency in your offer may be detrimental to getting your offer accepted as many buyers are choosing to opt out of this service for fear of having their offers rejected. Home inspections can uncover potentially life-threatening problems like mold or faulty wiring that could cause a significant fire. While skipping one is never advised, you may have to get creative with how you investigate a property of interest by bringing someone along with you for the walk through that can help you spot problems you may miss.
Homeowners insurance provides coverage to repair or rebuild your home after events like fire, smoke, theft, vandalism, a falling tree or damage caused by weather related events such as lightning, wind or hail. Most standard homeowners insurance policies also cover furniture, clothing, and other possessions. Choosing to invest in homeowner’s insurance will give you peace of mind knowing you’re protected.
Closing On Your Home
Closing day is such an exciting day! After all the time you’ve spent making your way through the home buying process, it’s the final milestone and one that will have you quite busy at the lawyer’s office.
Closing day is the day you officially take legal possession of your new home so you’ll be visiting your lawyer’s office to complete a few very important steps of the process. You’ll be signing the final paperwork, your lawyer will be processing the mortgage money from your lender, you’ll be providing your down payment money as well as money to cover the closing costs legal fees, land transfer tax and other costs and your lawyer will get the seller paid while registering the new home in your name and passing you the deed and keys to make it official. At this point, you’re ready to move into your first ever home and the process is complete!
As with any big life decisions, it’s important to ask yourself the right questions early on to determine if you’re ready to buy your first home. The process should be an exciting and fun adventure! Being prepared with realistic expectations, a strong financial plan and access to helpful resources, will help you navigate the process smoothly and avoid any unnecessary stress as you hunt for your first ever home. Looking for some extra help? Reach out to our team for professional guidance, great rates and more!