7 steps to buying your first home

28 February 2022 by National Bank
Keys in the door lock of the new home you just bought.

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.

Image maison neuve

Getting ready to become a first-time homeowner

Ready to buy a home?
We’re here to help!

Check out our guide

7 steps to buying your first home 

1. Assess your borrowing capacity

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 home.  

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: 

Consider calculating your mortgage payments (the payments you will make to repay your loan). Make sure you stay within your personal budget. Remember to leave yourself some money to: 

2. Determine your down payment  

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? 

  • You can use the following for your down payment: 
  • Cash (such as the money available in your bank accounts) 
  • Investments (you can grow those with a systematic savings plan) 
  • Gifts (from a family member for example) 
  • Your RRSP 

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: 

  • You must start repaying it starting the 2nd year after your withdrawal (for example, you must start repaying a withdrawal made in 2021 in 2023) 
  • It must be repaid in full within 15 years. 

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. 

3. Request mortgage pre-approval 

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: 

  • Prove to sellers that you are credible buyer 
  • Increase your negotiating power  
  • Give you an advantage over other buyers (who are not pre-approved) 

To get pre-approved: 

4. Plan for additional costs 

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. 

Stay informed

Sign up for our newsletter to get recent publications, expert advice and invitations to upcoming events.

5. Find your home  

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: 

  • What area, neighborhood or town are you interested in? 
  • What type of home would you like (single-family, condo, duplex)? 
  • What features of a home are most important to you? 
  • Are there short-term costs to consider (landscaping, renovations)? 

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. 

6. Make your offer 

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: 

  • Purchase price 
  • Ownership transfer date 
  • Items included in the transaction (or excluded) 
  • The terms and conditions of the offer to purchase (e.g., inspection) 

You may have to adjust your offer if the seller makes a counter-offer, which means reviewing the terms so both parties are happy. 

7. Take out a mortgage loan 

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 application. 

It’s time to start thinking of the financing that meets your needs. Among the elements to consider:  

  • The type of interest rate on your loan: fixed rate or variable rate  
  • The term of your loan:  A period during which you will have to repay your mortgage in accordance with previously selected conditions  
  • The amortization: The total number of years you have to repay your loan 

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.  

  • Offer to purchase  
  • Proof employment and proof income  
  • Proof of down payment and assets 
  • An assessment of your loan insurance needs 

This step can take several days because some documents have to come from third parties such as your employer. Then, you will need to: 

  • Confirm the value of your property 
  • Get approval for your financing (some conditions may apply) 
  • Register the property ownership transfer 

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.  

Follow up 
You can count on your advisor to follow up on your file and assist with your current and future needs, such as: 

  • Administrative changes (e.g.: frequency and date of mortgage payments) 
  • Renewing your financing  

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.

 

Thinking about buying? For your questions, we're here to help.

Make an appointment

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.

 

Legal disclaimer

 

Any reproduction, in whole or in part, is strictly prohibited without the prior written consent of National Bank of Canada.

The articles and information on this website are protected by the copyright laws in effect in Canada or other countries, as applicable. The copyrights on the articles and information belong to the National Bank of Canada or other persons. Any reproduction, redistribution, electronic communication, including indirectly via a hyperlink, in whole or in part, of these articles and information and any other use thereof that is not explicitly authorized is prohibited without the prior written consent of the copyright owner.

The contents of this website must not be interpreted, considered or used as if it were financial, legal, fiscal, or other advice. National Bank and its partners in contents will not be liable for any damages that you may incur from such use.

This article is provided by National Bank, its subsidiaries and group entities for information purposes only, and creates no legal or contractual obligation for National Bank, its subsidiaries and group entities. The details of this service offering and the conditions herein are subject to change.

The hyperlinks in this article may redirect to external websites not administered by National Bank. The Bank cannot be held liable for the content of external websites or any damages caused by their use.

Views expressed in this article are those of the person being interviewed. They do not necessarily reflect the opinions of National Bank or its subsidiaries. For financial or business advice, please consult your National Bank advisor, financial planner or an industry professional (e.g., accountant, tax specialist or lawyer).

TMSagen is a trademark of Genworth Financial Canada, the mortgage insurance company.)

Tags :

Categories

Categories

Image maison neuve

Getting ready to become a first-time homeowner

Ready to buy a home?
We’re here to help!

Check out our guide