Are you an immigrant? If so, you already know that a great deal of preparation is required before you arrive in your new country. One such task can be buying your first home in Canada. This is an important part of feeling at home and can be realized more easily if you follow this step-by-step guide to buying a home.
Rest assured: your status as a newcomer makes virtually no difference to the process of buying a property, apart from advice tailored to your reality.
Regardless of your situation, certain key steps are essential before you can move into your future home.
Since each country and financial institution differs in terms of mortgage lending (commonly known as a mortgage) and the language associated with it, it may be helpful to familiarize yourself with the terminology before jumping in.
In Canada, it’s not possible to buy a home without a down payment.
A so-called conventional mortgage is one with a down payment equal to 20% or more of the purchase price of the property. Mortgages with a down payment between 5% and 19.9% of the purchase price must be insured (by a mortgage insurer).
In these cases, the loan insurer will charge a fee. However, in some cases, being insured will allow you to get a better interest rate.
Amortization is the number of years for which the mortgage will be taken out. At the end of this period, the residence will be paid off. It often lasts 25 years.
Amortization is usually 25 years, sometimes less, and generally divided into five terms of five years each. Terms may also be longer or shorter. The term is the period during which you will have to pay off your mortgage according to the terms of the contract.
At the end of the term, the interest rate for the next term is recalculated and a new contract is signed. In other countries, there are no terms.
This is the amount paid periodically to pay off your mortgage. Often, the funds are debited from your bank account. Payment frequency varies, but several options are available for borrowers. As a general rule, payments are monthly, every two weeks or based on an accelerated schedule.
You can choose between a fixed rate and a variable rate. Fixed interest rates stay the same for the entire term. They are often higher because they are less risky. While a variable rate is sometimes more advantageous, it can also be higher than a fixed rate since it fluctuates with changes in the economy.
For more definitions, check out this article that details other terms used in the mortgage field.
Now that you are more familiar with the subject, you need to meet all the requirements to be able to buy a home:
You must prove that you have sufficient funds for the down payment. And you must have had the funds for at least three months when your file is examined. Even if the money comes from overseas, you must have it in your possession and be able to prove where the funds came from.
You must have a bank account and a good credit record. Signing up for a credit card will allow you to establish your credit report, also known as a credit bureau score, required by the bank and a mortgage insurer. Most financial institutions grant credit cards to newcomers. You may not have a credit report or may have a credit report from abroad. In the latter case, the report will not follow you to Canada.
"Your credit score must be generated by a Canadian credit bureau, which is why it's important to get a credit card as quickly as possible. Two to three months of use is enough to build a history. But never exceed the limit and pay off the balance in full every time you receive your statement. At the very least, make the minimum monthly payment owed," says Nicolas Stephan.
Additional documents may be required for the advisor to assess your credit record and debt ratio. "Clients must also be able to demonstrate their creditworthiness through utility payments duly made (electricity bill with Hydro-Quebec, for example) over the past 12 months," says Nicolas Stephan. Also note that you do not need to have rented home before buying a property.
Some financial institutions may require a resident visa to grant you a loan. Make sure you understand the conditions before choosing one.
Mortgage pre-approval can be very useful, as it makes the process easier for you in three ways: it determines how much you can borrow for a mortgage, it gives you more bargaining power with the seller, and it locks in your mortgage interest rate for 60 to 120 days. A mortgage advisor can help you get preapproved.
Whether you've just moved to Canada or have been here for a few years, it's important to analyze the real estate market before buying a condo or a house, or deciding to rent.
It’s necessary to assess whether the market is rising, declining or relatively stable. This may differ from province to province and neighbourhood to neighbourhood. "When demand is very high, we often see bidding wars," explains Nicolas Stephan. On the other hand, when the real estate market is sluggish or declining, prices may fall. It can be beneficial to buy, which is why it's important to keep on top of the market.
Your new country is vast, and there isn't just one real estate market, there are many and the differences between markets can be very substantial. Prices, for example, vary enormously.
A real estate broker remains one of the best allies for buying your future property, believes Nicolas Stephan. "Brokers will accompany you and guide you from A to Z according to your needs."
They are familiar with the real estate market, up-and-coming cities and neighbourhoods, required inspections, etc. However, you do not need to use their services. If you decide to do so, check their record with the organization that governs real estate practices in the province where you live.
There are as many cities and neighbourhoods to live in as there are individual needs. Just tell your agent what your priorities are and what you are flexible about (proximity to main roads and public transit, presence of shops, services, schools and daycares, dynamic neighbourhood life, architecture, etc.). Also visit the places where you want to move and don't limit yourself to just one neighbourhood. This is a plus, especially if you're a newcomer buying your first home.
Real estate brokers are paid through a commission negotiated before a property is sold. This is often a percentage of the amount of the sale, usually between 2 and 6%. The seller pays the broker.
However, be aware that it is normally up to the buyer to pay the costs related to property inspections as well as legal fees.
"Whether you're a first-time buyer, a newcomer or both, we all need reassurance. What comes next is the same, regardless of who you are and how long you've lived here," explains Nicolas Stephan.
Don't forget to make a budget before buying a property. There will be other costs apart from your mortgage. Consider, for example, municipal and school taxes, insurance, departure fees and start-up costs (real estate transfer tax, legal fees, moving expenses, etc.).
You can also start house hunting at this point. Once the offer to purchase a property is accepted by the seller, you will have to prove your financing. This evidence is issued by the financial institution. If you have already obtained your pre-approval, this step will be much simpler.
Consider requesting an independent inspection of the property, especially if it isn’t new. An expert could identify quirks in need of repair on your future property.
You should now be ready to contact a mortgage advisor and buy a property. We’re here to answer your questions.
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