Buying your first home is an exciting time, but it can also be a daunting process, especially if you’ve never gone through the process before. As a first-time home buyer in Canada, there are a lot of people to talk to and lot’s of things to consider. We’ve put together this guide to give you an overview of the home buying process in Canada, from finding the right professionals to help you, to securing financing. Perch is here to help you navigate the complex world of real estate and make informed decisions to help you purchase your home.
Step 1: How much house can I afford?
Your ability to buy a home is mainly determined by three factors:
Do I have enough savings for a down payment?
When you buy a property, it will be through a combination of your savings and a mortgage. The portion coming from your savings is referred to as your down payment. You’ll want to keep the money you save protected and easily accessible. Short-term savings and investment options can include savings accounts, guaranteed investment certificates (GIC) and low-risk mutual funds. Other options other than your savings to come up with a down payment include monetary gifts from immediate family, credit cards/lines of credit and RRSP loans.
Do I make enough income?
Your qualifying income will determine how much mortgage you can afford. Your income will be used in your mortgage stress test, which are rules laid out by the government to dictate how much someone can borrow. There are 2 main ratios, the Gross-Debt-Servicing (GDS) and Total-Debt-Servicing (TDS) ratios. GDS is the percentage of your income that goes towards your mortgage payment. For most lenders the acceptable amount is 39%. Other lenders who have different qualifying criteria can go as high as 50%. TDS is the percentage of your income that goes towards your mortgage and existing debts such as credit cards, loans or anything else that you make a monthly payment on that shows up on your credit report.
Is my credit score high enough?
Your credit score can be obtained through a credit bureau, such as Equifax or TransUnion. Credit scores range from 300 to 900 (highest). A low credit score (under 650) doesn’t mean you can’t get a mortgage, it just means your mortgage rates will likely be higher and you will not be eligible for mortgage insurance (so you need at least 20% down payment). Mortgage brokers will use credit reports which will give information on the history of your payments and the status of your current balances and credit facilities. However, banks have a different type of credit report that has more data that they rely on.
Step 2: Mortgage pre-approval
The next step in the home buying process is to get a pre-approval from a lender.
A pre-approval will determine how much mortgage you can afford. At Perch, we underwrite in advance and provide a safe to bid price so you know exactly what you qualify for. Underwriting involves assessing your financial situation. We will need things such as your job letter, paystub, T4, NOA and bank statements to ensure we use all of your available income to maximize the amount you can be approved for.
When you sign-up for Perch, you can upload your documents online and get pre-approved fast.
Step 3: Buying the home
Now that you’ve got your budget and finances sorted out, it’s time to find your realtor and start shopping for your home. If you don’t already have a realtor, check out this article for a list of questions you should be asking in your search to make sure you find a realtor that will put you first.
Talking with your realtor will help both of you determine your preferences and what you’re looking for in your home. Give your realtor your budget which you’ve already calculated and then start booking appointments to check out properties. Visiting a home before you put down an offer, either alone or with your realtor, is essential, especially if you’re going to be living in it yourself.
Once you’ve narrowed it down to a potential winning property for you, the final step is to have your realtor submit your offer on the home. Your offer will contain more than just your purchase price, you will also specify many conditions and set dates for milestones of the purchase. Your realtor will help you determine what conditions are right for your situation. A common condition is a home inspection before closing to make sure there aren’t any hidden issues with the home.
If everything goes well, hopefully your offer is accepted and you have a closing date set.
Step 4: Mortgage approval
Once an offer on a home is accepted, the mortgage lender will need to approve your mortgage using the details from that particular home.
As you have already gotten your pre-approval, your Perch Mortgage Advisor will provide options with a few lenders and explain the differences between each lender depending on your needs.
Your Perch Mortgage Advisor will then submit your mortgage application to the lender.
The lender will review the application, and provided that your application meets their requirements an approval will be issued with the specific things they require to advance funds. If your application is declined, the lender can come back with conditions that they will accept your application. This can include requiring more down payment, or the paying out of existing debts you have.
Once a lender has approved your application you are provided with a commitment. The commitment outlines the terms and conditions that the lender will provide a mortgage. While you have provided your Perch Mortgage Advisor the general documentation normally required, sometimes lenders require additional information to further confirm the information provided within your application.
Once the conditions have been accepted by the lender they will confirm with your Perch Mortgage Advisor that they are ready to advance funds to your lawyer.
Step 5: Lawyer meeting and purchase closing
The final step in the process is all done by your real estate lawyer. Once the offer is accepted, your mortgage is approved, and a closing date is set, all that’s left is to transfer the money to the buyer and have the property signed over to you. If you don’t already have a real estate lawyer, it’s a good idea to ask your realtor if they have any recommendations for lawyers their clients usually work with.
You should meet with your lawyer 1-2 weeks before the closing date to get any questions answered, get a breakdown of closing costs and down payment and fill out required paperwork. Your lawyer will want your bank draft at least a few days prior to closing so that they can make the Statement of Adjustments. Once your mortgage conditions are complete, the lender will then instruct your Lawyer on how to access the funds. You can discuss with your lawyer on how you want to receive the keys to your new property.
Here’s a checklist of some things to keep in mind for after you close on the home:
- Set up your property tax payments
- Get home insurance
- Update your utilities
- Book your movers and elevators well in advance (if required)
- Change your mailing address
Finally it’s time to enjoy your new home! The home buying process can seem complicated at first, but Perch is here to help you make the right decisions along the way. Sign-up and get access to our mortgage advisors who can help you with your situation.