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Are you planning to buy a new house? This is one of the biggest stressors, especially if you’re doing it for the first time. There are a lot of things you’ll need to keep in mind as a prospective homeowner. Home prices today, for one, are at an all-time high, and they continue to rise every year.
Nonetheless, this industry remains one of the most important investment fields for many Canadians. Some are looking to own their first home, while others are in it for the next.
But for someone who is new to this field, what’s the process of buying a house in Canada? What are some of the pre-purchase plans you should have to ensure that you get the best deal? This article covers everything you need to know as a home buyer in Canada.
One of the first and important steps to buying a house is understanding your finances and all related aspects. Given the excitement that comes with this whole process, many home buyers tend to overlook this step. But to avoid unnecessary frustrations that might haunt you in future, it would be wise to set everything straight from the start.
The first financial factor to consider is the amount of money you’ll need as a down payment. In Canada, one is required to have, at least, five percent of the total price as the initial deposit. However, this rule applies for CMHC-insured mortgages. If yours is a conventional one, you’ll be expected to pay a minimum of 20 percent. So, if your dream house is valued at CAD$300,000, you’ll need to pay either CAD$15,000 or CAD$60,000, depending on the option you choose.
Apart from the down payment, you’ll also need enough money to cover the mortgage closing costs. These are upfront mortgage expenses. Keep in mind that most lending institutions charge a fee for mortgage application. You may also be required to pay mortgage insurance fees if your down payment is below CAD$200,000. Other expenses include legal fees, home inspection, title insurance, and home appraisal
Every homebuyer is also required to pay property transfer tax (PTT) charged at different rates. For the first CAD$200,000, you’ll need to pay 1%, and the rate moves to 2% for the rest of the cost up to CAD$2 million. Any portion greater than CAD$3 million will also mean a 2% tax for your residential property. It’s worth noting that you could be exempt from paying PTT if you’re a first-time buyer and your home doesn’t cost more than CAD$500,000.
You have two options when it comes to mortgage rates: fixed and variable. They both have their pros and cons, and you’ll have to weigh them to find one that best suits your needs. A fixed-rate mortgage is one which interest rates remain the same throughout your payment term. As it’s a guarantee that you’ll be paying the same amount every month, this option typically has high interest rates, which is more like a trade-off for that certainty.
Variable-rate mortgages, on the other hand, have lower interest rates. The interest rate offered to the buyer is tied to the lender’s prime rate. Therefore, if the prime rate – which is normally tied to that of Bank of Canada – goes high, your interest rates will also rise and vice versa.
It’s worth stating, though, that the amount you pay in each instalment will remain the same. The only difference is the portion of the money that’ll go towards servicing the principal and the interest. The higher the rates at the time of payment, the more money you’ll be paying towards the interest. On the flip side, lower interest rates mean more money will be channelled towards the payment of the principal amount for faster repayment of the loan.
Once you have all your finances in order, you can now decide on the location. Again, not every city or town is ideal for you, especially if you have family members with different needs and circumstances. So, in your decision-making process, you need to take into account all fine details to avoid causing any inconvenience in the future.
The first factor to consider is your job and the education of your children, if any. You’d want to choose a location that makes it easier for you and your children to reach your workplace and school respectively without too much hassle. Proximity to recreational facilities, train or bus station, and shopping centres is also important.
After shortlisting a number of neighbourhoods that meet your needs, you can then start assessing them one after the other. The overall safety of those areas is one of the main things to check. You can find this information from online reviews and reports or by speaking directly to a few residents.
Most real estate agents today will want to see a mortgage pre-approval before they can commit to representing you. So, what are some of the steps to take before you can get pre-approved for a mortgage? First, make sure you have all the required documents which should include your payslips, bank statements, proof of down payment, and other related forms that the financial institution may demand for.
With all these in place, you’ll meet a mortgage advisor at your selected bank who’ll guide you through the steps. After going through your documentation, they’ll let you know the loan limit you can access based on your financial status.
At this point, take note of interest rates. When interest rates are very low, it’s an opportunity to actualize your dream of owning a house.
Whether you’re buying a home for the first or second time, chances are, you don’t have the necessary skills to navigate the real estate industry. As such, you’ll need to hire the best possible realtor you can get to guide you through the crucial steps. When you go house hunting, the realtor will advise you on the pros and cons of purchasing a given house, and then you can make your own decision based on the information.
Once you’ve found the right house, you’ll be expected to make an offer. If it’s appealing enough, the seller will accept. After that, you can go back to your selected financial institution and get the final mortgage approval. The lender might want to assess the house and see if the estimated market value and purchase price match.
The next step will be the signing of the mortgage lending agreement. Read through all the conditions, though, because it’s easy to overlook some important details amidst the excitement. Keenly assess the interest rates, prepayment conditions, and other important terms and conditions.
This is one of the biggest deals you’ll ever sign in your life. Therefore, it’s important to understand all the legal implications. The best person to keep you in the know is a real estate lawyer. You can find an experienced professional from any local law firm specialized in the field of real estate law. The lawyer will let you know about everything concerning your intended purchase.
Usually, the closing of this transactions takes up to 90 days, but it can take less, depending on the terms of agreement. Once the offer has been accepted, you can use this waiting period to do anything else that you hadn’t covered in the initial steps. Some of the main tasks that you should complete during this phase include home inspection and the remaining financing procedures. After adjustments have been made, and you’re satisfied with the current state of the house, your lawyer will see to the paperwork as the realtor finalizes the deal. All these are the final steps after which you’ll legally possess the house.
Buying a home is most demanding. The first step you should take is to assess your finances based on the expected costs. Find a good realtor to guide you through searching for the right home. Once you’ve found the perfect property, sign a mortgage approval agreement with your bank in the presence of a lawyer. Once these important steps are done, you can go ahead and enjoy your new house.