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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.  

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. 

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 soon, 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 .

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 insurance – 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%.

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. 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

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.  

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.

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.

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:

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.

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

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 tax, 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.

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.

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October 21, 2019