First Time Buyers

Buying your first home is exciting, but can be a little intimidating when you're unsure of the process. Educate yourself so you know what to expect. Ask questions. With a greater understanding you'll approach this milestone feeling prepared and confident.

What can you afford?

Be sure you are aware of all the costs involved. Not only is there the actual purchase price of the home, but there are a number of additional costs before, during, and after the purchase.

The biggest one to consider is the down payment: conventional mortgages require 20% of the property purchase price. While this may seem daunting, especially given today's high cost of housing, there are a variety of ways to come up with it. You may be able to receive a loan or gift from family members; you can also use your RRSPs through the government's Home Buyers Program.

If you have a down payment of less than 20% of the purchase price, you will need a 'High Ratio Mortgage'. These mortgages are insured by a third party, such as CMHC for a one-time fee.

Online calculators like the Mortgage Qualifier Calculator on this site are very helpful in determining what you can afford.

Financing eligibility

To determine your eligibility, your lender will likely look at one or both of two indicators:

  1. Gross Debt Service Ratio compares your monthly housing costs against your monthly gross income. Generally, your monthly housing costs should be less than 32% of your monthly gross income.
  2. Total Debt Service Ratio takes a look at all your debt including housing, credit cards, loans, etc. Generally, your total monthly debt should be no more than 40% of your monthly gross income.

Get your mortgage pre-approved

By getting your mortgage approved before you start house-hunting, you will: know how much you can afford; get a 'locked in' rate that won't go up, but will go down if rates decline; and, know that financing won't be a problem when you make an offer.

Once you are pre-approved, ensure your down payment will be ready and that you have 3% - 4% of the purchase price available for closing costs and other expenses.

Remember the following formula:

down payment + amount you can borrow - closing costs = your maximum price

Looking for your new home

Keep in mind that we all tend to want what we can't have a house out of our price range! But if you stay focused, you will find the 'right house'.

  • Review newspapers, real estate magazines, 'for sale' signs in the area and real estate websites to get a solid understanding of properties in your price range.
  • Establish a list of 'must haves' based on what may be available in your range. Include things like number of bedrooms, number of bathrooms, square footage, parking space, if it is good for children and pets, etc.
  • Assess how long you plan to stay in this home. If you think you will move again soon, you may be able to live with certain issues.

Working with a realtor

If you want someone actively helping in your search for the right home, find a realtor. Your realtor will help by: making viewing appointments, explaining documents in the process, presenting documents to the vendor on your behalf and more. When your realtor helps find your home, they generally earn a portion of the fees paid by the seller.

To find the right realtor, ask friends, family, co-workers and people in the neighborhood for referrals. Visit local real estate offices to find a specialist in your price range and area. When you have a list of candidates, interview them to determine compatibility.

Making an offer

You've found it! Do your best to remain objective. Visit the property a few times; look at it in both daylight and at night, observe the neighborhood at different times and, above all, don't be rushed.

An Offer to Purchase is a legal contract. Be sure about making your offer, but also understand that no single property will meet all of your needs. Aim for one that fits most of your needs.

Your offer will include:

  • Offer price, amount of deposit, amount of down payment
  • Possession and closing dates (when choosing dates consider: do you need to give notice? Can you afford extra time to move?)
  • Expiration date and time of offer
  • List of fixtures (items you want with the home, like window coverings, appliances, etc.)
  • List of subjects

Subjects are conditions that must be met for the sale to go through. They are not 'escape' clauses, as you must do all that is reasonable in order to complete them. Standard subjects can include arrangement of appropriate financing, completion of a satisfactory home inspection and the seller providing a complete site survey. Your realtor will be able to assist you, but be sure you understand what each subject means. If you are unable to meet the conditions, the contract ends and the sale does not proceed.

Home inspection

Your realtor will be able to suggest a good home inspector. Currently, home inspectors do not have a licensing requirement; therefore, ensure your realtor knows and trusts their abilities. You will pay for the home inspection and the results are solely for you. Obviously, you want the inspection to go well; however, there are occasions where major issues are discovered and you may choose to revoke your offer, discount the offered price or accept the defect as part of the original offer.

If you are being rushed to forego a home inspection to 'speed things along', be wary. Step back and remind yourself that this is one of the largest investments in your life and you need all of the information available.

Presenting your offer

Once you have reviewed your offer and signed it, your realtor will present it to the vendor. The vendor then has the option to 1) accept the offer as it stands 2) decline the offer, or 3) counter-offer. A counter-offer means that the original offer has been rejected and a new offer is being presented. Counter-offers can go back and forth until agreement is reached or one of the parties declines the offer and ends the negotiation.

Waiting to hear if your offer has been accepted can be the most difficult time in the process! Upon notification of an accepted offer, you are required to make a deposit (if you didn't do so when the offer was submitted), which will make up part (or all, in some cases) of your down payment. The deposit amount varies, but may be up to 5% of the purchase price.

Taking care of financing

Your offer has been accepted and things now move very quickly. One of your biggest concerns at this point is the mortgage. A mortgage is a document that outlines the terms, conditions and repayment for a 'mortgage loan'. If you have been pre-approved, you will have already completed some of the steps.

What you need to apply:

  • A payroll statement or T-4 slip; or, if you are self-employed, income tax returns for 3 years
  • Social insurance number
  • Approved offer to purchase, real estate listing and / or a picture of the home
  • Confirmation of down payment and closing cost funds
  • Detailed information on your finances including income, assets and debt
  • Survey certificate and assessment details (if required)

Here is a handy Mortgage Lending Checklist for your reference.

Your lender will also obtain your approval to contact a third party provider for your credit score.

Once you qualify for your mortgage (based on your income, assets and debt) and an acceptable credit report is received, the following steps will occur:

  • If required, the lender will arrange an appraisal.
  • If it is a high ratio mortgage the lender will submit information to a default insurance provider. The insurance provider will review property information and will insure the loan when they confirm that the value of the property is appropriate for the mortgage amount.
  • Mortgage documents are prepared and issued.

Closing the deal

Your realtor will inform your lawyer of closing dates as well as provide documentation to the legal team and your financial advisor. If you don't have a lawyer in mind, your financial advisor or realtor will be able to suggest someone.

Now is the time to arrange for house insurance (you may be required to show your insurance certificate to complete the sale) and set up utilities.

Once the mortgage documents are prepared, your legal representative will explain the mortgage and details. You will sign the documents and the lawyer will register the mortgage and obtain the mortgage funds, tax adjustments, down payment and closing costs required. Your legal representative will also handle other required details including: preparing ownership transfer documents, preparing a statement of adjustments outlining the disbursement of funds and delivering the final amount due to the seller.

Following the completion of legal documentation, you will sign for your mortgage with your lender and confirm any outstanding details.

The house is yours

Congratulations! Before you relax in your new home, remember some final points:

  • You may want to arrange for a moving company. They can make the move easier if you are 'time-crunched'; you can obtain insurance on your possessions while they are in the care of the movers.
  • Make sure you advise the appropriate individuals of your new address. Canada Post offers address change cards and a mail forwarding service to make the transition easier.
  • Before your first mortgage payment, you may owe an interest adjustment to your lender. Interest is payable from the time the funds are provided (your closing date) to the time the mortgage is scheduled to start. Ask your financial advisor if an interest adjustment payment is expected.

You've done it! Enjoy your new home!