For many Canadians, purchasing a home is a dream come true, and it is arguably the biggest investment you will ever make. Purchasing your own home means that you are able to provide yourself and your family with stability and financial security. It is a major step in building your future wealth. Home ownership has a number of important benefits which are often unavailable to those renting.
Benefits of Owning a Home
Owning a home means financial responsibilities, but those responsibilities have numerous advantages. Each and every mortgage payment you make helps to build equity in your home. This is also excellent for your credit rating as it shows that you are responsible when it comes to finances. Additionally, as your home appreciates in value, your future wealth grows, helping you feel secure with future plans.
No more landlord
As a renter, you are building wealth for your landlord. In contrast to a mortgage payment, the rent you pay each month does not actually help you in any way as far as building equity or preparing for the future. Purchasing a home eliminates this wasted money. Additionally, you will no longer have to worry about lease renewals, moving and rent increases, nor will you have to be concerned about the landlord selling your rental unit or being forced to leave.
Your own space
You will be free to paint, decorate and remodel in whichever way suits your fancy. You can choose to build an addition as your family grows, or perhaps rent out space and become a landlord yourself. A home is a great place put down roots and raise a family. You choose what you want from your home and how you’ll achieve it.
The Home Buying Process
Buying a home can be a stressful process. There are many different moving pieces, all requiring consideration. Use this guide to familiarize yourself with the home buying process and to make informed decisions every step of the way. The more educated you are about buying a home, the better the experience will be.
Remember: you don't have to do it alone. Whether you decide to use the tools provided here or rely on your mortgage provider, we can always help in whatever way best meets your needs.
1. Determine How Much You Can Afford
The most important thing you can do at the beginning of the home buying process (before you even start looking at homes) is to determine how much you can afford. A great way to do this is to sit down with your mortgage provider to see how much money you can afford to pay each month. During this meeting, you mortgage provider will look at your income, assets and debt information and determine the amount you can reasonably afford. It's quick, easy, and we keep the paperwork to a minimum.
Once all of the paperwork is signed, your mortgage provider will seek approval for the loan. This means that the mortgage provider will take a full application from you containing all of the above information and validate your credit-worthiness. You can also apply online through our secure online application.
Why is an approval so important? Getting approved for a mortgage is a smart idea for the serious home buyer. Real estate agents want to make sure you are serious and you don’t want to search for the perfect home, find it, but then lose it waiting for the approval to go through (or worse, applying and finding out that you just can’t afford that perfect home).
For a general idea to determine how much you can afford, check out our Mortgage Calculator.
2. Down Payment
In Ontario, the minimum down payment required is 5%, subject to maximum price restrictions. In addition to the 5% down payment, you must also be able to confirm that you can cover costs incurred to close your mortgage. These costs may include legal fees, appraisal fees, survey certificates, etc., and are discussed in more detail below. If you qualify, the 5% down payment can be borrowed with an additional default insurance premium added to the mortgage (an extra 0.15% if you are using a cash-back mortgage or borrowing the funds (from credit card, line of credit, etc) as your down payment.
In many cases, the following may also be used as a down payment:
- Registered Retirement Savings Plan (RRSPs may be used as a down payment up to a maximum amount of 20,000 and may not be subject to income tax if repaid within a specific time period)
- Accumulated savings
- Sale of existing home
- Sweat equity
Most lenders will also accept a down payment that is gifted from a family member. A gift letter is usually required to be signed by the donor to confirm that it is not a loan.
Don't let saving for a down payment be the reason to put your dreams of owning your own home on hold. We offer a variety down payment options for qualifying borrowers. Not only will you be able to afford a home sooner, you'll probably be able to afford more than you think!
3. Closing Costs
There are certain standard costs associated with purchasing a house and as mentioned, you will be required to demonstrate that you can cover these costs in addition to the down payment.
These are mostly one-time fees that are required to finalize the sale of the home and ensure you are protected through the transaction. These typically cover third party fees such as appraisals, credit reports, title insurance, lawyer fees, recording fees, and tax service. Other fees you will often see include the processing, underwriting, funding and document preparation fees.
4. Overview of the Loan Process
Many people view the loan process as time-consuming and tedious, but it doesn't need to be! To make it even easier, we’ve developed an online application that you can complete on your own schedule, then submit when complete. As soon as you've finished the application we'll review your request for approval. If your application is approved we can begin to process your request immediately.
After your application is completed, your mortgage provider will contact you and answer any questions you may have.
If you are purchasing a new home, your mortgage provider may also be in contact with your real estate agent and real estate lawyer so that they'll know who to contact with questions.
5. Loan Application
The loan application is a detailed form designed to provide information from you that your lender will need. Lenders use the application to evaluate whether you present a comfortable enough risk to provide funding, and if you do, the amount of money they can lend you. Two of the major determinants here will be your credit history (credit report) and current income.
The loan application form will request information such as . . .
- Bank account(s) name and balances
- Information regarding where you work, how much you make and additional sources of income you may have
- Outstanding debts (installment loan(s) and credit card(s) with names, payments and balances)
- Recent income tax assessments
- Information about your present mortgage (or rent) will also be required, such as:
- Current monthly payment
- Outstanding mortgage balance
- Status of property tax and insurance payments
- The lender's contact information
6. Credit History
When a lender reviews your credit history, they will examine all of the information in your credit report. This includes your credit cards, student loans, car loans, public records (judgments and bankruptcy) and other loans, their amounts and a history of payments. The lender wants to know your behaviour regarding payments – for example, do you pay on time or are you often late? Your credit report will also provide a credit score based on your credit behaviour.
What is a Credit Score? Credit scoring is a quick, accurate, and consistent scientific method for assessing credit risk. Your credit score is based on data reported to the credit reporting agency by creditors and this data presents a picture illustrating your credit history and payment behaviour.
Credit scores are calculated by statistical models that assign points to factors indicative of repayment. Credit scores are based on data rather than human judgment, making credit scoring an objective risk assessment tool as opposed to a subjective one. Credit scores range from 300 to 850, but the majority of scores fall within the 600s and 700s. Higher scores indicate a lower credit risk. You want your scores to be high!
7. Finding a Home
With your approval safe in hand, you can now embark on the most important part of the home buying process - and arguably the most fun - finding your dream home.
Start by making a list of the most important things you are looking for in a home. Here are some pointers to keep in mind during your search:
- Is it close to your job?
- Are there good schools located in the area?
- Is it on a busy street?
- Is it in a safe neighbourhood?
- Is it close to a bus line, grocery store, and other amenities?
- Do you like the neighbourhood?
These are just a few things to consider when deciding on location.
Type of Home
- Are you looking for a condo or a single family home?
- Do you have your heart set on a bungalow or would you prefer two stories?
- Do you want outdoor space?
You’ll have to decide which type of housing will best fit your family and lifestyle.
Size and Features of the Home
Next, think about what you need from that home. How many bedrooms and bathrooms do you need. What size home are you looking for? Also think about the age of the home, heating and air conditioning, etc.
Using a Real Estate Agent
Working with a real estate agent is often the best way to get exactly what you’re looking for. Check to see if there is a real estate provider on your mortgage provider’s HomeBenefit website. The real estate agent is paid by the seller of the home, so don't worry about the cost. Hiring an agent will cut down on your search time and help tremendously when negotiating the sales price and any seller concessions.
Your mortgage and real estate providers are here to make sure that finding and financing a home is a friendly and rewarding experience for you! This is one of the biggest purchases you will make, so ensure that you have a good team representing you and your best interests!
8. Making an Offer
Congratulations! You have found the perfect home and you’re ready to make an offer. Now it is time to negotiate a price with the seller. When you are ready to make an offer to purchase a home and have settled on a price that you are comfortable with, your real estate agent will prepare a Purchase and Sale Agreement. This will have the price of the home, property address, type of financing you have selected, closing date, inspection and financing contingencies and many more items. This is a legal and binding agreement. This agreement is then presented to the listing agent (or the seller if there is no agent) by your real estate provider who will then help negotiate on your behalf if the seller counteroffers.
Keep these things in mind for your initial offer:
- Put everything in writing to make sure there is a clear understanding of your offer. Ask for everything you want upfront, and make sure it’s in the Purchase and Sale Agreement!
- You may also want to include special contingencies in your offer. A contingency requires a certain act to be performed in order for the contract to take effect. Some of the more common contingencies are a home inspection, clear title, financing, repairs, environmental concerns, and appraisals. There are many other contingencies you may want to consider and your real estate provider can help you decide which are most relevant to you.
9. Home Inspection
It is HIGHLY recommended that you hire a professional to perform a home inspection on the house you are interested in purchasing. A home inspection is an objective examination of the physical structure and systems of a home. Make sure the professional you hire inspects all the major systems in the house, such as heating and cooling, plumbing, and electrical.
If problems are identified, it doesn't necessarily mean you shouldn't buy the house. However, you should be aware of potential repairs. A seller may adjust the purchase price or contract terms if major problems are found. Or, you may decide not to purchase the home.
If you do not have a home inspection completed prior to closing, there are no guarantees that the house in is good (or even safe) condition and you may not be protected if circumstances arise after closing.
Once you have a signed the Purchase and Sale Agreement, the loan closing wheels start to turn.
At or before the closing, you should receive the original or copies of the following:
- Closing Disclosure
- This document itemizes the funds the buyer and the seller will pay at closing.
- Often called the promissory note, this represents your promise to pay the lender according to the agreed upon terms of the loan, including when and where to send your payment.
- A written declaration made under oath before an authorized official. You'll sign various affidavits at your closing verifying information such as your address, place of employment, bank account number and more.
- This document transfers ownership from the seller to you.
After your closing is completed, keep any paperwork you receive in a safe place. Remember to keep a copy of every document you have signed.
Homeownership brings both rewards and responsibilities. It's important to keep both your home and your finances in good shape. This means managing your money wisely to ensure you can meet your obligation to repay the mortgage loan. This will enable you to make your home's equity work for you.
Congratulations on getting started on the purchase of your new home! It’s a GREAT investment in your future!