Purchase
Why Buy a Home?
Purchasing a home is one of the most significant financial decisions you’ll make. Here are some key benefits of homeownership in Canada:- Build Equity: Unlike renting, homeownership allows you to build equity over time as your property value increases and your mortgage balance decreases.
- Stable Monthly Payments: With a fixed-rate mortgage, your principal and interest payments stay the same for the term of the loan.
- Tax-Free Growth: If the home is your principal residence, any capital gains from its sale are generally tax-free.
- Freedom to Personalize: Owning a home gives you the flexibility to renovate, decorate, and truly make the space your own.
Types of Mortgage Loans
There are several mortgage options in Canada to fit different financial needs. Here’s an overview:- Conventional Mortgage: Requires a down payment of at least 20% of the purchase price. No mortgage insurance is required.
- High-Ratio Mortgage: If your down payment is less than 20%, mortgage default insurance is required (e.g., through CMHC, Sagen, or Canada Guaranty).
- Fixed-Rate Mortgage: Your interest rate and monthly payments remain the same throughout the mortgage term.
- Variable-Rate Mortgage: Interest rate may fluctuate with market conditions, often starting lower than fixed rates.
- Open Mortgage: Allows you to pay off the mortgage early without penalty — ideal for short-term flexibility.
- Closed Mortgage: Typically comes with lower rates but limits on early repayment options.
How Much Home Can You Afford?
Before you start house hunting in Canada, it’s essential to determine your budget. Consider the following:- Income: Lenders usually recommend your housing costs not exceed 39% of your gross monthly income (Gross Debt Service ratio).However, there are options available for lower credit scores.
- Credit Score: A higher score can help you qualify for better rates. Most lenders prefer a score of 680+.
- Debt-to-Income Ratio (Total Debt Service): Your total debt (including mortgage, loans, credit cards) should not exceed 40-44% of your income.
- Down Payment: Minimum down payment is 5% for homes up to $500,000, with higher percentages for more expensive properties.
- Closing Costs: Include land transfer tax, legal fees, title insurance, and home inspection — typically 1.5% to 4% of the home’s purchase price.
Steps to Getting a Mortgage
Here’s a step-by-step guide to securing a mortgage in Canada:- Check Your Credit Score: Review your credit report through Equifax or TransUnion and make improvements if needed.
- Determine Your Budget: Use a Canadian mortgage affordability calculator to estimate what you can afford.
- Get Pre-Approved: A mortgage pre-approval shows sellers you’re serious and helps you shop within your budget.
- Find a Home: Work with a licensed real estate agent to find the right property.
- Make an Offer: Submit an offer to purchase. Your agent will help with negotiations and conditions.
- Apply for a Mortgage: Provide documentation such as employment verification, T4 slips, Notice of Assessments, and bank statements.
- Home Inspection (Optional but Recommended): A qualified inspector evaluates the home’s condition before finalizing the deal.
- Final Mortgage Approval: Your lender confirms financing based on the appraisal and underwriting review.
- Closing: Sign the paperwork with your lawyer, pay closing costs, and receive your keys!
Common Mortgage Mistakes to Avoid
Buying a home is exciting, but watch out for these common missteps:- Not Reviewing Credit Reports: Mistakes or unpaid debts can affect your approval and interest rate.
- Skipping Pre-Approval: Without it, you may waste time looking at homes outside your price range or lose out in competitive markets.
- Underestimating Costs: Be prepared for property taxes, utilities, condo fees (if applicable), and maintenance.
- Taking on New Debt: Avoid new credit cards, loans, or financing large purchases before your mortgage closes.