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Insights & advice

Buying your first home

Key takeaways

  • Buying a home requires careful thought, planning and lots of patience.

  • Saving enough for your down payment is critical, but you also need to set aside money for other home-buying expenses.

  • Working with experts – from your real estate agent to your mortgage advisor – can smooth a complicated process.

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It’s the Canadian dream: Putting down roots and owning your own home. The process can be exciting, but it also can be stressful– and that’s without trying to snag your dream home in a competitive market.  That doesn’t mean it’s impossible. 

This step-by-step guide will walk you through every part of the process - with patience and planning, you’ll be putting up that “home sweet home” plaque before you know it.  

Step 1: Decide if buying a home is right for you

That’s right: Buying a home isn’t actually the right choice for everyone. Before you go down this road, take a moment to reflect on whether home ownership is something you actually want or if it’s just something you feel like you “should” do. It could be useful to draw up a “home ownership vs. renting” pros and cons list.

Some of those might include: 

Pro: Owning your own home can mean stability, like no more landlords surprise-ending your lease.

Con: You don’t have the flexibility of a renter who can just move out with short notice.

Pro: You’re building equity in your home every month rather than paying your landlord.

Con: You’re on the hook for repairs that your landlord would have had to foot before. 

Step 2: Make sure you’re ready to buy

Maybe you’re sure you want to buy a home – but is it the right time? A home is a commitment to the place you’re buying, the person you might be buying it with, and to the financial situation you’ll need to keep up with your mortgage and other bills. No one has a crystal ball, but your future self could thank you for asking these questions now.

Ask yourself: 

How stable is your job? 

If you’re not sure you’ll be employed in a few months – or you have the kind of employment where your income fluctuates wildly – this may not be the right situation to commit to a mortgage right now.


Is this going to take all of your savings?

If you’re going to spend every penny for your down payment, this could leave you in a difficult situation if another large expense or a job loss happens. Try and make sure you still have a separate emergency fund (3 to 6 months of living expenses) after you’ve bought the house. If you can’t do that, it might be worth saving up a little longer.


Could you have any other major life changes on the horizon?

Ideally, you don’t want to buy a home and move again 6 months later. If there’s a chance you might need to relocate soonOpens in a new window - Opens in a new window, this may not be the right time to buy. Also consider other life changes, like possibly having children, which could affect a) your finances b) whether this house makes sense for this new chapter.


Will this move bring other expenses?

Make sure you sit down and budget what you’ll need each month to finance this new life. Start with your mortgage payment, but don’t forget things like: Property taxes, condo fees, maintenance, and hidden expenses like the cost of a longer commute, or the car you need to get because you’re moving to the suburbs .

  • All Canadians must pass a “stress test” before they can get a mortgage. This means your bank will check to see if you can still make your payments if interests rate go higher than the your current borrowing rate.

Step 3: Get your deposit ready

The other big factor affecting your readiness to buy your first home is whether you’re able to make the required down payment.

What is a down payment?

This is the initial payment you make, which will be to your real estate lawyer. This gets deducted from your total mortgage, which covers the rest of the home’s cost, known as the principal.

How much of a down payment do I need?

If you want to avoid getting mortgage default insuranceOpens in a new window – where the government basically acts as a co-signer on your loan and charges a fee to do so - you’ll need at least 20% of the purchase price as a down payment. If you’re buying a $500,000 home, for example, that means you’ll need to have saved at least $100,000. Remember: The more money you can put down initially, the smaller the mortgage – and the less interest you’ll pay long-term.

That said, you can technically make a smaller down payment, depending on the price. If the house costs less than $500,000 the minimum down payment is 5%. If it’s between $500,000 and $999,999, you’ll need 5% of the first half million and 10% of the second half million. If it’s more than $1,000,000, you must put down 20%.

  • What is amortization?

    This is the time period you have to pay back your mortgage in full. Longer amortization periods mean lower payments, but they increase the total amount of interest you pay. A shorter amortization period will lead to big interest savings, but you’ll be making higher payments. Plus, you could become mortgage-free sooner.

Step 4: Get pre-approved for a mortgage

Before you even meet with a realtor, sit down with a mortgage specialist to figure out how much you actually qualify for. There’d be nothing worse than finding your dream home and realizing it’s more than you can afford. Getting pre-approved means you know the maximum amount you could qualify for and what your mortgage payments might be, which is useful information when you’re house huntingOpens in a new window - Opens in a new window. When you’re pre-approved, some lenders also may allow you to lock in an interest rate right then, valid for 60 to 130 days.

Some factors that might affect how much you get pre-approved for:

  • Your down payment
  • Your annual household income
  • Any debt you might have, including credit cards, car payments and student loans
  • Expenses a home might have, like utilities and property taxes
  • Interest rates, including whether you’d pass the stress test
  • Don’t get surprised by the lender’s property appraisal

    When you put in an offer on a house, your lender will arrange their own appraisal of its value. If this is less than what you’re paying for it, they may only agree to lend you an amount based on this appraised value – even if you were pre-approved for more. If this happens, you might want to see what other mortgage options are available to you.

Step 5: Find the right home for you

We’re getting to the fun part! Which home you choose will be personal to you, but here’s a quick checklist to run through before your head gets turned by that saltwater pool or finished basement.  

  • Can you really afford it?

    Sure, you may have been approved for a mortgage at this amount, but are you in danger of being “house poor?” This is when your housing costs eat up so much of your income that you don’t have room to spend on much else, or every month is a stressful juggle to make ends meet. Don’t be pressured to stretch beyond what you can comfortably afford.

  • Does it really work for you?

    So, you’ve seen a house you can afford but it’s a 2-hour commute from work, or maybe it suits your lifestyle for now, but won’t accommodate your growing family in a few years. Or perhaps it needs a ton of renovation that you’re not sure you’re up for. Most house purchases will involve some compromise – but only you can decide what the dealbreakers are for you.

  • Is it a good investment?

    We primarily buy houses to build a home there, but they’re also most of our biggest assets. While you shouldn’t buy a house assuming it will go up in value, it’s important to make sure you’re putting your money somewhere that will at least hold its value. Don’t try to time the market but do keep an eye out for a bubble looming, or a house that seems over-valued compared to similar homes in the area.

Take advantage of special incentives for first time home buyers

A first-time home buyer is someone who hasn’t bought or owned a property in the last 5 years. (If you’re buying as a couple, 1 person can have bought or owned property before in this time period.) If that’s you, you may qualify for some unique incentives and rebates.

Step 6: Make an offer

Depending on how hot the market is where you are, you may go through this process several times, losing out to a higher bidder, usually for higher than the asking price. It can be stressful and frustrating but it’s important to stay patient.
 
Alternatively, if you’re in a cooler market, you may even be able to negotiate your seller down from their price. Either way, pack your patience – and trust that one day, you’ll have your offer accepted on the perfect home for you.
  • When you’re making offers it’s a good idea to send your mortgage specialist the listing of the house before you submit it. Factors like property tax or maintenance condofees can have an impact on the amount a lender will offer you.

Step 7: Offer accepted – explore your mortgage options

Congratulations! When it comes to choosing your mortgage, a mortgage specialist is essential when it comes to understanding the right option for you. Two factors that will work together to help you make this decision are:

  • Term

    You can choose the length of time you’re committing to a particular type of mortgage. This can range from 6 months to 10 years and affects how long you’re locked into a particular interest rate, which determines how stable your payments are each month.

  • Interest rate

    When you get a mortgage, you’re borrowing a sum of money and your lender charges you a fee to do so. This is usually a percentage of the amount that you’ve borrowed, paid back monthly on top of the payment toward the balance of your loan. The lower your interest rate, the less you’ll end up paying for your house in the long run. Even if interest rates are very low when you buy – but they might not stay that way. When you’re budgeting for your home, keep that in mind, and make sure you can cover your payments if your interest rate goes up several percentage points. Don’t overstretch yourself.

There are 4 kinds of mortgages commonly offered by lenders like Canada Life that give you different interest rate options.

Step 8: It’s closing time!

You’re so close to being a homeowner, but first you’ll need a lawyer to handle all the legal aspects of closing, a service that includes providing the grand total of your closing costs, which can include fees like HST or other taxes, disbursements, and their services. Make sure you’ve got your down payment in a readily accessible account to send to your lawyer, which could mean pulling funds out of investments well before hand.

There could also be other money you’ll need to pay upfront, including property appraisal and inspection fees, land transfer taxOpens in a new window, property insurance, and professional movers.

Don’t get caught short, especially since these can amount to thousands of dollars you’ll need to have ready.

What’s next?

  • Think about whether homebuying is right for you, right now

  • Focus on your financial preparedness, like saving for your down payment

  • Assemble your team of experts, like your real estate agent, mortgage specialist and lawyer.

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This information is general in nature, and is intended for informational purposes only.  For specific situations you should consult the appropriate legal, accounting or tax advisor.