Your home is a place you spend quite a bit of your time, and while it may be your safe haven it is also a great investment! You can not live in your other investments like stocks, bonds, or mutual funds, but can do so in your house. Buying your first home is a big step and one that will always special and close to your heart. Therefore, if you are a first-time home buyer looking for how to buy a home in Canada, this article is dedicated to you.
“There is no satisfaction, no greater gratification, than that you receive when you close on the purchase of your own home.”
This quote defines the closest feeling one can get while finally buying the first home. Though it is not all rosy and dreamy when you decide to buy your house, there is a lot of effort that goes into it and that’s what I will talk about today.
How to Buy a Home in Canada?
Following these seven steps would help you answer all your queries on how to buy a home in Canada. So, without any further wait, let’s get started.
1. The Ultimate List of Questions
You need to be prepared mentally and financially to buy your first home. It takes into account a lot of factors thus make sure that you stand clear on the following questions.
- Why are you planning to buy a house?
- Can you afford a house?
- Would you be able to afford the down payment?
- Can you afford to pay EMIs for the mortgage and will still have a comfortable lifestyle?
- What seems a better option to you renting a house or buying a new one?
- Do you have a steady income? Does your spouse have a steady income?
- How’s the locality where you are planning to buy the house?
- Do you see yourself living there and enjoying a peaceful life?
Before getting clear on how to buy a home in Canada, compare the benefits and doubts of renting a house and buying one, so that you don’t regret your decision later.
2. The Financial Planning
Financial planning means a lot of things when you are thinking of buying your first house. It would add a lot of expenses to your life, including the down payment arrangement that you will have to make. The best you can do is write down the following.
- How much do you earn monthly?
- What are your monthly expenses and how much do they cost you?
- Do you have any additional sources of income?
- Have you got any debt obligations?
- How much are you saving right now through various methods like investing in the stock market, emergency fund, Tax-Free Savings Account (TFSA), and depositing money in RRSP?
- How much have you already saved for paying the down payment?
- Will you be able to live a comfortable lifestyle after buying the home?
- What is your credit score? (This one affects greatly on the interest rate terms of the loan)
If you already have a number of debt obligations to pay like a student loan, car loan, credit line, etc. you should pay them first before buying and taking a mortgage loan for the house. Taking too many loans reduces the credit score, and that can impact the way you can use your credit cards.
3. Check the First Time Home Buyers Benefits
The first time home buyers benefits include the following three programs offered by the government of Canada.
Home Buyer’s Plan (HBP)
If you have opted in for Registered Retirement Savings Plans (RRSPs), in the Home Buyer’s Plan, you can withdraw your money from this fund and can build your first dream house.
First Time Home Buyer Incentives
This is a shared equity mortgage program that lowers your mortgage payments monthly. In this, you can borrow 5 or 10 percent of the purchasing value of the house without any interest. You need to pay it back in 25 years or when you sell the house; whatever happens earlier for this incentive program.
Rebate on Taxes
Under this, home buyers are given an income tax credit of $5000 which is non-refundable. Also, a partial rebate on the GST or HST is given for the amount you have paid in order to buy your new house.
Based on this, you can plan your financing for the new house.
4. Save for Paying the Down Payment
Here comes the most technical part of knowing how to buy a home in Canada. Down payment is the largest sum you need to pay in one shot for the house. The minimum down payment amount differs on the basis of the house value.
If the price of the house is
The Minimum Down Payment You Need to Pay is
|$500,000 or less||5% of the purchase price|
|$500,000 to $999,999||5% of the first $500,000 of the purchase price|
10% for the portion of the purchase price above $500,000
|$1 million or more||20% of the purchase price|
So, if you are planning that you want to buy a house that values $4,50,000, the down payment amount would be $22,500. Understand that it is the minimum amount you will need to pay. So, decide the house value that you can afford and calculate the down payment amount. And, start saving for it. The sooner the better.
5. Learn to Negotiate for the Best Mortgage Primer Deal
The mortgage rate decides the amount you will have to pay in monthly installments. The higher the rate, the greater the monthly burden on your budget.
Thus, look for a broker that can help you achieve the best deal possible. Even if the rate difference is not too much with the standard mortgage rate, it will have a significant impact on compounding.
Also, note that if you have paid more than 20 percent of the amount in down payment, you will not be eligible for the mortgage loan insurance provided by Canada Mortgage and Housing Corporation (CMHC). Thus, plan well.
6. Get a Pre-approved Mortgage loan
Once you have passed all the above levels, it is time to get approval for the mortgage loan which you can do in advance. It provides you with crucial data such as the actual house value you can afford, the maximum amount of monthly payments for a mortgage, and the best mortgage rate available in the market.
It gives you access to the real house rates and maximum possible rates. You can also lock in the lender and the mortgage rate for 160 days if you like a house. That means if the prices increase, you would still have lower rates in your pocket.
7. Hunt for Your Dream House and Finalize the Offer
This is the final stage of how to buy a home in Canada notion. These are a few tips to keep in mind.
- Go through property dealing via a good real estate agent that is familiar with the locality you want to purchase the house in.
- Consult an expert if it’s your first time house hunting.
- Make a list of things that you ‘Must’ have in your house, and things you can let go of.
- Research the market rate so that you don’t end up paying more.
- Once you submit the offer to buy the house, and if the seller agrees, you will be able to finish all the documentation and legal formalities within 30 to 60 days. And voila, it would be your first ever house!
Things may get complicated but remember that with patience, you reap the tastiest fruits. At last, I hope this quote may motivate you, “It won’t be easy, but buying my own home has been a lifelong dream, and knowing that I will only get out of it what I put into it, I’m ready to get a little sweat on my brow and realize my dream to its fullest”.