Becoming a Home Owner

Buying a home is an exciting step in life, but it can also be rather intimidating. Our agents understand how important this process is to you and your family, and we’re happy to assist you every step of the way.
Keep reading to learn the real facts banks won't tell you about financing your next home.

Step 1: Determine How Much You Can Afford to Spend on a Home

It’s a good idea to analyze your finances to determine how much you can afford to spend on a home before applying for a mortgage. That way when you approach the banks for a loan you’ll be better prepared and have a realistic idea about what kind of loan you can expect to get.

As a good rule of thumb, your total monthly housing costs (including mortgage payments, property taxes and heating expenses) should be no more than 32% of your gross household monthly income (i.e., income before taxes have been deducted).

However, that number may need to be adjusted depending on any other existing debts you may have. This may include credit cards, lines of credit, loans and leases. Generally, your total monthly debt load (your housing costs plus all other debt payments) shouldn't exceed 40% of your gross monthly income.

These percentages can be higher under certain circumstances, but it will likely result in a higher interest rate if you are able to secure a loan.

By comparing your gross household income to your current debt load you should be able to determine how much you can realistically afford to spend on a house each month.

Step 2: Decide What You’re Prepared to Spend on a Down Payment

A mortgage down payment is the amount of money you pay upfront when purchasing a home. In most cases you will be required to put some money down in order to qualify for a mortgage.

The minimum down payment required in Canada, on purchases of less than $1M, is 5% of the home’s value. However, if your down payment is less than 20% of the value of the home there will be a mortgage insurance premium added to your mortgage.

It is also important to note that mortgage loan insurance is available for Canadians. It is required by banks for all purchases with less than a 20% down payment. Should you require mortgage loan insurance a agent will be happy to explain how it works when you meet with them.

Your down payment will inevitably influence the home price you can afford. The minimum down payment in Canada is 5% and is used to determine your maximum affordability.

Disregarding your income and debt levels, if you were to save $30,000 for your down payment the maximum home price you could afford would be:

$30,000 / 5% = $600,000.

Your down payment will also determine the size of your mortgage and monthly payment. A larger down payment will reduce the size of your mortgage. This in turn will reduce your monthly payment and the interest you will pay over the life of your mortgage.

Sources for a Down Payment

There are a number of ways you can source funds for a mortgage down payment. Traditional sources include:

  • Saving a fixed amount from every paycheque
  • Selling stocks, bonds or personal property
  • Receiving help from immediate family

Another great option to consider is the RRSP Home Buyers' Plan (HBP). This lets first-time homebuyers withdraw up to $25,000 from Registered Retirement Savings Plans (RRSPs) for a home purchase, tax-free. Many first-time home buyers take advantage of this opportunity and set up RRSP accounts well in advance, with the intention to reap the rewards when it is time to purchase a house.

Other sources for a down payment may include borrowed funds, or gifts from non-­immediate family members.

TIP: Use Our Mortgage Calculator

Once you've decided how large a down payment you're prepared to make, use our Mortgage Calculator to determine the maximum home price you can afford. You’ll also receive information on how large a mortgage you can borrow, and what your monthly payments will be based on the interest rates posted on our home page.

We’re Here to Help

Our specialists will be happy advise you in regards to your downpayment. When you meet with us we’ll help you go over the down payment requirements, as well as the income and liability calculations. In doing so, we’ll be able to recommend the price range of homes you should be looking at based on your financial situation.

Step 3: Build a Budget

After analyzing your finances and deciding on a down payment you’ll likely have a good idea what kind of home you will be able to afford. Now it’s time to start preparing for your purchase.

Building a budget will help prepare you for the various costs that come with purchasing and owning a home. An effective budget can also help you maximize your finances and save up an adequate down payment. By taking a closer look at your finances you'll learn where spending can be trimmed, helping you reach your goal even faster.

Improving Your Financial Situation

After analyzing your income, debt and downpayment you may realize you can’t afford the type of home you’d like. A budget can help you improve your finances, allowing you to take on a larger mortgage payment and possibly afford a more expensive home.

The easiest way to improve your financial situation is to add income. Are you due for a raise at work? Now is the time to ask for one. You may also decide to start doing freelance work or other side jobs in your free time to increase your income.

Your other option is to pay off your debt. The less debt you have, the more room you’ll have in your monthly budget for your mortgage payment. This will likely mean you have to wait to purchase a home while you pay off your debt, but it may be necessary to afford the kind of home you desire.

Saving Up For a Downpayment

A budget can also help you save up a down payment. The easiest way to do this is to save a fixed amount from each paycheque and set it aside for your downpayment.

Look at your various expenses each month. Is there anything you can cut back on? Decreasing the number times you eat out, cancelling your cable bill and cutting back on other entertainment expenses will allow you to save more of your paycheque each month.

When building your budget decide how much you can afford to set aside from each paycheque for your downpayment, and make sure to stick to it.

Up-Front Costs

In addition to your downpayment there are many up-front costs that come with buying a home.

These can include:

  • Appraisal fees
  • Legal fees
  • Home inspection fee
  • Home/fire insurance
  • Title insurance
  • Land registration fees
  • Water portability or septic tests for acreage type properties
  • Estoppel Certificate fees
  • Condo or strata fees
  • Property taxes and tax certificates
  • Deposits for setting up utilities
  • Moving costs and other expenses.

Make sure to account for all of these costs when you build your budget so you’re completely prepared. A agent will be able to provide you with more information on these upfront costs when you meet with them.

Be Realistic

Remember to be realistic when you build your budget. There’s nothing wrong with looking for ways to improve your finances in order to buy a more expensive home. But be careful not to stretch yourself too thin. 

Your best option may be to buy a less expensive home now and start saving for something more expensive in the future. After you've paid down your mortgage and built up some equity for a larger down payment you’ll be in a much better position when you look for your second home.

Step 4: Choosing the Right Mortgage for You

There are a number of different mortgage options to choose from, all with their own pros and cons. It’s important to analyze your situation and choose the mortgage that best fits your needs.

Open Mortgage

An open mortgage allows you to make lump sum prepayments at any time with no prepayment charge. This allows you to completely pay off your mortgage before the end of your amortization period if you decide to do so. However, in return for this greater flexibility you should be prepared to pay a considerably higher interest rate.

This mortgage product is for you if:

  • You want the ability to pay off your mortgage at any time.
  • You anticipate your income will increase over time, allowing you to make larger payments.

This mortgage product is NOT for you if:

  • You want to get a lower interest rate.

Closed Mortgage

A closed mortgage cannot be prepaid, renegotiated or refinanced before maturity, except according to its terms. Some lenders may allow you to exit a closed mortgage if you sell your home, but prepayment penalties would apply. The benefit of a closed mortgage is that it offers a lower interest rate than the open mortgage of the same term.

This mortgage product is for you if:

  • You want to get a lower interest.
  • You don’t anticipate being able to pay off your mortgage before the amortization period is up.

This mortgage product is NOT for you if:

  • You want the ability to pay off your mortgage at any time.

Fixed Mortgage

With a fixed mortgage, the interest rate stays constant for a set period of time, usually between one and ten years. It offers increased stability, but also has slightly higher interest rates than other types of mortgages where the rate changes. Most lenders allow up to 20% pre-payment annually without penalty, however, the percentage may be less depending on the lender. If you wish to vacate a fixed rate mortgage a pre-payment penalty must be paid.

This mortgage product is for you if:

  • You have a very fixed budget.
  • You’re not very comfortable with rate fluctuations.
  • You anticipate that interest rates will rise.

This mortgage product is NOT for you if:

  • Your budget is flexible.
  • You want a lower interest rate.
  • You anticipate interest rates will drop.

Variable Rate Mortgage

A variable mortgage offers a fluctuating rate. This rate is dictated by the Bank of Canada and is based on current bond rates. It is essentially the opposite of a fixed rate mortgage, meaning the mortgage rate may be changed during the term of the mortgage. Generally, these mortgages are initially set up like a standard loan, based on the current interest rate.

The mortgage is reviewed at specified intervals and if the market interest rate has changed the lender will alter the mortgage repayment plan. This may mean changing the size of the payment, or the length of the amortization period (or a combination of both).

Variable mortgages also provide an option to switch to a fixed product at any time without cost.

This mortgage product is for you if:

  • You're a financially-secure experienced home buyer or first-time buyer with a flexible budget.
  • You're very comfortable with rate fluctuations.
  • You anticipate interest rates will drop.
  • You prefer to make small payments based on the lowest market rate (if you choose the variable payment option).
  • You want to repay your mortgage quickly (if you choose the fixed payment option).

This mortgage product is NOT for you if:

  • You have a very fixed budget.
  • You're not comfortable with interest rate fluctuations.
  • You anticipate interest rates will rise.

Are You Unsure Which Mortgage Product is Right For You?

When you meet with a agent we’ll analyze your financial situation to help you find the option that’s the best fit. We’ll work with you to get the lowest rate possible, as well as a payment plan that you’re comfortable with.

Step 5: Choosing the Right Representatives

Before you begin searching for your house you’ll want to hire the right representatives. In addition to working with a knowledgeable mortgage broker, you’ll also want to hire a lawyer and a real estate agent to help you with this important decision.

Hiring a Lawyer

A good real estate lawyer can be a valuable asset while searching for a home. You could find yourself in a bidding war for the home you want, and it doesn't hurt to have a lawyer look over any offer to purchase before you submit it. A real estate lawyer will also conduct a title search and check for outstanding taxes and liens on any property you're interested in.

Here are some tips for finding the right real estate lawyer:

  • Ask for referrals: Do you have friends or family that have recently purchased a home? Talk with them and see if they have a lawyer they can recommend.
  • Do your homework: Make sure to hire the right kind of lawyer. Some lawyers only deal with real estate transactions every so often. You want a residential attorney. This is someone who specializes in home sales.
  • Conduct interviews: Interview a few different lawyers before deciding on one. Ask them about their experience and what kind of services they will provide. Be aware that some lawyers may charge you for the interview.
  • Read the fine print: Once you select a lawyer make sure the read the engagement letter. This document outlines exactly what services the lawyer will provide. You’ll want to understand this fully before agreeing to work with them.

Hiring a Real Estate Agent

A good real estate agent will not only help you find the right home, they’ll also guide you through the buying process. Their knowledge of the local real estate market will be a vital tool for you as you prepare to make your purchase.

Here are some tips for finding the right real estate agent:

  • Talk with recent clients: Ask agents to provide a list of all the houses they've listed and sold in the past year, along with contact information. Before you start calling the names, ask the agent if anyone will be "particularly pleased or particularly disappointed.”
  • Select an agent with the right credentials: Some realtors will get additional training in certain areas. The abbreviations after a real estate agent’s name can be an indication that the person has taken additional classes in a certain specialty of real estate sales. Here's what some of the designations mean:
    • CRS (Certified Residential Specialist): Completed additional training in handling residential real estate.
    • ABR (Accredited Buyer's Representative): Completed additional education in representing buyers in a transaction.
    • SRES (Seniors Real Estate Specialist): Completed training aimed at helping buyers and sellers in the 50-plus age range.
  • Look at their current listings: Review an agent's listings online. They will likely be posted on the agency's own website. You can also check, a website that compiles properties in the Multiple Listing Service into a searchable online database.
  • Ask about houses that are for sale near you: A good agent should know about properties that are available near you off the top of their head. Mention a house in your area that's for sale or has sold recently. If the agent knows the property and can give you a few details that means he or she really knows your area. You want someone like that who's on top of the market.
  • Other variables to consider: Does the real estate agent’s listings resemble the property you want to buy? Are they in the same area? Is the price range similar? And does the agent have enough listings to indicate a healthy business but not so many that you'd just be a number?

Step 6: House Hunting

If you’ve completed all the previous steps then you’re finally ready to start shopping for your new home.

Create a House Hunting Wish List

House hunting can be overwhelming at times. You’ll likely be looking at a number of different homes, sometimes in the same day.

We recommend creating a wish list of all the things you want in a home. Bring this list with you when you view homes to help you compare and keep track of the various properties you visit. Your wish list will also help you remember the features you did or didn't like.

Here are some things to consider when creating a wish list:

  • Think about your immediate plans, current lifestyle and future needs. What kind of house will suite all of these?
  • Don’t just concentrate on the house. What kind of lot do you want?
  • Consider what kind of neighbourhood and surroundings you’d like to have.

Making an Offer

Once you find a home you like that meets all the requirements of your wish list it’s time to make an offer.

When making an offer make sure to keep the following things in mind:

  • Is the house really worth the listed price? Your realtor will be able to let you know what similar houses have sold for recently. You can also check online listings to see for yourself. If similar houses have sold for less you may be able to offer the sellers less than they’re asking for.
  • Is it a buyer’s or a seller’s market? The housing market is always fluctuating. Sometimes there are more sellers than buyers. In this case you are in a position of power. The sellers are likely more desperate to sell and may be willing to take less than the listed price. However, if it’s a seller’s market you may need to offer the listed price or more to beat out other offers.
  • Are you in a strong bargaining position? If you’re already pre-approved for a mortgage, and/or you don’t need to sell your current house before buying another, sellers will likely look favourably upon you. There will be less of a delay before the sale is complete so sellers may be willing to take a lower offer.

Your realtor will be able to advise you on all these factors and will help you come up with your best offer.

Hire a Home Inspector

Once you find a home you like it’s a good idea to hire a home inspector. This step is optional, but it's a smart idea for resale homes. You can choose to make your offer to purchase the home conditional on the outcome of your inspection. If your inspection reveals major problems you can negotiate those repairs with the seller before your deal closes, or legally withdraw your offer.

New Home Warranty

If you’re buying a brand new home you may want to consider a New Home Warranty. The builder will provide a New Home Warranty to cover things like deposits and completion dates, along with labour and materials for at least one year after the home is built. It also protects you against structural problems for a minimum of ten years.

Finalizing The Deal

If your offer is accepted and your conditions are met then it’s time to finalize the deal. The first step is the final approval of your mortgage.  You will also want to meet with your lawyer to confirm details like insurance and conditions, and the results of the property title search.

Moving Preparations

There's a lot to do before you move. Line up utilities and other services like phone, cable and internet. Also, forward your mail to your new address and hire a moving company. Preparing these things well in advance will help you make a smooth transition to your new home.

Closing Day

This is the day you legally get ownership of the house. Make sure you know how much money you will need to have on this date. It’s important to note that amount you owe on the closing date is more than just what is stated in the purchase agreement. It will also include land transfer tax, legal fees and disbursements, and any closing date adjustments.