Finding a perfect home is getting difficult day by day. If you are planning to buy your first home in Canada, then it is going to be difficult for you if you don’t have any idea about the home buying process in Canada.
So, before you start running to buy your home, you should have a clear understanding of the home buying process. This will ease up some of your stress levels.
In this article, we are going to take you through a simple step-by-step guide to buying your First Home in Canada so that you don’t find any difficulties in this process.
First Step- Saving up for your down payment
In Canada, the minimum amount you need in order to buy a home is 5%. So on a 300,000 dollars home, that would mean a down payment of at least 15,000 dollars.
However, if your down payment is less than 20%, your Bank will also require that you purchase mortgage default insurance through either CMHC or Genworth Canada.
While ensuring your mortgage may not sound like a bad thing, this type of insurance is not to protect you. The insurance is to protect your Bank if you were ever unable to repay your mortgage.
So How much does this insurance cost?
Well, if your down payment is 5%, it will cost you 4% of your total mortgage amount. So on that same 300,000 dollar home, 4% on a 285,000 dollar mortgage would mean an insurance fee of 11,400 dollars. This is almost as much as your down payment and a very expensive fee, especially for new homeowners.
This insurance is applied for and set up through your bank, and you can choose to either pay it upfront out of pocket or you can have it added to your mortgage.
Second Step: Getting preapproved
This means meeting with a mortgage broker or your bank to determine how much of a mortgage you can afford. This is something Realtors will want to see before they start showing you homes because it lets you both know what price range you can afford. This is also the time where you’ll start negotiating the type of mortgage you want with your Bank.
Third Step: Shopping for your new home
Once you find a realtor that you’re comfortable with, you’ll let them know how much you’re approved for and what areas you would like to live in as well as the features that you’re looking for in your new home. They’ll take all of this information into account and start finding you the best homes that match what you’re looking for. Your realtor then schedules appointments at each of these homes so you have a chance to walk through them and decide whether or not you like them.
Now, you might have a question, How much you have to pay the realtor?
Well, the answer is, absolutely nothing. In Canada, the fees paid to real estate agents are paid for by the sellers, meaning when you buy your home, the person who sold you the home will be paying the fees for your real estate agent.
You’ve been searching for a home and you finally found one that has everything you’ve been looking for.
Fourth Step: Submitting an offer to the seller in order to buy it
Your realtor will guide you on what price you should offer, negotiate all of the little details and prepare all of the paperwork for you on your behalf. On top of negotiating the price and the day you want to move in. Your realtor will also be responsible for negotiating some important conditions before you finalize your offer.
These conditions are usually things like a formal inspection to ensure that the home that you’re buying is in good condition and also confirming that you can get financing for that home. Even though you’ve already been preapproved for a specific mortgage amount.
The Bank will still want to ensure that they’re comfortable with the home that you’re buying before they’ll give you that mortgage. They will usually send someone to appraise the home to ensure it’s worth what you’re paying for it and also ensure that it’s in good condition. They will also want to confirm any information you submitted in your mortgage application, like the amount of time you’ve been working with your employer, how much you make every year, and also confirm that you do have enough saved up for your down payment. They will also want to see that you have enough money set aside for closing costs, which we will be discussing next.
If you’re putting less than 20% down, then CMHC or Generous Canada will also want to review your mortgage information before they will approve the default mortgage insurance on your application.
The final step: The legal paperwork
Once you have a firm offer in place, your Bank will submit all of the necessary information to your lawyer for you. Your lawyer will then review all of the paperwork for your mortgage and prepare the legal documents to purchase your new home.
As we mentioned earlier, you need to ensure you have enough money set aside for closing costs. This amount is in addition to your down payment.
So how much do you need for closing fees in Canada? As a general guide, you want to ensure you have about 1.5% of the purchase price save up to cover these costs. On that 300,000 dollar home, That would mean saving 4,500 dollars to cover these fees.
So in total, to be financially prepared for your home purchase in Canada, you need at least 5% for a down payment and 1.5% for closing costs.
In this example, that would mean you would need to save up at least 19,500 dollars to purchase a 300,000 dollar home.
Closing fees include the cost of your lawyer, as well as additional expenses that you might have to pay in order to finalize your home purchase, like land transfer tax, any inspections, including appraisals of the home or inspections of a septic system or well if those are on the property.
Now, aside from these, there are some additional expenses like utility set up costs, appliance purchases, property taxes, and other fees that you should be aware of.
Hope these step by step guide will help you in buying your first home in Canada.