Buying a home can be an intimidating process. From hiring a real estate agent to seeking mortgage approval, there are many first-times and lessons learned along the way. Although it can be stressful, it doesn’t have to be.
Buying a house in Canada feels a lot less scary when you break it down into a step-by-step guide that shares the details you might miss if you don’t prepare. So, let’s jump right into everything you need to do to buy a home in 10 steps!
1. Determine how much you can afford
Before you even think about buying a home, the best place to start is always with your finances. If you have a rough idea of what type of property you’d like and the city you plan to buy a home in, you can easily make some estimations to make the planning that much easier.
First, look at your household income and monthly expenses. One way to find this number is by multiplying your gross annual income by 2.5. For example, if your household income is $100,000 annually, you can afford a $250,000 home. To be sure, use an online mortgage calculator to have a more thorough look and confirm your numbers.
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2. Save an appropriate down payment
Once you have an idea of the type of property you can afford, it’s time to create a plan to save up an appropriate downpayment. In Canada, the minimum down payment is 5% – but most financial experts recommend you put down at least 10%. Keep in mind that if you put less than 20% down on a home, you will need Canada Mortgage and Housing Corporation (CMHC) Insurance.
Continuing with our example, a 20% down payment on a $250,000 home would be $50,000. If you plan to save a down payment quickly and purchase less than five years from now, it may be best to keep this money in a high-interest savings account. If you have a longer-term goal, you could always save the money in an investment account, such as your Registered Retirement Savings Plan (RRSP).
Whenyou use your RRSP to take advantage of the Home Buyers’ Plan (HBP) when you’re ready to purchase, you may borrow up to $35,000 tax-free from yourself. If you buy a home with a partner, they can also borrow $35,000, which allows you to take out $70,000 to put towards a down payment. The HBP is an interest-free loan if you repay the money into your RRSP within 15 years.
3. Focus on closing costs and an emergency fund
Once you have a down payment saved for your first-home, you must also consider saving up enough money to cover closing costs and an emergency fund. Having these two additional funds can clear up a lot of fear and stress that comes with buying a house. Such as the fear you may not have enough money to finalize the purchase of the property or wind up house poor once you make the transition to homeownership.
Closing costs range from 1% to 4% of the total value of the home. For a $250,000 home, your closing costs could be as little as $2,500 or as high as $10,000. It’s better to overestimate these costs that will cover paying your lawyer fees, home appraisal and property taxes.
Second, a household emergency fund is always necessary to have. It’s still a good idea to save 1% to 2% of your home’s value each year to cover household expenses and maintenance. The total cost for my first year of homeownership was $44,000. Our household emergency fund saved us many times, including the first two weeks when we had to replace a broken electricity panel in our oven.
4. Get mortgage pre-approval
An essential step to buying a home is achieving mortgage pre-approval. During this process, you will need to confirm your current financial standing with lenders and prove that you are a reliable borrower. Mortgage pre-approval makes you a more serious homebuyer in sellers’ eyes and can help your offer gain acceptance.
Keep in mind that you need a good credit score and that your monthly debts must be less than 44% of your monthly income. Your financial circumstances cannot change throughout pre-approval. Along with proving your money is under control, you also need to pass a “stress test” that confirms you could handle a rise in interest rates at a later date.
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5. Hire a trusted real estate agent and mortgage broker
If you have a down payment and mortgage pre-approval, you will finally start making moves in the market. Now is a great time to start exploring homes and interviewing potential real estate agents and mortgage professionals you trust, and that know the community you hope to buy well.
It’s crucial to hire industry experts who know what you want, have the experience, and have your best interests at heart. You should both want the same thing: find you and your family the perfect home in your price range. Don’t be afraid to speak with multiple agents before finalizing your choice!
6. Find your dream home and put in an offer
When you start looking for a home, it can be challenging to navigate a saturated market. Before you jump in and start scheduling showings, take time to put together a comprehensive want and needs list that covers everything you desire in a home.
This way, when you do a walk-through, you’ll know exactly what to look for. Once you find the property that falls in line with what you hope to find, it’s time to put in an offer. Discuss with your real estate agent to see the appropriate price, given the current market value. Look at previous listings that have sold in the community to see what the accepted offers were and consider the sellers’ situation.
7. Receive official mortgage approval
If your offer is accepted, things will start to move quickly. The first step after your offer is approved to finalize your mortgage approval. If your financial situation is still in the same order, it typically takes around five to seven days to complete the deal.
If you have a mortgage broker, they will work with your lender to finalize approval and transfer funds to the seller. Once you confirm all the details, you will close on the property!
8. Get a home inspection and appraisal
During the time you are going through mortgage approval, you should be setting up a home inspection and appraisal. Before you hire these professionals, be sure to do your research.
If your real estate agent recommends them, that’s great! But, make sure to ask whether they have a working partnership before you hire them. You want an appraiser who will do a thorough look at the property and be honest with you if they find any issues. A home inspection is an essential step in the home buying process.
9. Sign all of the paperwork with a real estate lawyer
Now that you’ve done the heavy lifting, it’s time to grab a pen and sign documents. A real estate lawyer prepares all land transfer titles and registers the mortgage. They are also there to walk you through signing your mortgage and notarizing the documents.
Your real estate lawyer will communicate with both yourself and the seller, so you must hire the one that you trust or that has good reviews among previous home buyers and sellers.
10. Take possession of your first home
Once you sign the paperwork and transfer money to the seller, it’s officially time to take possession of your first home! Congratulations!
You will likely grab your keys from the real estate lawyer on possession day and, from then on, can begin to move your furniture in. It’s a long haul, but it’s worth the wait.
Home buying may seem complicated, but hiring the right professionals will help guide you through the process. Don’t be afraid to ask questions and engage these experts to help yourself learn — after all, this is the most significant purchase you’ll likely ever make.