STEP 1:
Buying a home is a big decision. To make the best choice, ask yourself a few questions. Think about what you want in a home, your financial situation, and your lifestyle needs. By answering these questions, you can make an informed decision when buying a home.
Question: Do you have a (minimum) down payment?
A down payment is the amount of money you put towards the purchase of a home. Your lender deducts the down payment from the purchase price of your home. Your mortgage covers the rest of the price of the home. The minimum amount you need for your down payment depends on the purchase price of the home. If your down payment is less than 20% of the price of your home, you must purchase mortgage loan insurance. In Canada, you’re required to pay a minimum of 5% of the home’s purchase price as a down payment.
Purchase price of your home | Minimum amount of down payment |
---|---|
$500,000 or less | 5% of the purchase price |
$500,000 to $999,999 | 5% of the first $500,000 of the purchase price10% for the portion of the purchase price above $500,000 |
$1 million or more | 20% of the purchase price |
If you do have the down payment, that is great! if you don’t, there are a few options that a mortgage broker can clearly break it down for you such as:
1 – Home Buyer’s Plan to withdraw up to $35,000 from your RRSP, tax-free.
2- Gift from a family member
3- Tax-free savings vehicle called the First Home Savings Account
4- Etc…
Although you have the choice of paying a minimum of 5% down for the purchase of your house, It is not a bad idea to pay a larger chunk because of the mortgage loan insurance that will be applied to your mortgage. Mortgage loan insurance is applied to your mortgage loan when your down payment is less than of the 20% of the price of your home. You MUST buy the mortgage loan insurance.
Here’s a table showing just how much of a difference a large down payment makes on a $500,000 home.
5% down payment | 20% down payment | |
Down payment | $25,000 | $100,000 |
Mortgage default insurance | $19,000 | $0 |
Total mortgage | $494,000 | $400,000 |
Equity | $6,000 | $100,000 |
Monthly mortgage payment* | $2,150 | $1,740 |
Total interest paid over 5-year mortgage term | $50,872 | $41,192 |
Chart: Ratehub
STEP 2: Initial Meeting
After selecting your agent, it is essential to meet the realtor as this is an important step in home-buying & selling. It is important to communicate your goals, expectations, and concerns clearly. During this discussion, the realtor will be able to tailor their services to meet your specific needs and guide you through the process with expertise such as: providing valuable information regarding the current state of the real estate market, pricing, trends, and availability of properties.
STEP 3: Financing your home
> Credit Score: Your credit score plays a big role when it comes to banks or lenders to consider giving you a mortgage. Your credit score is a number between 300(Bad) and 900(Excellent) that tells lenders how risky it is to give you credit. The lower your score, the less likely you are to be approved for a loan. Checking your credit score can show you where you stand and how you can improve it before applying for a mortgage. If your score is lower than you want, there are ways to improve it.
> Pre-Approval: Getting a pre-approval for a mortgage, will give you an idea of a budget range of how much you can afford, and what your interest rate and monthly payments will be. This also helps with the overall search for specific types of homes or neighborhoods.
Mortgage Terms To Know:
Amortization period: The length of time you agree to take to pay off your mortgage (usually 25 years).
Mortgage term: The length of time that the options and interest rate you choose are in effect. It can be anywhere from 6 months to 10 years. When the term is up, you can renegotiate your mortgage and choose the same or different options.
Payment schedule: How often you make your mortgage payments. It can be weekly, every two weeks (biweekly), once a month, or accelerated weekly or biweekly. Talk to your lender to see all possible options.
Prepayment options: The ability to make extra payments, increase your payments or pay off your mortgage early without incurring a penalty.
Portability: An option that lets you transfer or switch your mortgage to another home with little or no penalty when you sell your existing home. Mortgage loan insurance can also be transferred to the new home.
Mortgage stress test: You will need to pass a “stress test” in order to qualify for a mortgage loan with federally regulated lenders and credit unions. The stress test exercise ensures that you can afford payments at a qualifying interest rate that is typically higher than the actual rate in your mortgage contract. This helps ensure that homebuyers won’t take on too much debt and will have the means to make their mortgage
payments if interest rates rise or their income decreases.
Down payment: The amount of money that you put toward the purchase of your future home. In general, to
purchase a property, the minimum down payment is 5% for a property value of $500,000 or less, and 10% for any amount above $500,000. You will also need to prove the amount and sources of your down payment. Some common sources include personal savings, an RRSP withdrawal, a non-repayable gift from an immediate family member, proceeds from the sale of other property, and funds borrowed against proven assets.CMHC
STEP 4: House-Hunting
This is the most exciting part of the process especially if you’re a first-time home buyer! It has this great feeling that can’t be described – you will know when you start searching.
When a property matches the criteria that you’re looking for, the agent will book a showing appointment where you will have the chance to have a closer look. If the property is a match, then it is time to write up an offer.
STEP 5: Presenting An Offer
Now that you’re certain about the house that you want to buy and your agent has done the research on the property to make sure that its history is clear of major faults and what the house is worth in the current market, a written offer is prepared.
A purchase contract contains many important sections such as Purchase Price, Conditions & Contingencies, Terms and Deposit which your agent can break it down for you.
STEP 6: Offer Acceptance
When the buyer and seller reach an agreement with conditions which most of the time involve the two most common ones; are home inspection and financing and Condominium document review(for condos). Once everything is complete and both parties are happy, conditions can be waived and the transaction will be considered as firm or sold.
STEP 7: Pre-Possession Day
Depending on the possession date that was negotiated during the negotiating period which could be any time but generally they are between 15-90 days, there are some steps that need to be addressed.
Hiring a Lawyer: If you already have a lawyer, Great! If not, you will need to hire a real estate lawyer to finalize the transaction. This needs to be done well before possession date as your lawyer’s information will be needed in order to send them the required documents by your mortgage broker and your agents conveyance office. You will meet with your lawyer some time before possession for signing some legal documents as well as some discussions about the deal.
Down payment: You will bring in your down payment (minus the deposit) to your lawyer on this day.
Home Insurance: You will need to secure a home insurance policy and bring a
a copy of it for the lawyer as this is a requirement by your lender. The money will not be released unless home insurance is provided.
Utilities Arrangement: For a smooth transition to your new home, it is very important to call your service providers ahead of time and change the utilities to your new address. The most common utilities are power, gas, water, phone, internet, cable and security system. Some companies such as your electricity and gas provider may charge a fee if you don’t give them enough time ahead. Some utilities such as internet, cable, and security alarms can take up to 7 days for a technician to come and hook them up. Don’t delay it!
Mailing Address: Take the time to change your mailing address through Canada Post to avoid missing important mail.
STEP 8: Closing Day
Closing day is an exciting day! If the buyer has specified a pre-possession inspection as a condition in their offer to purchase, then the real estate agents for both parties will coordinate and arrange for it. This is usually done 24-48 hours before possession day or best done on the day of possession before noon.
Normally, at around noon on the possession day, the buyer is given the keys and takes legal possession of the property.