How to buy a house in Canada
By Delaney Rombough
Posted on January 20, 2021
Homeownership is an exciting and rewarding experience. A home is likely one of the biggest investments you’ll make in your lifetime so it requires a lot of planning. It’s also the place where you’re going to build your life. You need to consider what you can afford, what kind of space you want to live in, and how to save and pay for your home.
What can you afford right now?
The first thing that you should consider is what you can afford right now. In addition to purchasing the house, you’ll need to factor in other house expenses, including heating, utilities (gas, water, electricity, sewage, etc.), property taxes, any renovations, home insurance, and regular maintenance. You can work with lenders and mortgage brokers to figure out how much you can afford. As a general rule, the Canada Mortgage and Housing Corporation, Canada’s national housing agency, recommends that your total monthly housing costs be no more than 35 percent of your gross monthly income.
Types of homes
There are many different types of homes available depending on what you are looking for. It is important to consider what you need now and what you might need in the future. Some factors to consider as you look at houses may include physical size, family, distance from your workplace, schools, and the setting (big city, suburbs, rural). Once you’ve established what your “must-haves” are in terms of your new home, you can determine what kind of home is best suited to your needs. These are the different types of homes you can buy:
- Condominiums (condos): Condos are a type of ownership rather than a type of home. Multi-unit buildings are typically made up of condos. In this case, you own the unit but not the land. The land where the condo building is on is owned by the condo corporation. You pay monthly fees to the condo corporation, and they take care of the building maintenance and repairs. Condos are usually one of the less expensive options.
- Townhouse: A townhouse is a house that is attached to another house. Each unit has its own entrance and private space but shares a wall with another townhouse.
- Semi-Detached: Semi-detached homes have separate land and separate entrances, but they share a common wall and sometimes common parking. A semi-detached is a single-family home that shares one common wall with another family, whereas a townhouse can be made up of multiple units attached to each other, so there may be multiple shared walls. Each owner is responsible for their side of the property.
- Single/Detached: This is also commonly known as a single-family home. These homes are free-standing. The upside of single homes is that you have more space and control over the property. It’s something you can truly make your own.
- Duplex/Triplex: A duplex/triplex looks like a single home but has been configured into multiple units. They have separate entrances and living spaces. Typically, one individual owns the property and rents out the other units. Buyers also see this as an opportunity to make additional income from the house.
Real estate agents can help with the home selection and buying process. They will understand your needs and show you suitable homes that are within your budget and include the features that you’re looking for. They will also negotiate on your behalf to get you the best deal. Real estate agents also often have inside information on previous sale prices, the neighbourhood, and comparable homes. Real estate agents typically get paid a commission from the seller of the home. To find an agent, ask your mortgage broker or friends for recommendations, look at real estate signs, or visit www.mls.ca. Alternatively, you can purchase a home in a new development or contract a builder to design a custom home. To find a builder, check phone listings, visit model homes in new developments or other properties constructed by the same builder, or ask friends, family, and colleagues for recommendations. You should always ask a builder for their references and their provincial license number.
Paying for your home
A home is likely one of the biggest purchases you will make in your life. When you buy a home, you must make a down-payment on the house, which is a percentage of the total cost. If your down payment is less that 20 per cent of the home’s price, you also have to purchase mortgage loan insurance. Most homebuyers rely on lenders such as banks, credit unions, pension funds, and insurance companies to help finance the purchase of their home. This loan, called a mortgage, is repaid with interest through regular payments over a period of time. Credit scores and work history are very important when trying to get a mortgage. Therefore, start building a Canadian credit history as soon as possible, even if you already have credit history in your home country. Here are tips to building a strong credit score to help you get your mortgage and buy your home:
- Open a bank account and use it often.
- Consistently pay all of your bills on time.
- Apply for a credit card.
- Apply for small loans from your bank to prove that you can pay on time.
- And try to remain with the same employer for an extended period of time to demonstrate a steady income.
There are different types of mortgages, so you should shop around for the best rates. When deciding what mortgage works best for you, you should ask yourself the following: would you prefer an interest rate that rises and falls or one that stays at the current rate (variable or fixed), how long would you like your term to be, and how often would you like to make payments toward your mortgage. Your lender or mortgage broker can help you find the mortgage that best meets your needs.
Closing day refers to the day when you finally get the keys to your house, and you can officially call yourself a homeowner! On closing day, you will need to meet with your lawyer or notary in their office to sign all the final paperwork. Your lawyer or notary will ensure that the money is properly transferred to the seller along with any other prepaid house costs. Be aware that you will have to pay legal fees on this date ($400–2500) as well as land transfer and registration fees. If you build a new home, you will also have to pay HST or GST taxes. Other closing costs may include interest adjustments, Certificate of Location cost, estoppel certificate (for condos), township or municipal levies, mortgage default insurance premium, and provincial sales tax on premiums for mortgage default insurance.
Tax credits for homebuyers
The Government of Canada offers tax credits for specific types of homebuyers. Provincial or territorial governments may also offer tax incentives for homebuyers. The Home Buyers’ Amount is a tax credit for up to $5,000, and it is available for first-time homebuyers who submit a tax return. This credit may help offset some of the upfront costs. Because sales of new homes are subject to sales tax, you may be eligible for a partial refund on your taxes.