5 Steps To Buy A Home In Canada (First time or not)
Whether you're looking to buy an idyllic single home with that white picket fence, or a highrise condo with a spectacular view, there are a few key things you should know. Here's an overview of the 5 key steps you need to take to get the home you want.
1. Budget: Figure out your borrowing capacity
Before you do anything else, you need to figure out your budget. Which usually means, you'll need to estimate the amount of mortgage loan you can qualify for.
How is your financial health? Do you have any debt that needs to be paid off? How's your saving's account doing? Are your taxes (yes, it matters!) in order? Review your spending. Check your credit. And play around with a few mortgage calculators to see how much you're comfortable paying every month for your mortgage payments.
One way to do this is to work backwards, and start by figuring out your monthly budget, which will help you figure out what your total budget is. You may also want to talk to a financial advisor, your bank or a mortgage broker to figure out your borrowing capacity.
Figure your number out before moving to the next step.
2. Downpayment: Set & save your target downpayment
Once you know how much you can borrow, calculate your downpayment. A downpayment is the amount you pay directly out of pocket. The bigger the downpayment is, the smaller your mortgage, which means the less you pay in interest.
Usually, a minimum of 5% of the total price of the property is required as a downpayment. And if your downpayment is less than 20%, you'll likely get charged additional fees (i.e. mortgage insurance) by your financial institution.
You'll need to have your downpayment available in the bank as cash in a checking account (i.e. not tied up in other assets or special accounts such as an RRSP) on the day you close, but you usually don't have to have it at hand for a pre-approval.
Figure out your downpayment amount. As a bonus, you should also look for various grants or rebates that you qualify for while figuring this out. If you qualify for anything like a first time home buyer tax break or a waiver of the land transfer tax in your locale, you should learn about it and take advantage of it - knowing about these ahead of time and planning accordingly can mean you can make a bigger downpayment.
3. Pre-Approval: Get approved for a mortgage
Before you stop shopping around, it's important to know how much a lender will actually give you for your mortgage. You may think you can afford a $400,000 house, but a lender might think you're only good for a $300,000 loan. Or perhaps they think you can afford a $500,000 loan. Either way, it's good to know what an actual lender thinks.
Good realtors will not even talk to someone or allow viewings without a pre-approval. Unless you are paying cash out of pocket, you should get a pre-approval before you start looking. They are usually good for 6 months, sometimes even longer.
Keep in mind that a pre-approval does not mean you have to get that specific loan from the lender that pre-approved you. In fact, you can - and perhaps should save your target downpayment shop around for the best deal and get multiple pre-approvals. A pre-approval will not require all the documents you need for a mortgage, and takes much shorter than getting an actual mortgage, so there's no reason to avoid it.
(Another bonus) During the pre-approval it's a good idea to get all your legal documents in order even if they are not yet required. This way when you need to move on a home fast, you won't get sidetracked looking for your old tax receipts or bank statements. Talk to your mortgage broker or your lender about what documents they need.
4. Find: Find your dream home
This is the fun part, and the part most people think about when they think of buying a home.
From researching locations to going to viewings, from getting inspections to analyzing prices and trends - there are a LOT of details to getting this right. Make no mistake, finding your dream home at a fair market price is a full time job, and smart buyers work with top agents to make it happen.
We recommend you focus on finding a great agent, and let your agent take care of all the hard work of finding your dream home.
5. Offer: Make a killer offer / close the deal!
When it comes to buying homes, there's a lot you don't have control over. You won't be able to time the market (no one can) or change the location of the home you want. Taxes are essentially set in stone, and there are only so many lenders to pick from. There are limitations.
The price of the property you want, does not have to be one of those limitations. While you may not be able to get your dream home for 50% of the asking price, you may still be able to get significant concessions that impact your downpayment as well as significantly reduce your monthly payments.
We asked top realtors "what’s the smartest thing a buyer can do to get the home they want at the best price" and here's what they said:
Once you make an offer and it gets accepted, things can move lightning fast. And before you know it, you’ve signed the papers and paid the movers, and congratulations, you're a new homeowner!
What to do next…
Each of the steps outlined above have many technical and legal details to consider. This is why, especially if you're a first time home buyer, it's important to get the right professionals on your team. At a minimum you should have a top Realtor and a great Mortgage Broker helping you. Having a Financial Advisor, an Insurance Agent, a Property Inspector and a Real Estate Lawyer and/or Notary is also helpful.
Make no mistake: multiple experts and full-time professionals need to get involved in every single real estate transaction that takes place. Working with such professionals isn't a luxury or some unnecessary corner "smart" DIY types get to cut. On the contrary, working with top professionals is the smart thing to do.
Especially when you're buying a home, it's not a question of whether you're using a Realtor or not. It's a question of which Realtor you're working with - and to help you with that we let the results speak for themselves…
View realtors in your area or take our buying agent matching quiz to find the right one for you.