YOUR GUIDE TO BUYING A HOME IN CANADA
A home can be a great place to build memories with friends and family and build a financial foundation for your future. Buying a home can be exciting, but it can also be a challenging and confusing experience.
Brought to you by Team Bush and Canada Mortgage and Housing Corporation (CMHC), we are here to help you understand the homebuying process and this guide will help you make informed and responsible decisions at each stage of the buying process.
To assist you even further, please download the Homebuying Workbook
Is homeownership right for you?
Buying a home is one of the biggest decisions you’ll ever make. To ensure that you make the best choice, ask yourself a few questions. What do you really want in a home? What is your current financial situation? What are your financial and lifestyle needs?
The real costs of homeownership
As a first-time buyer, you might not be aware of all of the costs associated with homeownership.
Are you ready to own a home?
Buying a home isn’t for everyone. Before you make any decisions, consider the following questions.
Renting versus buying: Pros and cons
Start by finding out the average home price in the area where you want to live. Next, make a list of the pros and cons of owning versus renting to see which option is best for you. Use the following as examples.
Use the Renting versus buying worksheet in Step 1 of the workbook.
Are you financially ready to own a home?
It’s important to figure out how much you can afford to spend before you start looking for a home. Your mortgage payment will probably be the biggest expense, but there are other costs you should be aware of. You don’t want any unpleasant surprises! The more you know about your current financial situation, the more prepared you’ll be when you meet with your lender or broker. These calculations will clarify your current financial picture and help you figure out how much you can afford.
Calculation 1: How much are you spending now?
First, see how much you currently spend on a monthly basis. Consider the following sample expenses.
Second, subtract that number from your total monthly net income (the amount of money your household earns on a monthly basis after taxes and deductions). The difference is how much money you have left each month after expenses.
Use the Household budget worksheet in Step 2 of the workbook.
CMHC offers several online calculators that help with everything from figuring out your household budget to calculating your maximum home price and monthly payments. To use these tools, visit cmhc.ca/calculators.
Calculation 2: How much can you afford?
Calculate how much you can afford to spend on housing each month without putting your financial health at risk.
These two simple rules will show you what you can afford to pay for a home. Understanding these rules can also help you when it’s time to get approved for a mortgage.
Use the Affordability rules worksheet in Step 2 of the workbook.
Calculation 3: Figure out the upfront costs
Figure out how much you need to save to cover the upfront costs associated with buying a home. For example, have you saved enough to pay the following expenses?
- Down payment — the part of the home price that is paid when you make an offer to purchase
- Home inspection and appraisal fees
- Insurance costs — including property insurance, mortgage loan insurance, etc.
- Land registration fee — based on a percentage of the purchase price of the property
- Prepaid property taxes and utility bills — you may have to reimburse the seller for bills paid in advance
- Legal or notary fees
- Potential repairs or renovations
- Moving costs
- GST/HST/QST on the purchase price (for newly built homes) or on the mortgage loan insurance (if applicable)
Use the Upfront purchase costs worksheet in Step 2 of the workbook.
Calculation 4: How will your budget look as a homeowner? (And will you still meet the affordability guidelines?)
Now that you have an idea of what a house costs and you know your current financial situation, return to Calculations 1 and 2 and complete the “Future” section (column 2) in the workbook. Be sure to include every expense you can think of. If in doubt, it’s better to include too much than not enough. If your monthly housing costs are over 32% and your debt load would be more than 40% of your gross income, you may have trouble qualifying for a mortgage.
Use the Household budget worksheet in Step 2 of the workbook.
What should you do next?
If you can afford the home you want, you are ready for Step 3.
If you think you’ll have trouble making mortgage payments or you’re concerned about your finances, you can still make changes. You have options! Give us a call at 905-297-4885 and we can have our Team of Experts help you!
Remember, your first home doesn’t have to be your dream home. A few changes in your monthly budget or your expectations can go a long way toward making your dream of homeownership a reality.
Financing your home
It’s time to meet with your mortgage lender or broker to discuss your financing options and confirm that you are financially ready to buy a home. They will discuss mortgage terms and interest rates and will explain what you must do to ensure that you get approved for a mortgage once you find your home.
It’s a good idea to get pre-approved for a mortgage before you start looking for a home. But first you need to understand exactly what being “pre-approved” means.
A pre-approved mortgage lets you know how much you can afford, what your interest rate will be and what your monthly mortgage payments will look like. Getting pre-approved can help you narrow your search down to a specific home type, size or neighbourhood. Getting pre-approved is not a guarantee of final approval for a mortgage. Once you find the home you want to buy, the property still has to be evaluated to ensure the price and condition of the home are acceptable to your lender.
You will have many options when it comes to choosing a mortgage. Your lender or broker will help you find the mortgage that best matches your needs.
Become familiar with the following terms and options to help with your decisions.
Amortization period: The length of time you agree to take to pay off your mortgage (usually 25 years).
Payment schedule: How often you make your mortgage payments. It can be weekly, every two weeks or once a month.
Types of interest rates:
• Fixed rate—The rate doesn’t change for the term of the mortgage.
• Variable rate—The interest rate fluctuates with market rates.
• Protected (or capped) variable rate—The rate fluctuates but will not rise over a preset maximum rate.
Mortgage term: The length of time that the options and interest rate you choose are in effect. It can be anywhere from 6 months to 10 years. When the term is up, you can renegotiate your mortgage and choose the same or different options.
Open and closed mortgages:
• Open mortgage—Lets you pay off your mortgage in full or in part at any time without any penalties.
• Closed mortgage—Offers limited (or no) options to pay off your mortgage early in full or in part, but it usually has a lower interest rate.
Conventional and high-ratio mortgages:
• Conventional mortgage—A loan that is equal to or less than 80% of the lending value of a home. This requires a down payment of at least 20%.
• High-ratio mortgage—A loan that is over 80% of the lending value of a home. This means the down payment is less than 20% and will likely require mortgage loan insurance.
Pre-payment options: The ability to make extra payments, increase your payments or pay off your mortgage early without incurring a penalty.
Portability: An option that lets you transfer or switch your mortgage to another home with little or no penalty when you sell your existing home. Mortgage loan insurance can also be transferred to the new home.
Don’t leave home without them!
Bring the following information when you meet with your lender or mortgage broker. This will help them determine whether you qualify for a mortgage.
Use the Personal and financial information checklist in Step 3 of the workbook.
Know your credit score
Your credit score is a snapshot of your financial health at a specific point in time. It shows how consistently you pay off your bills and debts. A good credit score is incredibly valuable.
Lenders and brokers will look at your credit history when deciding whether or not to approve you for a mortgage. Before you apply, it’s a good idea to get a copy of your credit report to make sure there aren’t any mistakes or surprises.
Learn more about credit reports and credit scores and get tips on maintaining a good credit history at cmhc.ca/creditreport.
Tips for planning and managing your mortgage
When financing a home, make sure you’re prepared to deal with any challenges that come up. These can include a loss of income, increased expenses or rising interest rates. The following tips can ensure you’re financially stable through any ups and downs.
Choose a smaller mortgage. Get a smaller mortgage than the maximum amount you can afford. This will keep your monthly housing costs lower and allow you to deal with sudden changes in your income or expenses.
Evaluate the impact of higher interest rates on monthly payments. With a variable rate mortgage, even a small increase in interest rates could have a big impact on your monthly costs. Taking time now to learn how changing rates could affect you may help you avoid financial problems in the future.
Plan to be mortgage free sooner. You can pay down your mortgage faster by making your payments weekly or every two weeks. You can also increase the amount of your regular payment or make additional lump sum payments if your mortgage allows it.
Be proactive and ask for help if you need it. If unexpected challenges affect your ability to make mortgage payments, contact your lender or broker as soon as possible. They can work with you to find a solution to any temporary financial setbacks.
Finding the right home
Now that you have a clear picture of your finances and mortgage options, it’s time to start thinking about the kind of home you want to buy. Look for a home that will meet your needs not just today, but also 5 or even 10 years into the future.
What do you want or need in a home?
Make a list of your requirements and preferences for a home. Consider the following factors and questions in your list.
The home you choose today will have an impact on your lifestyle and your finances for years to come. Take the time now to make the best decision for you and your family.
If you are considering living in the suburbs, you may be able to buy a larger home, but you may also have a longer commute to work or school. Be sure to weigh each decision carefully.
Forms of homeownership
One of your biggest decisions when looking for a home is what kind of ownership suits you. Options vary slightly between provinces, but the following are some of the most common ownership types in Canada.
Thinking about buying a condominium?
If you’re considering a condo, be sure to review the financial and technical audits for the condominium corporation to avoid surprises later on. Check out http://bit.ly/CondosHotlist
Homebuying or homebuilding?
Another choice you will need to make is deciding between a new home, one that has been previously owned (a “resale” home) or one that you will build yourself. Take time to carefully consider each option.
Start your search
Once you know what kind of house you’re looking for, you can begin your search. This can be done through:
Whether it’s your first time buying a home or you’ve done it before, it’s good to have a team of experienced professionals to help you along the way. Your homebuying team: Who should you call?
- Real estate agent – An agent can help you find a home, tell you about the community, make an offer for you and negotiate the best deal. They can also help you find qualified professionals to fill the other positions on your team. When looking for an agent, don’t be afraid to ask questions. Normally, the seller pays a commission to the agent, but some agents also charge buyers for their services. To find out more, call 905-297-4885.
- Insurance broker – You will need property insurance to cover the replacement cost of your home and its contents in case of loss. It is also a good idea to get mortgage life insurance, which will protect your family if you die before your mortgage is paid off. An insurance broker can help you with this.
- Home inspector – Whether you’re buying a new or a resale home, you should have it inspected by a professional home inspector. The inspector will assess the condition of the house and tell you if any major repairs or replacements are needed.
- Appraiser – An appraiser can make sure you don’t pay too much by telling you how much a property is worth before you make an offer. In some cases, your lender may ask for an appraisal before approving you for a mortgage.
- Land surveyor – You will probably need a survey or certificate of location as part of your mortgage application. If the seller doesn’t have one, you’ll need to hire a surveyor and get permission from the seller to go onto the property. If you have title insurance, you may not need a land survey.
- Lender or broker – There are many lending sources for mortgages, including banks, trust companies, credit unions and pension funds. Each offers different terms and options, so be sure to shop around! Mortgage brokers can be a good resource, as they can work with more than one lender. To find a lender or broker, ask your real estate agent, friends or family members for recommendations.
- Lawyer or notary – A lawyer (or notary in Quebec) will protect your legal interests. They make sure that the property you want to buy is free of any liens, charges and work or cleanup orders. A lawyer or notary will also review all contracts before you sign them, especially the offer to purchase.
Do your research!
It’s important to research the people who will help you buy your home. Ask real estate agents, lawyers or any other housing professionals for their references and qualifications. The more information you have, the better prepared you will be to make the best decision.
Use the Your homebuying team worksheet in Step 4 of the workbook.
Protect yourself against mortgage fraud
Mortgage fraud is a serious offence. It occurs when people intentionally misrepresent their income and assets to get approved for a mortgage they don’t actually qualify for. It is also fraud for someone with bad credit to use someone else’s good credit to apply for a mortgage. People who participate in this type of fraud can be found liable or even criminally responsible. Protect yourself from becoming a victim of—or an accomplice to—mortgage fraud.
- Never deliberately misrepresent your information when applying for a mortgage
- Never accept money, guarantee a loan or add your name to a mortgage unless you intend to purchase the property.
- Use only licensed or accredited mortgage and real estate professionals, and only work with people you trust.
- Never sign legal documents before reading them thoroughly and being sure you understand them.
- Get independent legal advice from your own lawyer or notary.
- Contact your provincial land titles office and get the sales history of the property you want to buy. Have the property professionally inspected and appraised.
- If a deposit is required, make sure the funds are payable to (and held “in trust” by) the seller’s realty company or a lawyer or notary.
If a deal sounds too good to be true, it probably is.
For more tips on how to protect yourself, visit cmhc.ca/mortgagefraud.
Making an offer and closing the deal
Congratulations! You’ve chosen a mortgage that works for you, found a home that fits your budget and put together your homebuying team. Now it’s time to make an offer and close the deal!
Making an offer
Once you’ve found the home you want to buy, you 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).
Your offer should include:
Getting a mortgage
Once your offer is accepted, visit your lender or broker to verify and finalize the details of your mortgage. Be sure to review any conditions that were part of the offer. Your lender or broker can advise you on exactly what you will need to bring to the meeting, but the following information will likely be required.
Don’t forget to change your address! You’ll need to notify healthcare professionals, government agencies, service providers and several others when you know your new address.
Call Team Bush for our Moving Checklist 905-297-4885!
Closing day is an exciting time. It’s when you finally get to take legal possession of your new home. The final signing generally happens at your lawyer or notary’s office along with the following events.
After you buy
Maintaining your home and protecting your investment
Becoming a homeowner is a major responsibility. It’s up to you to take care of your home and protect what is likely your biggest investment.
Keep your home safe
Be prepared for emergencies before they happen.
- Prepare an evacuation plan in case of a fire.
- Store your valuables in a safe place.
- Dispose of any dangerous materials properly.
- Check fire extinguishers, smoke alarms and carbon monoxide detectors on a regular basis.
Use the Home maintenance calendar worksheet at the end of the workbook.
As a new owner, you may plan on making improvements to your home. Some renovations can almost pay for themselves over time, especially if they result in savings on utility bills or a higher resale value in the future. Other renovations are worthwhile because they add comfort, enjoyment or functionality to your home.
Keep in mind that home prices are influenced by the price of similar homes in the neighbourhood. Don’t go overboard with home improvements unless you plan to stay in your home for many years to come.
If you plan to make energy efficiency improvements when you purchase an existing home, you may be eligible for a CMHC Green Home partial premium refund. Learn more at cmhc.ca/greenhome.
Talk to your lender or broker if you’re buying a home that needs repairs or renovations. There may be options available that can help you finance the repairs and renovations as part of your mortgage loan.
HERE IS THE COMPLETE CHMC HOME BUYERS GUIDE EBOOK ON PDF: http://bit.ly/homebuyingguidebook
If you have any questions, please contact us: