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Buying your first home is a huge milestone, but it can also feel overwhelming not knowing what to do. Still, it creates joy and happiness in making a cozy space where you and your loved ones can live together.
Before purchasing a home, you must consider several factors, including current housing market trends, interest rates, your financial situation, and more.
Whether you’re looking for a condo in the Toronto area or a detached home in Manitoba, being prepared with recent, accurate information can help you navigate your way in the real estate market.
This guide will equip you with a step-by-step journey from preparation to the final step of buying a home. By the end of this journey, you will build confidence by understanding the process and gaining clarity to make mindful decisions. Let’s dive in.
Step 1: Assess Your Financial Readiness
Before you start house-hunting, identify a clear picture of your financial health because it will determine what you can afford and how lenders will view your mortgage application. Having a solid budget makes it clear to navigate and determine the price range of a house you can realistically purchase.
Check your credit score: Obtain a free credit report from Equifax or TransUnion and address any errors or outstanding debts. A credit score of above 680 will get a better mortgage as lenders use this to set interest rates. You can also check it for free on platforms like Borrowell or Credit Karma.
Calculate your debt-to-income ratio: Divide your monthly debt payments by your gross monthly income. This ratio should not exceed 40%.
Calculate your budget: Use the “28/36 rule” as a guideline. Housing costs, including mortgage, property taxes, and insurance, should not exceed 28% of your gross monthly income, and total debt payments should stay below 36%. For example, if your household earns $6,000 monthly, housing costs should be under $1,680, and total debt payments should be below $2,160 based on the rule. The key is to establish a realistic price range based on your savings, income, and lifestyle goals.
Step 2: Save Down Payment
Your down payment will determine your mortgage, insurance and interest rates, so adding a cushion beyond the minimum down payment can help you reduce monthly mortgage and insurance payments, ultimately saving you money in the long term.
Minimum down payment in Canada: Required 5% for homes up to $500k, 10% for the portion above $500k up to $1M, and 20% for homes above $1M.
More than 20% of a down payment: Homebuyers can avoid CMHC (Canada Mortgage and Housing Corporation) mortgage insurance premiums, which protect lenders in case a borrower defaults on their mortgage payments.
Gifts from family: Lenders often accept gifted funds as part of the down payment if you provide a confirmed gift letter.
First Home Savings Account (FHSA): Allows you to contribute up to $8000 a year to save for your first home tax-free.
Government incentives: Get benefits from programs like the Home Buyers’ Plan, which allows you to withdraw up to $60k from your RRSP tax-free, and GST rebate on a new home purchase.
Step 3: Determine What You Can Afford
Buying a home costs you not only in paying the mortgage per month, but also includes property taxes, home insurance, closing costs, moving, furnishing, including home appliances, maintenance, and utilities. Use online affordability calculators or speak to a mortgage advisor before looking for a home.
Costs beyond the mortgage, property taxes, and home insurance that you have to consider include:
Closing costs: Includes legal fees, land transfer taxes, title insurance, and other costs, typically totalling 1.5~4% of the home’s purchase price.
Home inspection: A reliable home inspection helps you make informed decisions without unexpected surprises.
Moving and furnishing: Make a budget for all expenses, including moving, furnishing, and home appliances, as well as installation services.
Step 4: Understand Mortgage Options
Choosing the right mortgage term and type can have a significant impact on your monthly cash flow. It is important to thoroughly research and compare offers from banks, credit unions, and online lenders to find the best mortgage option that aligns with your financial situation and goals.
Fixed-rate mortgage: Ideal for those seeking long-term payment stability and peace of mind with predictable payments.
Variable-rate mortgage: Offers flexibility with interest rates that are based on the Bank of Canada’s rates.
Open and closed mortgages: Open mortgages provide the flexibility to prepay, but typically come with a higher interest rate, while closed mortgages charge prepayments but often have lower interest rates.
Step 5: Get Pre-approved for a Mortgage
Getting pre-approved for a mortgage gives you a clear budget and makes your home search more credible. It also shows sellers you’re a qualified buyer in a competitive market. Many lenders will lock in your interest rate for a certain period, usually 90-120 days. If rates drop, you typically receive the lower rate.
Financial documents that you will need:
Proof of income: T4s, pay stubs, employment verification, bank account and investment statements, and ID
Proof you can pay for the down payment and closing costs.
Credit report
Information about your debts or financial obligations
Information about other assets like a car or a cottage
👉Tip: Don’t confuse mortgage pre-qualification and pre-approval: The former is an estimate, not a guarantee; the latter is a commitment with pending conditions, not a guarantee.
Step 6: Start House Hunting
Choosing the right community will impact your lifestyle and future equity. It’s important to attend multiple open houses without rushing and to be patient in finding the right home, as it is a long-term investment. To understand market trends, check local market reports on sites like CREA.ca for up-to-date insights.
Location, Location, Location: Research neighbourhoods that align with your lifestyle, commute, schools, amenities, and future values.
Amenities: Check the proximity to grocery stores, parks, gyms, and transit.
Property type: House, condo, townhouse, semi-detached, and apartment. Each comes with different costs, maintenance requirements, and community vibes.
Attend open houses and private showings: Take notes and photos during showings to compare properties later. Don’t hesitate to ask direct questions about the home.
Research neighbourhoods and future values: Look into crime rates, school quality, and future development plans. Websites like Realtor.ca and local government sites provide valuable data on neighbourhoods across Canada.
Define your needs and wants: Make a list of must-have features like location, size, number of bedrooms, proximity to work, schools, or transit. Also, consider nice-to-have features like a backyard, modern kitchen, or garage.
Step 7: Build Your Dream Team
Having experts on your side allows for a more secure and reliable real estate journey. Each professional plays a critical role in protecting you, so always do your own research before making any decision at each step.
Hire a real estate agent: Guide you through listings, negotiations, and contracts. Find one who specializes in first-time buyers and understands the local market.
Consult a mortgage broker or lender: A broker can shop around for the best rate and terms, comparing loan options and often securing lower rates than banks.
Engage a real estate lawyer or notary: A lawyer will review contracts, handle title transfers, closing paperwork and ensure your purchase is legally sound.
Contact a home inspector: Crucial for spotting red flags before you’re locked into a purchase.
Step 8: Schedule a Home Inspection
Home inspection is a critical step that should be thoroughly conducted by a trained professional. Therefore, hiring a certified home inspector with excellent reviews and insurance is vital for protecting your investment when buying a home.
Typical issues are roofing problems, outdated electrical systems, plumbing leaks, structural cracks, and HVAC issues. If any problems are found, the inspection report can be used to negotiate repairs or a reduction in the purchase price.
Attending the inspection can also be beneficial as it allows you to learn about any maintenance needs and timelines for your new home. By knowing how to properly maintain your home, you can ensure that it remains in good condition and prevent issues such as electrical fires, floods, mold, pests, and more.
Ultimately, inspection gives you the confidence to move forward with the purchase or the option to walk away if significant faults are discovered.
Step 9: Making an Offer and Negotiation
Every buyer must make an offer to buy a home. Knowing how to negotiate or make an offer on a home can help you handle the process more smoothly, with your realtor guiding pricing strategy and counteroffer tactics.
Choose between a conditional or firm offer.
Set your conditional offer price based on home inspection, financing conditions, and comparable sales in the area.
Consider escalation clauses to outbid competitors without overpaying.
Desired closing date.
Deposit amount: usually 1-5% of the purchase price.
👉Tip: Be sure to determine how your buyer’s agent will be paid.
Step 10: Secure Your Mortgage and Finalize the Deal
After a satisfying inspection and an accepted offer, the next step is to finalize your mortgage approval. Your lender will do a full review before releasing the funds. You will then work with your lawyer to prepare for the final transfer of funds and keys.
Provide the signed purchase agreement to your lender promptly.
Confirm your home insurance policy: Compare coverage options, deductibles, and payment rates.
Review the agreement of purchase and sale: Your lawyer will ensure the contract is fair and includes important documents like financing or inspection clauses.
Review mortgage terms and conditions: Check amortization period, payment schedule, and pre-payment privileges.
Provide any additional documentation if necessary.
Sign the purchase agreement with your lawyer
Transfer your down payment to your lawyer who will handle the transfer of the fund to the seller on closing day. The mortgage lender will send the mortgage funds directly to your lawyer. You will need to provide the remaining down payment amount, along with other closing costs, to your lawyer. Your lawyer will then combine these funds and send the total purchase price to the seller’s lawyer.
Review your final closing statement.
👉Tips: Secure insurance effective on your closing date to protect your investment. Avoid making big purchases or switching jobs during this period as it can affect your mortgage approval.
🔹What are Closing Costs?
Closing costs are significant, often ranging from 1.5% to 4% of the purchase price, and are paid on or before your closing date. Set aside these funds in advance to avoid last-minute stress.
Some common closing costs include:
Land transfer tax: Provincial and municipal, where applicable.
Legal fees and disbursements.
Adjustments: prepaid utilities, property taxes, condo fees.
Title insurance: Optional but recommended to protect against title defects.
Mortgage default insurance premium: If your down payment is less than 20%, this can be added to your mortgage as an additional cost.
Appraisal fee: Lender-required property valuation
Home inspection fee
Property tax adjustments: Reimbursements to the seller for prepaid property taxes.
GST/HST on New Homes
👉 Tips: Sales of used-owner occupied homes are exempt from HST/GHT.
Step 11. Plan and Budget for Your Move
A well-prepared moving plan ensures a smooth transition from your old place to your new place without feeling overwhelmed. The final step is turning your house into a home.
Hire movers or book a rental van to estimate moving costs
Set up utilities, internet, and cable, schedule activation for move-in day.
Update your address with Canada Post, banks, subscriptions, and the government.
Pack items securely and strategically: label boxes by room, keep essentials separate, and schedule deep cleaning before your arrival.
Budget for immediate post-move costs like home essentials, grocery shopping, utilities activation, minor repairs, immediate updates, and more.
Step 12: Plan for the Future
Owning a home is a long-term commitment, so plan ahead to ensure financial security.
Creating an emergency fund: Aim to save enough to cover 3-6 months of living expenses in case of unexpected repairs or job loss.
Understand maintenance costs: Budget for ongoing costs like utilities and maintenance, which cost roughly 1-3% of your home’s value annually.
Conclusion: Keys on Hand, Ready to Call it Home?
Buying your home is an incredible journey, but it doesn’t have to be overwhelming. With the right preparation and support, you can navigate the process confidently and avoid common pitfalls.
Start early for preparation, stay informed and organized, and don’t hesitate to ask for professional advice.
While the current market presents its own set of considerations, remember that with thorough preparation, a clear understanding of the process, and a trusted team by your side, your dream of homeownership is well within reach.
Use this checklist as your roadmap, whether you’re months away from buying or ready to start the hunt tomorrow. Every smart decision you make today brings you closer to turning the key in your new front door.
🔹Always welcome constructive feedback or opinions. Happy reading!
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DISCLAIMER: This article is for informational purposes only and should not be considered as financial advice.
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