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5 Things to Consider When Buying a House in Canada

Purchasing a house comes with lots of information to read and understand. It can feel like learning a new language at some points! But for potential buyers, the first crucial step focuses on money — and exactly how much you need to buy your new home.

 

Following this checklist and asking yourself these key questions will help you break down the house-buying process and make your path to home ownership easier to understand and plan for. Here are the basic steps to buying a house.

Sep 9, 2021 in Life

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#1: What’s my house-buying budget?

Start by figuring out your monthly household income, before taxes. Consider aiming your total home expenses to be around 30 to 35 percent of your monthly income. You’ll also need to come up with a down payment, which should be taken from savings and paid to your mortgage provider in a lump sum.

 

Next, consider mortgage rates and amortization schedules. A mortgage rate is the percentage of interest you pay on the principal loan (a.k.a. the amount you need to borrow). Rates vary from lender to lender, so it’s worth doing some research before you lock in. The amortization schedule is the number of years you’ll take to pay off the loan plus the interest.

 

A couple of pro tips: While longer amortization schedules may mean lower monthly payments, choosing a shorter timeline can help you save thousands in interest charges over the lifetime of the debt. Also consider choosing biweekly mortgage payments — making 26 installments in a 52-week period is equivalent to making 13 monthly mortgage payments instead of 12 every year. This pays your principal down faster, so you can save on interest and possibly shave a few years off your debt schedule.

Costs to include in your house-buying budget

If you’re creating a spreadsheet to track your home-buying costs, these are the line items to add.
 
  •  Down payment: This is the amount of the purchase price that is not financed by the mortgage loan and must be paid by the buyers own funds. When homeowners put down less than 20 percent of a home’s purchase price as a down payment, it would be considered a  high-ratio mortgage which would require the purchase of mortgage loan insurance.
  • Mortgage loan insurance: This insurance protects the lender in case a homeowner cannot make payments.: Mortgage loan insurance is required if you are buying a home with a down payment of less than 20%. There may be cases where this insurance is also required for Home buyers who are making a down payment higher than 20% if for example, they have poor credit ratings Land transfer tax Thisis calculated based on the purchase price of your new home. Unless you’re a first-time home buyer who is eligible for a rebate, expect to pay a few thousand dollars for this item.
  • Property insurance: Most mortgage lenders require proof of home insurance before the closing date. Even if you don’t move in right away, insurance protects your property against damage, or liability if someone injures themselves on-site.
  •  Legal fees: Legal fees can be anywhere from a few hundred to a few thousand dollars. 
  •  Realtor fees: A realtor’s commission is typically between three and seven percent of a home’s purchase price. The seller usually covers this, so if you’re the home buyer, you don’t have to worry about it.
  • Moving fees: Moving costs can range from a few hundred to a few thousand dollars, depending on the size and contents of the home you’re moving from, how far you’re going and whether you’re going DIY or paying for a moving service. There can be additional fees for extra-heavy items, like pianos, and renting elevators in high-rises, so ask ahead of time. And don’t forget to redirect your mail, which isn’t free but is comparatively inexpensive.
  • Professional cleaning fees: This nice-to-have option means you don’t have to worry about the state the previous owner left your new home in. Having a professional clean your old place can take the pressure off you, too. 
  •  Property taxes: Municipal taxes vary by region and should be factored into your monthly home expenses. 
  • Condominium/maintenance fees: Condo fees also vary and are usually paid monthly.  
  • Home upgrades: Not all homes come with appliances, which you may have to purchase before you move in. A new-to-you home could also need a roof replacement, an electrical upgrade or a bathroom remodel . It pays to plan.

The good news is that the right credit cards can help you earn rewards on purchases to set up services such as moving trucks, internet hookup fees, professional cleaners and even pizza deliveries for busy packing and moving days when you pay with the card. You might choose one that earns you points for example, which may be redeemed for gift cards  to spend on goods and services that make your new home comfortable. Explore American Express® Cards  to find the one with the best benefits that suit your needs and lifestyle.

Savings that could help your house-buying budget

Some potential home buyers are eligible for programs that can help reduce costs. Check with federal and provincial legislation in your area to see if you qualify for any of the following.

  • Land transfer tax rebate: In some provinces, first-time home buyers can benefit from this rebate, which offsets the costs of land transfer tax.
  • First-Time Home Buyers’ Tax Credit: This federal refund can be claimed on your personal tax return.
  • GST/HST New Housing Rebate: Newly constructed homes are subject to GST/HST, which can be rebated for those who qualify.

#2: What are my financing options for buying a home? 

A traditional mortgage is the route most Canadians take. But they aren’t one-size-fits-all. Here are two sets of options you’ll consider when you’re making your choice. Once you've decided on the first, you'll have to select the second option as well.

Open vs. closed mortgage

  • Open mortgage: This type typically has a higher interest rate but is more flexible in terms of payment schedule. It allows the borrower to prepay without incurring penalties.
 
  • Closed mortgage: This type often has a more-attractive, lower interest rate but is less flexible, with specific rules around prepayment. It typically cannot be renegotiated or refinanced before its end date, and the borrower can be penalized for making installments ahead of schedule or above a determined limit.

Fixed vs. variable interest rate 

  • Fixed interest rate: This rate is locked in for a specific period of time and cannot be changed.

 

  • Variable interest rate: This rate fluctuates during the term of the mortgage, so the amount of each payment required that is applied toward principal and interest varies as well.

A home equity line of credit, also known as a HELOC, is another option that allows people to borrow money against a home’s equity (i.e., the value of your house or condo) and can stand in for a traditional mortgage. For either a traditional mortgage or HELOC, speak to your loan provider and learn all the specifics to ensure you know exactly what your monthly payments will be.

 

A good credit rating is essential for securing a mortgage and reducing costly mortgage loan insurance fees. Learn how you can build credit, improve your credit history and strengthen your credit savvy.

#3: How do I pick a real estate agent?

Agents guide clients on market availability, act as go-betweens on offers and counteroffers, and manage the paperwork involved in all of these transactions. Some agents also assist with home inspections and staging. All agents earn a commission on each home sold.

 

To find the right agent, a personal referral is a great start. You’ll also want to confirm that this person is up-to-date on market trends, is experienced in buying and selling the kind of home you’re looking for and suits your personal style.

#4: How do I pick a real estate lawyer?

Real estate Lawyers review real estate contracts on your behalf and point out anything that may not be in your best interest. They also examine title records to catch any suspicious legal activity (also called a title search), draft title deeds, prepare the mortgage, close the sale and hand over your keys.

 

Lawyers subtract their fees, and the real estate agent’s fees, from the proceeds of the sale. They would usually then issue you documentation showing how much money went where. To find the right lawyer, you’ll want a real estate law specialist who is familiar with provincial regulations and is easy to work with.

#5: What can a home inspector do for me?

A home inspector can identify parts of a home that are unsafe or need repairs. By looking at every corner of the property, they can help buyers understand the condition of the home and negotiate a fair price.

 

A typical home inspection costs about $500, which the buyer pays upfront. (Note: You may need to conduct multiple inspections in your search for a new home.) Sometimes your real estate agent can offer a list of home inspectors. If you find someone independently, they should be prepared to offer excellent references.

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