How To Buy A Home In Canada

Published on November 1, 2022

If you’re looking into how to buy a home in Canada, you must be ready to settle down. However, buying a property can be overwhelming and stressful. That’s why understanding it is vital.

Buying a home is a significant financial responsibility. Therefore, you should have a down payment set aside and a stable income. You’ll also need to determine how you’ll pay for your home. While buying a property for cash is possible, a mortgage is the most realistic route for most Canadians. Keeping your debt low and documents organized ensures a smooth process.

This post explores how to buy a home in Canada. Let’s look at all you should know about being a homeowner first.

Everything You Should Know About Buying a Home in Canada

There are various benefits to buying a home. You can build equity in a secure investment and renovate your house as you please. It’s also possible to create an additional revenue stream by renting your property.

However, there are drawbacks to being a homeowner. You may incur higher monthly payments on your home loan if interest rates go up. In addition, you’ll incur ongoing costs such as insurance and property taxes. Unexpected and pricey repairs may also crop up.

Those pros and cons can guide you when considering how to buy a home in Canada. However, it would be best if you also asked yourself these questions:

  • Am I ready to settle down?
  • Is my income stable to cover the costs involved with being a homeowner (e.g. legal fees, moving costs, and utility bills)?
  • Do I have the money management skills to undertake this significant financial obligation?
  • Can I put time aside for regular house maintenance?

Say you need a mortgage to purchase the property of your dreams. In this case, determine whether you have or can save for a down payment.

In addition, it’s wise to assess the local real estate conditions to ensure it’s the right time to purchase a property. Look into the competition amongst buyers, mortgage interest rates, and demand and supply of housing.

Mortgage interest rates in Canada have drastically risen over the past years. According to the Canada Mortgage and Housing Corporation (CMHC), there’s an expectation for further interest rate hikes in the future. Therefore, ensure you can shoulder your financial responsibilities if such a scenario occurs.

buying a home in canada - source mortgages

How to Buy a Home in Canada: A Step-by-step Guide

Now that you know what the homeownership journey entails, you can learn how to buy a home in Canada. Below are the steps you’ll need to follow.

1.  Save for a Down Payment

A down payment is the percentage of the property’s purchase price you’ll pay upfront. In Canada, the minimum down payment requirements are as follows:

  1. 5% for homes priced below $500,000
  2. 5% of the first $500,000 and 10% of the remainder for properties between $500,000 and $999,999
  3. 20% for homes valued over $1 million

Therefore, you’ll need to put aside a specific amount based on the purchase price of the property you intend to purchase. You can move on to the next step if you have a down payment saved.

However, if you don’t, you’ll need to start saving. You can use the Home Buyer’s Plan to withdraw a tax-free stipend of up to $35,000 from your RRSP. With this loan, you can pay it back within 15 years. Alternatively, open a First Home Savings Account to take advantage of tax-free savings.

It’s best to save a larger down payment than the minimum requirement. In other words, at least 20%. This will unlock benefits such as less interest paid over time and smaller insurance premiums.

2.  Determine How You’ll Finance Your Home

While considering how to buy a home in Canada, you should determine how you‘d finance the purchase. Most homebuyers in Canada get a mortgage to buy their dream home. And you can too.

A mortgage is a loan used to purchase or maintain a property or land. Credit unions, mortgage brokers, online-only lenders, and banks make mortgages available to consumers.

You’ll owe the lender the principal amount borrowed and interest in exchange for a property. This loan is secured against your house, meaning the lender may repossess it if you don’t keep up with payments.

A mortgage is a significant financial commitment. You’ll be paying it off for years while covering other costs involved with being a homeowner. Therefore, you should understand the terms and features of a mortgage.

Spring Mortgage makes finding the right mortgage easier. They are partnered with over 300 lenders, which you can access with a simple online application. Their team will guide you through the home loan process, ensuring you get the best mortgage solution.

If you’re new to Canada, several financial resources are available. This includes the Government of Canada’s First-Time Home Buyer Incentive, a shared equity mortgage. Through the incentive, you receive interest-free financing of:

  • 5% of an existing home’s purchase price
  • 5% or 10% of a newly built home’s purchase price

3.  Pay Down Your Debt

Say you have debts, such as credit card and student loan arrears. In this case, paying them off before buying a home would be wise.

This is because it’ll bode well for your debt service ratios, which lenders calculate to determine how much to lend you. Therefore, a low debt level will give you enough room to borrow as much as you need for a mortgage.

home buying in canada - source mortgages

4.  Organize Your Documentation

It’s no secret the mortgage process can be lengthy and stressful. However, organizing your documentation before applying for a home loan can make it easier. Lenders may request the following documents and information:

  • A government-issued ID (passport, driver’s license, etc.)
  • Proof of employment and income (bank statements, pay stubs, etc.)
  • Assets owned (vehicles, other property, etc.)
  • Existing debts (lines of credit, student loans, other financial obligations, etc.)
  • Proof of a down payment and its source (RRSP, savings account, gift, etc.)

Ensure you have these documents ready before starting the application process. It’ll ensure you aren’t running around when the time comes to submit them, lowering your stress levels.

5.  Get a Mortgage Pre-approval

A mortgage pre-approval is a letter issued by a lender. It states how much they will lend you at a specific interest rate. Think of it as a warm-up to getting a mortgage.

Being pre-approved for a mortgage is essential when looking into how to buy a home in Canada. It’ll help you determine the home price you can afford. And you can secure the offered rate for up to 120 days, contingent on the lender’s terms. Therefore, rate increases won’t affect you.

While getting a mortgage pre-approval is not required, you should get one. It’ll make house hunting much easier and increase your chances of being approved for a home loan. And it’s free, so you won’t need to factor in the cost.

6.  Search for a Home

Once you’ve sorted all the financial aspects of buying a home, you can start house hunting. During this process, consider the following:

  • Location and neighbourhood
  • Property type (duplex, condominium, detached, etc.)
  • Distance from your workplace, stores, and services
  • Special features
  • Property and house size

You can contact a real estate agent who can help you find a property. If you’re a first-time homebuyer, working with an agent is wise. Alternatively, use a website like Zoocasa to shop for properties online.

7.  Finalize the Purchase

Closing the deal is the final step when considering how to buy a home in Canada. Once you find the house of your dreams, you’ll submit a purchase offer.

The seller will review your offer and those from other buyers. Having a mortgage pre-approval may speed things along. It’ll help you take the property off the market before another buyer swoops in.

Once your offer is approved, a deposit is applied against the home’s purchase price. Next, you’ll finalize your mortgage and then arrange for a home inspection.

A real estate lawyer will help you pay the down payment then the title deed will be transferred into your name. It can take between 30 and 60 days to finalize your property’s purchase. Once everything is sorted, you’ll get the keys to your new home and officially be a homeowner.

Takeaway

Becoming a homeowner requires much thought. This is because it comes with responsibilities such as maintaining your home. And several financial commitments, including mortgage payments and property taxes.

That’s why understanding how to buy a home in Canada is essential. The first and most crucial step is saving a down payment. Next, you’ll need to determine if you’ll get a mortgage or finance your home another way.

Before buying a home, it’s wise to lower your debt levels. This will leave you comfortable enough to take on another financial commitment. Also, sort your documentation to move through the mortgage process faster.

A mortgage pre-approval is a great asset to have as a first-time homebuyer. It’ll make searching for a home easier because you’ll know what property you can afford. Once you find your ideal home, you will close the deal by making an offer and all necessary payments.

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FAQs about How To Buy A Home In Canada

What type of home can I buy in Canada?

There are several types of homeownership in Canada. However, they vary by province. You may come across the following:

  • Condominium (or “strata”), where you own a unit in a shared property
  • Freehold, where you own the building and the land
  • Leasehold, where you own the building and lease or rent the land
  • Co-operatives (co-ops), where you buy a share in a building and live in one unit

What are the costs of buying and owning a home?

When buying a home, you’ll face several upfront costs, including:

  • The down payment
  • Land registration fees
  • GST/HST/QST on newly constructed homes
  • Home inspection fees
  • Appraisal fees
  • Insurance costs
  • Property taxes
  • Moving costs
  • Repair and renovation costs
  • Notary fees

Should I save a 20% down payment?

Yes. While it's not mandatory, saving a 20% down payment would be financially wise. This will allow you to reap financial benefits such as eliminating mortgage default insurance. However, saving a 20% down payment may take years, and the housing market can change during that time. Still, aiming for at least a 20% down payment will be worth it.

What is a mortgage pre-approval?

A mortgage pre-approval is a letter you receive from a lender stating how much you can afford to spend on a home. And the interest rate you qualify for. It can help find the right property and determine the size of your monthly mortgage payments.

What should my offer include?

Once you’re ready to submit an offer to purchase a property, ensure you include the following:

  • Your legal name, the seller's name, and the property address
  • The purchase price and deposit amount
  • Extra items to be included in the purchase
  • The date you want to take possession of the property
  • A current land survey request
  • The expiration date of the offer
  • Additional terms to be met