Would you like a house with a big yard and a pool or a condo with stunning views of the city? No matter what's on your wish list, it may be hard to know where to start. So, how do you buy your first home? Here is an overview of the steps you should take to achieve this goal with peace of mind.
Start by estimating the amount of the mortgage loan you can qualify
for to finance the purchase of your first home. In real
estate terms, a mortgage loan is simply a loan secured by your
Knowing this amount in advance is the same as checking the menu online before you go to a restaurant. It's better to know if you will be able to afford to pay the bill before you choose the restaurant and eat your meal. It's nice to be able to control your budget.
To determine your borrowing capacity:
Once you have an idea of how much you can borrow, calculate your down payment. That's the portion of the price of the house that you will pay out of pocket. The rest will be financed by your mortgage loan.
Why make a down payment?
A down payment is mandatory. It helps reduce the amount of your loan and the interest on your payments. The minimum amount depends on the price of the property.
How much is the down payment?
The amount is calculated as a percentage of the sale price of the house. As a general rule, there are two options for a primary residence:
5% of the purchase price of the house
In most cases, the minimum down payment amount is 5% of the purchase value. For example, a house sold for $300,000 will require a minimum down payment of $15,000.
Remember, if your down payment is less than 20% of the purchase value, the financial institution granting you the mortgage must take out insurance with the Canada Mortgage and Housing Corporation (CMHC) or Sagen™. As a result, you will have to pay a premium¹ in addition to your mortgage payment.
20% of the purchase price
If your down payment is 20% or more of the purchase price of your home, you can obtain a conventional loan and avoid the mortgage insurance fees.
How do you get a down payment?
Here is a tip regarding the RRSP (because the link to home buying is not obvious)
The Home Buyers’ Plan (HBP) allows you to withdraw up to $35,000 from your RRSP without any tax impact which you can then use as a down payment on your first home. If two of you are buying the home, you multiply it by two and you can use $70,000. Whatever you withdraw:
Another tip regarding the RRSP
If you don’t have $35,000 in your RRSP (since money doesn’t grow on trees), you can consider taking out an RRSP loan to make use of the HBP². Caution: The money must always be in your RRSP for at least 90 days before you can withdraw it.
Before you start looking for a house, get pre-approved for a mortgage so you can confirm your borrowing capacity. You'll have a clear idea of the price range you can afford to help in your search and can even get an interest rate guarantee from the Bank for a certain amount of time, like 90 days.
Other benefits to this document:
To get pre-approved:
There are other costs beyond the mortgage payments and the down payment that come with the purchase of your first home, such as legal fees. In general, experts believe you need between 2 and 3% of the value of the house to pay them.
Identify your needs and preferences before you start looking for your
home. Not knowing your criteria ahead of time is like telling the
person cutting your hair to “do what they want." You may like the
result, but it’s a risk.
Here are a few questions you should consider:
You can do the research yourself or you can contact a real estate
broker who can assist you.
What you should know about the broker’s commission: Because the seller pays it based on a percentage of the sale price, they could set the price accordingly.
The promise to purchase or offer to purchase, contains all the information necessary to close the sale. If you are using a real estate broker, they will take care of writing it. The contract will contain the following information:
You may have to adjust your offer if the seller makes a counter-offer, which means reviewing the terms so both parties are happy.
Finally, here are the main steps of a mortgage loan application. Your advisor will explain each of those steps in more detail and will support you throughout the process of buying a house.
Keep in mind that the mortgage
loan application is different from the pre-approval
It’s time to start thinking of the financing that meets your needs. Among the elements to consider:
The financing application
Then, you have to gather the documents and information needed to process your application. It is better to take your time and have everything ready before you start.
This step can take several days because some documents have to come from third parties such as your employer. Then, you will need to:
Signing the legal documents
You officially become the owner when you sign the documents with a notary or a lawyer. Don’t hesitate to ask your questions, they are there to help you. The funds approved by your bank are given to the seller to pay for the property.
You can count on your advisor to follow up on your file and assist with your current and future needs, such as:
Now you're equipped to start the process of buying your first home. If you have additional questions, don’t hesitate to reach out to your advisor. Buying your first home should be a memorable experience. It may be complicated, but experts are available to help you. We’re here to answer your questions.
¹The insurance premium can be added to your total mortgage loan. File review fees and applicable taxes on the premium must be paid separately.
²To be eligible for the Home Buyers’ Plan, the selected home must be located in Canada, purchased or built before October 1 of the calendar year following the RRSP withdrawal and serve as the buyer’s principal residence within a year of being purchased or built. You and your spouse can each withdraw up to $35,000 from your RRSP. You have 15 years, as of the second calendar year after withdrawal, to repay your RRSP. Your annual repayment must be equal to 1/15 of the total amounts withdrawn.
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