6 Things You Must Do Before Buying Your First Home in Canada
Purchasing a home in Toronto is an exciting prospect. But with the Toronto real estate market being one of the hottest in Canada (the average cost of a detached home being $921,000 and the average cost of a condo being $740,000, it can also feel a little overwhelming – especially if it is your first home.
So to make the process a little easier for you, we have put together this step by step guide for buying your first home in Canada.
Step One: Save for a Down Payment
Before you start looking at homes for sale in Toronto, you will want to save up some money for your down payment. This is the amount of money that you will use as an initial payment toward your home and having it saved will help to show your mortgage lender that you are responsible with money and that you will be able to handle your mortgage payments.
Your down payment will usually be between 5% and 20% of your purchase price for the home. If you can save at least 20%, you can usually avoid paying for CMHC mortgage default insurance and this can save you quite a bit of money over the amortization period of your mortgage.
Step 2: Save up your closing costs
While most people know they need to save up for a down payment, some people buying a home in Toronto, may not realize that they should also be saving for closing costs. These costs include things like legal and administrative fees, title insurance, a home inspection, and so forth.
Generally speaking, your closing costs can range between 1.5% and 4% of your home purchase price.
Step 3: Prepare your finances
Before you start shopping your favourite Toronto neighbourhoods to find your dream home, you will want to make sure that your finances are in good shape so that you can qualify for a mortgage.
Start by checking your credit. Your credit score is a number between 300 and 900 that measures the health of your credit. To check your credit, call one of the major credit bureaus (TransUnion or Equifax) – you can get one free report per year from each of them, so if you space it out, you can get a free credit report every six months.
If you see any outstanding charges on your credit report that shouldn’t be there, work with the credit bureau to have them removed. And if your credit score is lower than it should be (you will generally need a score of over 660 to qualify for a traditional mortgage in Canada), take steps to start repairing your credit.
Next, start organizing your financial information. When you do apply for a mortgage, you will need proof of income (such as pay stubs or T4s), proof of assets (such as RRSP and TFSA statements), information about debt or payment obligations (such as child support), etc.
The more of this information you can gather ahead of time, the smoother the process will go.
Step 4: Get a mortgage pre-approval
The next step is to get pre-approved for a mortgage. This is important for a couple of reasons. For starters, it will help you to know what you can afford to spend on a home; and also, many Toronto real estate agents won’t work with you until you have been preapproved for a mortgage.
To get a mortgage pre-approval, it is best to work with a professional mortgage broker who can assess your situation and help you get the best possible interest rate and terms for your circumstances. They can also guide you through the process to help you avoid unnecessary delays.
Step 5: Access first-time home buyer incentives
As a first-time home buyer, there are many programs you can access to help make buying a home easier and save you a lot of money. Some of these programs include the RRSP Home Buyers Plan, the First-Time Home Buyers’ Tax Credit, and the Land Transfer Tax Rebate.
A professional mortgage broker will be up to date on all of the current programs for first-time home buyers and can help you determine which ones you are eligible for.
Step 6: Start House-Hunting!
Now that you’ve got all the necessary approvals in place, it is time to start your Toronto real estate search! Working with a professional real estate agent is highly advised – especially for your first home! Toronto real estate agents are familiar with Toronto neighbourhoods – they can provide you with the expert advice you need, help you negotiate offers and avoid potential pitfalls.