The 2017 first-time home buyers guide for Canadians

There have been a number of changes to mortgage rules by governments recently that affect the buying and selling power of individuals when it comes to real estate. Below, we have created a guide to help you through all the steps you need to know about getting a mortgage and buying your first home in Canada in 2017.

Securing your mortgage

Buying a home is expensive. Rarely does a person actually have enough money to buy one outright. This is where lenders come in, giving you the chance to take out a loan that will be secured by the value of your home. That’s known as a mortgage. 

Mortgage Terms Explained

Mortgage terms range from six months to ten years. Typically at the end of a term, you sit down to refinance your mortgage — at which point, you can also change from a fixed to variable rate, or vice-a-versa.

Getting the best rate

Shopping around for your mortgage rate is key. The majority of Canadians still only consult one source (often their bank) when searching for a mortgage. But you’ll never get the best rate that way. Use tools like our rate comparison page to help you find the best mortgage rate for you.

Recent Changes To Regulations

Canada’s banking regulator last month finalized tougher new rules on mortgage lending aimed at safeguarding lenders and borrowers. The new regulations will go into effect on January 1st and mean that borrowers taking out uninsured mortgages must be stress-tested to determine their ability to make repayments at a rate 200 basis points above their contracted mortgage. This will have an affect on both the mortgage market and the real estate market.  

Down payment’s

Your down payment can make a significant impact on how affordable your home is. Being smart with your down payment can save you a lot of money on your monthly mortgage payment. Here’s what you need to know.

What is a down payment?

Essentially, a down payment is the portion you put down towards the value of your home right up front. This payment is then supplemented by the amount someone is approved for with a mortgage.

What’s the minimum down payment rule in Canada?

In Canada, the minimum down payment someone must be able to make is calculated as a percentage of the home’s purchase price. Depending on how much that house costs, the minimum down payment amounts vary.

For the portion of a home’s purchase price below $500,000, the minimum down payment is 5%.

For the portion of a home’s purchase price from $500,000 to $999,999, the minimum down payment is 10%.

For homes valued $1 million or more, the minimum down payment must be 20%.

What’s the 20% rule?

The 20% rule is based on the CMHC rule that any mortgage taken out by someone with a down payment that’s less than 20% of their purchase price will be required to insure their mortgage with CMHC. These are called insured mortgages, and like all insurance policies, it comes with premiums. These premiums are a percentage of your home’s purchase price, but that percentage is determined by the size of your down payment. Typically, it’ll only be 1.80% – 3.60%, but that still adds thousands of dollars to the cost of your home. Use the CMHC calculator to determine your premium.

What about the First-time Home Buyers Plan?

If you’re looking for a way to boost your down payment and you have an RRSP, you can withdraw up to $25,000 from it in a single calendar year to help get you a home. You won’t need to pay taxes on the withdrawn money or pay interest on the money. You will, however, need to pay that money back within fifteen years.

When It’s Time To Start Looking

Will I need a real estate agent?

As a first time home buyer you should definitely be using a professional to help you with your home search. Purchasing your first home is no simple task, and it’s in your best interest to have an expert in your corner who can help you every step of the way. Not only will they have exclusive access to listings you likely wouldn’t be able to find yourself, but they’ll also have the knowledge and expertise to help you navigate what will likely be the biggest and most complex purchase you ever make.

How to pick a neighbourhood

A great way to determine what neighbourhoods will be right for you is to come up with a list of needs and wants. This list will look different for everyone, but some things to consider are:

• Type of home you want
• Proximity to work
• Proximity to transit
• Access to schools and daycare
• Access to trails, parks and outdoor space
• Access to retail and grocery stores
• General walkability
• Overall safety

Prioritize this list and decide what are must-haves, and what are just nice-to-haves. Once you do this, you can start to narrow down which neighborhoods might be right for you and start looking for properties within them.

So, you found ‘the one’ — now what?

Well, with the help of your real estate agent and lawyer, you’ll need to put in your offer. If you’re lucky, the seller will accept it and you’ll be the proud new owner of your very first home!

But sadly, closing the deal isn’t always that easy — in hot markets there’s a good chance there could be a bidding war. A bidding war occurs when there are offers from multiple buyers, all competing to snag the property in question.

All prospective buyers will be blind to what others are offering, and the sellers can accept whichever offer they want — it doesn’t have to be the highest price, but could instead have more appealing conditions (or, in many cases, no conditions at all).

Often, to encourage multiple offers on a property, the selling agent of a property will indicate in the listing that offers should be submitted on a certain date in the hopes that a deadline will result in multiple offers. However, there is nothing stopping an interested buyer in submitting an offer at any time — these offers are sometimes called ‘bully offers’, as they’re meant to entice the seller to accept before they receive any other offers.

The selling agent is obligated to notify the seller of every offer they receive, though usually the seller will tell the buyer’s agent to have them wait until the specified time period. Ultimately, it is up to the seller to accept whatever offer they choose — and not surprisingly, it usually comes down to the highest price.

The closing costs

Buying a house is a huge financial decision, and you’ll need to think beyond just mortgage payments and condo fees. You need to also make sure that you’re planning for all of the extra costs associated with homeownership.

Here are the most common closing and after-closing costs to be prepared for:

Home inspection fees

A home inspection is an in-person inspection of a home’s overall condition and structure. An inspector will examine all major elements of a home and indicate any potential issues, along with a ballpark of repair costs, if applicable.

Getting a home inspection is not legally required, though some lenders may require one. Most importantly, though, it could save you big money in the long run. Typically, home inspection costs will range from $300-$600, depending on the size and type of the home.

Land transfer taxes

Land transfer taxes are calculated based on the purchase price of the home, and will vary by province. Some cities (like Toronto) also have a municipal land transfer tax. As an example, if you were to purchase a $750,000 home in Toronto, your land transfer taxes would be $14,475.

The good news? First time home buyers may be eligible for a full or partial refund on land transfer taxes in some provinces. In our earlier example, as a first time buyer of a $750,000 home in Toronto, your rebate would be $7,725.

Legal fees and related expenses

Working with a real estate lawyer as soon as you’ve found a home that you want to put an offer on is important. Your lawyer will be able to help you in reviewing your offer and explaining it in plain terms, as well as with all of the legal work required on closing day.

You’ll need to pay for your lawyer’s time and expertise, as well as disbursements, which are any expenses they incur, such as registrations and supplies that are required. Legal fees and disbursement costs will vary, but you can expect to pay between $1,000-$2,500 in legal fees.

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Don’t forget all these other little costs

…‘cause they’re not as “little” as you would have hoped. Housing prices and mortgage loans may dominate the home-buying conversation, but these other costs — often overlooked and not planned for in advance — can really add insult to injury.

Appraisal fees

Before you allow yourself to fall madly in love with a home, you may need to pay for an independent appraisal and get a lay of the land (a.k.a. the market value). An appraisal can cost $300-$500 depending on the property and it will give you a snapshot of the property’s current value — it’s also a factor your mortgage broker will consider before they offer you a loan.

Title insurance

Title insurance is meant to protect buyers against mortgage fraud, identity theft and forgery, and any other issues related to the home’s previous owners. While it’s not legally required, it’s a good idea to have it, and it will typically set you back $250-$350.

Property tax and utility adjustments

Based on when you’re buying your home, you may be required to reimburse the seller for any prepaid property taxes or utility bills that they’ve incurred. These fees will vary.

Furniture

Tables and couches and beds — oh my! A 2015 study in the UK found that homeowners spend £15,215 on average to furnish their three-bedroom homes. Convert that to CAD, and the average is about $25,215. But that number moves up or down depending on the size of your home (e.g. one-bedroom condo versus two-bedroom townhouse) and your tastes (furniture to last a lifetime versus furniture you can live with).

Even more fees

Beyond the costs outlined above, there are several other fees to budget for when purchasing your first home. If you’re financing your home with a mortgage, most lenders will require that you have home insurance (and to be honest, it’s a very smart idea to have regardless).

You’ll also need to pay property taxes, which will vary based on where your home is located, and most lenders will allow you to bundle your property taxes in with your regular mortgage payments.  

Also, keep in mind other fees that are likely to come up, such as moving expenses, utility bills and hook-up fees, furniture — and the list could probably go on.

Oh, and if you’re buying a pre-construction house or condo? You could be on the hook for even more fees — sometimes called ‘new-build fees’. You’ll have to pay the HST on your purchase, though you may be eligible for government rebates. New construction homes are also covered by a warranty program, and these fees could be incorporated into the purchase price or could be due at closing — make sure to find out which. There could also be enrollment fees and solicitors fees owed to the builder.

What about home insurance?

A home is a physical asset that you sink a lot of money into — if you fail to protect it with insurance, you’re taking a huge risk that could cost you your home and your investment. You should err on the side of caution and get a home insurance policy.

It’s one more thing to plan for when you buy a home, but it’ll be one less thing to worry about if something goes wrong.

What it does

Home insurance protects both the physical structure of your property and the contents inside. If a fire, storm, or other hazard strikes unexpectedly and damages your home or belongings (appliances, furniture, clothes, etc.), an insurance policy will help cover the repair or replacement costs. The same is true if someone breaks into your home and steals your stuff. Plus, it provides liability coverage in the event someone files a claim against you.

What it doesn’t do

A basic home insurance policy will not automatically cover your high-value possessions — think jewelry or rare art. You may have to add these items to your policy separately. Home insurance also won’t cover damages caused by “uninsurable” perils — hazards that could have technically been planned for and avoided. Floods are a good example; most insurance policies won’t cover flood or water damage, especially if your home is located in an area prone to floods.

How do I get it?

Complete a home insurance quote on our site. Once you fill out our form, we’ll scan the market and send you up to 10 customized quotes. Having all your options laid out will help you pick the policy with the best offer.

What if I rent out my property?

That changes the game. Home insurance is meant for people who will be living in and caring for the property they own. If you will be renting out part, or all, of the residence, you should get a policy designed for income properties — not a standard homeowner’s policy.

Why? As a landlord, you’re at greater risk for a liability claim, so you need more liability coverage. Remember: it’s your responsibility to ensure the property is safe and liveable. Also, you need a policy with reduced coverage for the contents inside the property. Besides appliances and maybe furniture, most of the items in the home won’t belong to you.

And the renter? To be frank, not your problem. Neither a regular home insurance policy nor an income property policy will cover the tenant’s personal belongings — that’s what renters insurance is for.

Renovations and you

In the hot housing markets of Greater Vancouver and the Golden Horseshoe, homeowners are turning tidy profits by selling their homes. On the flip side, however, the skyrocketing prices mean that selling your home with the hopes of upgrading your living situation is becoming increasingly difficult. So many homeowners are forced to stay put — a situation referred to as ‘housing gridlock’ — and are instead upgrading their situations through home renovations.

Tax Credits

Many of the homes or condos that are within reach of first-time home buyers often need some work. Unfortunately, there’s not much in the way of federal tax credits for renovations, unless the first time homebuyer is 65+ before the end of the taxation year, or qualifies as a person with a disability. In which case, they would qualify for the Federal Home Accessibility Tax Credit (HACT). This non-refundable tax credit, which maxes out at $10,000 per year, applies to renovations that improve the safety or accessibility of a home, including hand rails, walk-in tubs, and widened doorways.

There are also provincial home renovation tax credits in B.C., Ontario, Quebec, and New Brunswick. Similarly, these credits apply to household upgrades to accessibility and safety, with the exception being Quebec, which offers ‘RenoVert’, a refundable tax credit for eco-friendly home renovations. Because provincial tax credits change regularly, it’s advised to keep a close eye on the regulations in your province of residence.