Canadian Homebuying Guide 2024

Before you jump into buying a home, you should determine if homeownership is the right move. It’s a big commitment but an exciting one if you’re appropriately prepared. Creating a “buying a house checklist” can keep you on track and make the most out of your purchase.

Figure out your long-term plans

Think about your future goals and how homeownership fits into your plans. Some people want to trade rent payments for a mortgage to build equity. Others are looking to invest in real estate or view owning a home as a milestone. Knowing if you’re buying the keys to your forever home or just want to break into the market will help you decide what you’re willing to pass on and what choices are non-negotiables.

Assess if you are financially ready

Several fees and costs come along with buying a home that can be easy to breeze by if you’re just looking at the sticker price. In Canada, a minimum of 5% is required for a down payment. Then, you need to factor in your mortgage payments, insurance, and land taxes or property taxes. In some cases, these taxes can be built into your mortgage, or it may be a separate monthly payment.

On top of that, closing costs can be 2-5% of the home price once you factor in all of the fees for lawyers, land transfer, underwriting of a mortgage loan, real estate commissions, and taxes. Using a $300,000 home as an example, you can expect closing costs to be $6,000-$15,000.

Identify the type of house that suits your needs

There are several options for residential properties. Depending on your living situation and goals, you can look at condos, townhomes, detached single-family homes or multi-unit homes. You also have a choice between a turnkey home so you can kick your feet up and relax, or a fixer-upper to put your own flare into the property.

It’s also a good idea to know what features are non-negotiable for you to help narrow down the selection process. This list can include:

• Good appliances
• Yard
• Garage
• Type of neighbourhood
• Location
• School district

Find out how much mortgage you qualify for

If you are in the early stages of home shopping, mortgage calculators can give you an idea of what you could be approved for. Sometimes you may not qualify for the amount you think. It’s good to shop around to different brokers, lenders, and banks to get the best rate possible.

You will need to provide pay stubs, banking statements and asset information when applying for a mortgage. Lenders need to look at your debt-to-income ratio against your annual income to see how much you can realistically afford while still making payments towards your other debts. Lenders may also do a stress test which looks at how you can financially handle interest rate increases.

Find out how much you can really afford

Just because you’re approved for a loan doesn’t mean you have to borrow that much. It’s crucial to look past the purchase price and consider the home’s total cost, including insurance, land taxes, maintenance, and repairs. If you have a monthly amount in mind, make sure you account for the expenses beyond your mortgage, so you aren’t stuck paying more each month than you accounted for.

A simple way to see what you can afford each month is by calculating 28% of your monthly gross income, which is what lenders will typically approve you for. This includes your mortgage, interest, taxes, and insurance. Generally, lenders will not allow you to borrow more than 43% of your income across all forms of debt.

Ramp up savings

The more you save before buying a home, the better. When your offer is accepted, there will be considerable upfront payments to cover before you close. There is also the possibility of unforeseen repair costs, which is a reality of being a homeowner. Having money set aside will help make the expenses easier to manage. You might want to consider using a high-interest savings account to earn a return on your home fund. Many banks and financial institutions now offer the First Home Savings Account (FHSA) to help Canadians save for their first home.

Identify who will help you find and buy a home

Buying a home can seem straightforward until you are in the thick of it. There is a lot involved, including finding the perfect place, drafting an offer, and negotiating, which all require paperwork. Some people decide to purchase a home on their own, while others choose to work with a real estate professional who can help navigate the home purchase process. Doing it on your own means you don’t have to pay an agent. However, having an agent means they are doing the work on your behalf. Looking at what your time is worth can assist in this decision to work with an agent or navigate the process on your own.

A mortgage pre-approval document shows the amount of funding a lender is willing to give you. Getting pre-approved for a mortgage lets sellers know you have the money to make an offer and can help expedite the buying process.

If you have credit history and employment income, you can start the pre-approval process:

• Fill out the loan application
• Provide the required financial documents
• Approve a credit check

If you qualify, you’ll get a pre-approval letter. Depending on the lender, the letter is typically valid for 90-120 days.

The journey of buying a home has a lot of moving parts, but there are ways to make it more fun and less stressful. Here’s a list of what you can expect from the homebuying process.

Find your home

There are a variety of ways to find houses. Thanks to the internet, scoping out the latest listings can be done with a few keystrokes. If you team up with an agent, they will usually give you details of homes that have not yet hit the market. There’s also nothing like an old-fashioned Sunday drive looking for sale signs.

If you are a first-time homebuyer, it’s worth checking out homes that allow you to put in a little sweat equity to help add value if you decide to sell down the line. This doesn’t need to include huge renos, but flooring, fixtures, and curb appeal can add to your resale value.

Compare mortgages and get financed

Mortgages are not one-size-fits-all. The average mortgage term is 30 years, and interest rates can vary from 2.5%-5% depending on different factors. It’s smart to shop around for lenders to ensure that you are getting the best rates and terms for your financing. There are fixed rates and variable rates that both have their pros and cons. You can also choose between principle payments or interest-only payments, based on how quickly you want to build equity. It’s also recommended to have a couple of lenders lined up in case any financing issues arise.

Make an offer

Before submitting an offer, you may ask the sellers to provide you with their property tax invoices and utility bills to ensure that the home and its monthly payments are in your budget. This is where working with an agent can come in handy. Your agent can help you decide what an appropriate offer might be for the home compared to the current state of the market and what you can afford. You may also include conditions in your offer, such as repairs found in a home inspection or for the sellers to leave certain items that you may want.

Your agent will present this offer to the seller’s agent. They can either accept your offer or make a counteroffer. The seller may include their own conditions, like the closing date, or not accept a condition you previously asked for.

Once the offer is accepted, your contract will then go to escrow which puts the funds in a third-party account, typically held by a lawyer, until all contractual obligations are met.

Inspect the home

Once you find a home, pay for a thorough home inspection. Using a reputable professional home inspector will uncover any issues with the quality and condition of the home.

Home inspectors look at all functions of the home, including:

• Exterior (foundation, roof, drainage, gutters, walls & windows)
• Systems (heating, air, plumbing, electrical)
• Appliances (washers, dryers, heat pumps, stoves)
• Ventilation of all systems and appliances
• Sewers, septic, and wells

Once the inspection is complete, you will receive a full report of everything that was assessed. If something serious is flagged, you can walk away from the offer or negotiate with the seller to rectify the issue before closing.

Close the Deal

Once the offer is accepted and the home inspection has been completed, it’s time to close the deal – this is exciting! On the closing day, your hand will be sore from signing all the paperwork, but then it’s time to celebrate.

Here is what you can expect when you close on your new home:

• Final walkthrough of the home
• Lawyer will prepare documents which include the title search and transfer of land
• Sign all required paperwork and documents
• Funds will leave your account
• Funds will arrive at sellers’ lawyer
• Receive the keys and make your way home

Congratulations! You are now a homeowner. But the journey doesn’t end here. In fact, the commitment you share with your home is just beginning. Let’s look at what you can expect now that you have purchased your house

Pay Your Mortgage

Your mortgage payment start date will depend on when you close on the house. Typically, mortgages start a month after the closing date. If you miss a mortgage payment, you will be charged a late fee, which is typically 3-6%.

If you have some months where you have a little extra money that you want to put down on your mortgage or pay off your mortgage early, it’s usually not an issue. Just make sure that your contract doesn’t include a prepayment penalty.

Prepare for Maintenance Costs

Maintenance is the name of the homebuying game. You’re putting a lot of money into your home, so taking good care of it pays off in the long run.

It’s recommended to perform regular maintenance on:

• Furnace
• Heat pumps
• Exhaust fans
• Rain gutters
• Smoke detectors
• Wash exterior siding and windows
• Inspect exterior foundation
• Lawn care
• Patio/deck

Repairs are inevitable but showing your home the care it requires will keep it in good condition and lower your repair bills.

Keep Saving

Having a “home fund” or “emergency fund” is crucial because things will happen, and you will need to foot the bill. For example, a new roof is a common repair for homeowners that can cost around $10,000. It’s advised that your emergency fund should be 3-12 months of expenses. It’s much more manageable to save for these inevitable expenses a little each paycheck.

Buyers can expect a few perks once they purchase a home. The government offers several benefits to make the road home more rewarding.

First Time Home Buyer Incentive

Eligible first-time homebuyers in Canada can put a smaller down payment on a home. The government will provide the homebuyer 5-10% on the purchase price to put towards the down payment, ultimately reducing the mortgage. The homebuyer does have to pay the money back, but not for 25 years or when the home is sold, whichever comes first.

Home Buyers Plan

The Canadian Home Buyers Plan allows eligible first-time homebuyers to withdraw money from their RRSP (up to $35,000) to go towards their down payment. The money needs to be paid back to the RRSP within 15 years, and payments begin two years after the withdrawal.

Home Buyer’s Amount

First-time home buyers and buyers with disabilities can claim up to $5,000 on their taxes with the Home Buyers Amount benefit. You can claim the credit by entering $5,000 on line 31270 on your tax return.

GST/HST Housing Rebate

The GST/HST Housing Rebate gives an individual the opportunity to receive a portion of the GST/HST paid when they purchased their new or newly renovated home. The rebate can provide eligible homebuyers with $6,300 of the GST portion back in their bank accounts. You will need forms GST190 and GST191 to claim this rebate.

Hunting for the best mortgage can feel like a marathon of numbers and paperwork. Luckily, there are some resources that do the heavy lifting for you, comparing mortgages to find the perfect fit.

Hardbacon

Hardbacon does more than mortgage comparisons. The app also has features for you to budget, plan, and invest. When you click on the mortgage tab, you can see a general comparison of mortgage rates across various lenders and banks.