Buying Your First Home In Canada
Updated: May 30, 2022
Buying a home can be a stressful task for any Canadian. Buying a home as a new comer can seem even more intimidating. Not only do you have to go through all of the unknown steps, but you’ll also have to learn the system. Additionally, depending on whether you are a permanent resident or non-resident, there will be different hoops you’ll have to jump through.
In Canada, there are four statuses you can have if you are in the country:
Citizen – This means you were born in Canada or are naturalized. These people can vote and come and go in the country as they please;
Permanent Resident – This person can live and work in Canada and receive some of the benefits that citizens receive. However, they cannot vote, get a passport, or run for any office;
Deemed Resident – This is someone who has been in Canada for more than six months or has residential ties to the country. They have few social benefits and are normally people who are trying to become permanent residents; and
Non-Resident – This means the person has not been in Canada for six months or resides in another country. These people do not have any social benefits.
There is a lot to learn, especially if you are a new Canadian. At Active Homes, we want you to go into your home purchase journey with all the information you need. So we’ve compiled some information you need to know before looking for a home.
Can I Buy A Home In Canada?
Anyone can buy a home in Canada. There are foreigners who own property in this country. Some use their place as a vacation getaway, and others use it as a rental property.
So, the question isn’t can I buy a home in Canada; it’s should I buy a home in Canada, particularly if you are a non-resident.
There are some municipalities in Canada that are struggling to house all of their residents. Part of the issue is foreign house purchases. For example, Vancouver has seen a spike in property owned by foreign investors, which are then rented out. Because of these purchases, there has been a significant increase in costs for housing and rent.
In an effort to discourage foreigners from buying too many properties, there is now a foreigner tax in place. Anyone outside of the country purchasing homes has to pay an additional tax. This is also in place in certain parts of Ontario.
Also, if you are a foreigner and own land in Canada, you have to abide by the Canadian tax rules of land ownership.
Look for more information about this topic here.
Qualifying For A Mortgage
Several factors will be considered if you are applying for a mortgage. People who don’t meet the basic requirements often struggle with getting a mortgage.
Firstly, any lender you approach will want to see your income. You must have credible documentation that shows how much you earn each year. This can be demonstrated using pay stubs or tax returns.
You’ll also need to outline your assets and liabilities. They need to know how much you owe and how much equity you have in other items. Again, proper documentation must be shown. Lenders will also look at the amount you have for a down payment. The higher it is, the more likely you will qualify for the mortgage.
Down Payment Requirements
There is a minimum down payment required to purchase a home. This is typically 20 per cent; however, if the house is over $500,000 things get a bit more complicated.
This down payment must be made up of at least 5 per cent of your own money. The remaining 15 per cent can be a gift from a family member or friend. It cannot be a loan, those who give need to understand they will not be receiving that investment back from you.
Your Credit Score
If you want to get approved for a mortgage, you need to pay attention to your credit score. Credit levels lower than 700 are a red flag for lenders. This number tells the banks several things:
- If you are behind on payments;
- If you have a high debt-to-income ratio; and
- If you are often trying to get loans.
You’ll need to do a soft credit check to see your score. There are free sites like Borrowell or Credit Karma. The higher the number your credit score is, the easier it will be to get a mortgage.
Understanding The Mortgage Payment
Your mortgage payment might just look like a number, but it’s a bit more complicated than that. For starters, the charge itself doesn’t all go toward paying off your mortgage.
The payment includes payment toward the principal balance (the cost of the loan) and interest payments. The lenders make their money off the interest payments, which is accrued each year. Finally, in some cases, property taxes are included in the mortgage payment. This means the amount can fluctuate over time.
Remember, the more you have for a down payment, the less interest you have to pay on your home. It will make your payments smaller, and you’ll own the house much sooner.
Before purchasing a house, it’s important to get pre-approved for a mortgage. If this crucial step is missed it could lead to major disappointment. A pre-approval does a couple of things. First, it locks in the interest rate for the mortgage. If the rate increases while you’re still looking for a house, you won’t have to worry about it.
Secondly, it tells what kind of house you can afford. If you are only pre-approved for $200,000 you aren’t going to waste your time looking at properties that cost more. You’ll need to have your documentation ready for the lender to look at to get pre-approved.
Budgeting For Closing Costs
This is an area some people forget to plan for. Purchasing a home involves a lot of different services, such as lawyers, Realtors, and lenders. These people will also require payment for their services. The lenders will make their money through your interest payment, but your lawyer and Realtor will not.
After you get your mortgage settled and in place, you’ll still need additional money for the lawyers to create the necessary documents like the Land Title. On the other hand, Realtors get paid through the seller.
You need to clearly understand all of these fees before purchasing a home so you know you can afford to finalize the sale.
Photo credits: https://stock.adobe.com/ca/