Despite the pandemic and the rising home prices, many people still see real estate as an important investment. While many has put their plan to a new home on hold, the low interest rates are enticing. As a result, it has given many others the perfect opportunity to buy their first home. The process of buying a home doesn’t start when you call a realtor and arrange a viewing. Instead, it starts when you decide that you are ready to buy a home. This article will show you how to buy a house in Canada. You will learn about the steps you need to take even if you are not ready to buy a home now.
You can start by watching the video of our webinar on how to buy a property in Canada. The steps on how to buy a house are the same whether you are buying a house, a townhouse, or even a condo.
Have A Plan For Your Down Payment
The first step is to have your down payment. If you don’t have this now, you can start to save for it now. You can achieve this by paying yourself first and saving the money. In Canada, you need to put down at least 5% of the home purchase price as a down payment.
So, for homes between $500,000 and $1 million, you will need 5% of the first $500,000 and 10% of the rest of the price. However, if the value of the homes is $1 million or more, you will be expected to have minimum down payment of 20%. Aside the down payment, you will also need to save 3% to 5% of the home’s purchase price for closing costs. So, keep this in mind and account for this in your budget.
Put Your Finances In Order
As soon as you decide that you want to buy a house, ensure you get your finances and paperwork organized. If you are the type that don’t have a grasp of your finances, you need to embrace change. You can start by keeping a money diary. You may also have to cultivate the habit of spending less than you earn. Aside this, you need to work on paying down your debt.
If you have any debt, you need to come up with a plan on how to pay your debt off. As you probably know, lowering your debt levels will have a positive impact on your credit score. Also, it will have positive impact your debt service ratios. The lower your existing debt, the more you can borrow for your mortgage.
Prepare Your Documentation
Applying for a mortgage requires a lot of paperwork. So, prepare for it. Prepping your documentation in advance will help you to move quickly through the mortgage approval process when you find your dream house. You will find below checklist for all of the documentation you will need:
- Current employment information such as a T4, pay stub, or letter from your employer
- If you are self-employed, you will need your corporate and personal CRA’s Notice of Assesment for the last 3 years
- Other sources of income like investments or business income
- Savings and investment statements for the past 90 days
- If you are planning to use 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 stating the gift is not a loan
- A void cheque of your bank account
- An inventory of all other debts and assets like cars and car loans
Take Advantage Of First-time Home Buyer’s Program
Take the time to check whether you are eligible for any rebates or grants. If you are a first time home buyer, you can check out the programs listed below:
- Home Buyer’s Plan: Withdraw up to $35,000 from your RRSP for a home down payment, tax-free
- Toronto’s land transfer tax rebate: If you are buying a house in Ontario you may receive a partial refund of Toronto’s land transfer tax up to $4,475
- Home Buyer’s Amount: a non-refundable $5,000 income tax credit
- GST/HST New Housing Rebate: a partial rebate on the GST or HST you paid on the cost of your new home
You can read more about Canadian programs for first-time home buyers.
Shop around for a great rate
Finding the lowest mortgage rate could save you thousands in interest over the life of your mortgage. This is why it is important that you use a use a mortgage broker. A mortgage broker will shop around to several lenders and return with only the best offer and possibly the lowest rate for you. Even if a mortgage broker can’t find you a better rate, you will still be able to access their expert and personalized advice at no cost.
Get A Mortgage Pre-approval
The next critical step is to get pre-approved for a mortgage. Mortgage pre-approval is free and doesn’t commit you to a single lender. In addition, it helps you to make an informed decision as regards your house hunt. The pre-approval will help you to understand the following:
- The maximum purchase price of the house you can buy
- Your maximum monthly mortgage payment
- The mortgage interest rate that is available to you
If you like the mortgage rate and lender, you can lock in the rate you get for up to 160 days. Locking in the mortgage rate means that if rates rise, you will still access the lower rate. However, if rates drop, your lender will offer you the lower rate.
Find The Home Based On Your Pre-approval
After receiving your mortgage pre-approval showing your maximum purchase price, your next step is to begin your house hunting. You can do this yourself or engage the service of a real estate agent. Whether you are using a real estate agent or doing the search yourself, you will find the tips below useful:
- Decide on your ideal neighborhood
- Make a list of “must-have” and “nice-to-have” features for your future house.
- Research the market in your ideal neighborhood. This ensures the home prices and your maximum purchase price are in sync
- If you find a house that interests you, move quickly
Make An Offer And Seal The Deal
When you find the house you want, submit an offer to purchase. Please note that if your housing market is hot, you may not be the only buyer to submit an offer. Once your offer is accepted, you will be required to pay a deposit to the buyer. This is why it is important to have your down payment handy before you begin your house hunt. You will also be required to finalize your mortgage financing through your mortgage broker. The entire process can take 30-60 days, depending on the terms of the offer to purchase.
Finally
There is no shortage of real estate experts, from mortgage brokers to real estate agents, who are available to answer all of your questions. So, take advantage of this resources even if you are not yet ready to buy a house in Canada. This will save you a lot of time and headache whenever you decide to take the steps towards buying your house. If you think you are not ready, you can bookmark this “how to buy a house in Canada” article and come back to it later.
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Featured Post Image Credit: Realtor
