Everyone will go through the process of buying a home and it will take weeks (if not months) for you to move through all the steps in our guide. The content below is meant to be revisited as you move through the process; so bookmark this page and keep coming back as you complete each step. While you will be carrying out a lot of this guide independently, we outline which parties are relevant in each step and we’d encourage you to read through this content so you are better informed before meeting and as you work with them.
We will be constantly updating this page to include more content and ensure it stays relevant, so we recommend revisiting the site rather than just printing the screen.
The Perch platform (free to use) is built around this guide, but we leverage analytics, automation and our team of experts to make sure you don’t miss anything and make it easier to move through each step. Your Perch profile will specifically refer to this guide when relevant.
You may have your own preferences and that’s fine; the content is free for you to use. The process is no different, there are just some sections that you will have to do more research/calculations on as we can’t generate the outputs for you without having any of your data.
Our Qualifier tool takes these 3 factors into account and does all the calculations we outline below to give you a good estimate of what you can afford.
A more accurate calculation can be found within your Perch dashboard, which incorporates these 3 factors and other technicalities (ex: if you own other properties).
When you buy a property, it will be through a mixture of your own savings and a mortgage. The portion coming from your savings is referred to as your down payment. People will typically refer to their down payment in percentage terms such as “I’m putting 20% down”, this means that their down payment is equal to 20% of their purchase price.
The most commonly used sources of down payment are:
Stocks, mutual funds or any other kind of investment that can be sold within 60 days. Funds from your RRSP can also be used, but unless you are using your Home Buyer’s Plan (available only to first time home buyers), you will need to pay withholding taxes when you take the funds out.
While you won’t need the full down payment until your purchase closes (which can be months after you make an offer), the seller will likely require you to put down a deposit. Thus, you should make sure that you have funds available when you start house hunting to put down as a deposit (your realtor will go over how much is required).
Having the right amount of down payment is key, but how much mortgage you can afford will also be determined by your qualifying income.
You likely have heard the term “mortgage stress test” before and this is what it relates to. High level, mortgage stress tests are rules laid out by the government/regulators that dictate how much someone can borrow. There are 2 main ratios, the Gross-Debt-Servicing (GDS) and Total-Debt-Servicing (TDS) ratios. The only difference between GDS and TDS is that TDS includes debt payments, which are certain debts (ex: personal loans, car loans/leases, student loans, etc) and don’t include things like your monthly credit card bill, your phone bill or other expenses.
*Note that the Mortgage Payment is calculated using the stress test rate and not your actual rate. This is the greater of your mortgage rate + 2% or the Bank of Canada posted mortgage rate (they describe it as “Conventional mortgage- 5 year”).
You make $60,000 a year and want to buy a $400,000 condo with 20% down payment (which means you have a $320,000 mortgage). Assuming a 5% qualifying mortgage rate, property taxes of $2,400/year, heating of $120/month, condo fees of $500/month and a $400/month car lease your TDS would be as following:
GDS Numerator: $1,861 + $2,400/12 +$120 +$500 = $2,681
TDS Numerator: $2,681 + $400 = $3,081
GDS/TDS Denominator: $60,000/12 = $5,000
GDS = $2,681/$5,000 = 53.6%
TDS = $3,081/$5,000 = 61.6%
In most cases, lenders will allow a maximum of 39% and 44% for GDS and TDS respectively to qualify. So in the example above, you wouldn’t qualify for that mortgage. If you visit our Tools page, the Qualifier tool does these calculations for you and gives you insight into what you need to qualify if you come up short. You can also use the Mortgage Calculator to estimate your mortgage payment.
Unfortunately, this answer is not straight-forward since all lenders have their own rules and the regulator is constantly changing the regulations that surround qualifying income (which may not equal your total income). You’ll determine your qualifying income as part of the pre-approval process when you meet with your mortgage representative but if you’d like to know how it’s calculated we cover qualifying income in these articles:
In Canada, your credit score is usually obtained through two provider: Equifax or TransUnion. Credit scores range from 300 to 900, with the highest score (900) being the best you can possibly have and 650 being the average (according to TransUnion). You can read more about how your credit score is calculated here.
Having a low credit score (under 600) 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). Assuming you want good mortgage rates, you will need at least a credit score of 620 and ideally you will have a credit score above 680. This is because each lender sets their minimum credit score requirements, so being between 620 and 680 means that you may not be eligible for certain rate promos at specific lenders and you get higher rates as a result.
Getting a copy of your credit report will enable you to see your current score and track your progress. You can also make sure there are no errors (it happens) and if there are correct them ahead of time so your credit is cleaned up by the time you’re submitting a mortgage application.
When I ran the tool at the time of writing this (rates of 2.86%), I calculated that the target purchase price (with a max mortgage payment of $1,500/month) was around $365,000. You would then compare that number against what you qualify for and take the lower of the two when going to purchase a home.
A formal pre-approval is typically good for 90-120 days, so you should get one when you’re within 1-2 months of buying a property.
Getting pre-approved essentially is going through Step 1 with a mortgage professional. During a pre-approval, they will confirm how much mortgage you can afford and you can then take this pre-approval confirmation with you when house hunting as many realtors will ask you to get a pre-approval letter when you’re submitting a purchase offer to strengthen your deal.
Does being pre-approved mean that your mortgage is guaranteed? Absolutely not
Pre-approvals are meant to be a “light” approval, where most lenders don’t fully review the deal but give you the green light that you should be fine if it was submitted as is. A pre-approval is not a binding commitment, only a commitment letter (the actual mortgage approval) is binding.
There’s a common misconception that a big benefit of pre-approvals is to lock in rates. A lot of lenders will add a premium to your pre-approval rate (usually around 0.25-0.5%) and promo rates are typically not eligible for pre-approval. Especially if you’re working with a broker, locking in a rate may put you at a disadvantage because if a better deal comes out later they may not be able to move you lenders.
Therefore, you should utilize pre-approvals to solidify what you can afford and worry about the rates once your offer to purchase a home is actually accepted.
You get pre-approved by the same people who would ultimately help you get your mortgage, so think of this as a good way of assessing your mortgage professional before you need them for the actual mortgage approval. This includes Perch, lenders (bank, credit unions, etc) or other mortgage brokers.
You can have full service or no service (do it yourself) realtor services, which all have their own pros and cons (listed in the above dropdown). Picking the right option is like when you evaluate packaged vacations. If you don’t need everything, you may want to trim it down and just pay for the services you do need. The vast majority of buyers still use a traditional full service Realtor, but new companies and technological innovation have resulted in more people using new methods of purchasing a home (or a hybrid between new and traditional). The hybrid approach is where they use a professional for the core parts (ex: negotiating price) and then do more mundane tasks themselves (ex: schedule visits) in exchange for a lower commission cost.
According to the CREA, there are over 125,000 realtors in Canada. It’s especially important that you pick the right Realtor because you have to sign an exclusivity agreement, which then makes it extremely difficult for you to switch Realtors if you’re unsatisfied. Most people typically pick based on a referral from friends and family alone, but you should evaluate them based on:
You should also not associate the newer methods of buying a home as lower quality, most of them are actually run by experienced realtors who see the demand for lower costs in exchange for less services or that effectively leverage technology to be more efficient than their competitors.
Perch has an existing network of (screened) realtors that we retain based on their ability to deliver quality service to clients. We’d be happy to connect you with one if you are still searching and can request to do so within your Perch profile.
Note: depending on which realtor option you pick from, you may be completing some of the realtor functions yourself.
According to CMHC, Canadians typically get their mortgages by going directly to their lender (60%) or through a mortgage broker (40%). Unlike Realtors, where you have to sign an exclusivity agreement, you don’t need to commit to one mortgage broker or one lender when you’re shopping around for rates. So we encourage you to get different opinions/quotes from brokers and lenders before choosing the person you want to do business with.
It’s worth mentioning how mortgage representatives are incentivized in both options:
As you can probably imagine, the mortgage broker is highly motivated to ensure your mortgage closes or else they make nothing. This has many benefits in that experienced mortgage professionals will typically leave the lender to be mortgage brokers (you can make a lot more money) and you can receive better/faster service. However, for those that are less ethical it can also create situations where they may not be looking out for your best interest. In asking around for multiple opinions and reading up on them through their past clients, you’ll be able to assess who the credible brokers are.
Similarly to Realtors, the barrier to entry is also low and most people typically pick based on a referral from friends and family alone, but you should evaluate your mortgage broker based on:
Perch was founded by industry experts and is connected to over 20 lenders to help customers find the best deals. As a Perch user, you have access to our mortgage experts for free, and you can complete the entire mortgage application process online in under 10 minutes. You then receive real-time updates as your mortgage makes it through the various steps.
Note: depending on which realtor option you pick from, you may be completing some of the realtor functions yourself.
The barrier to entry for solicitors is high, since they need to have graduated law school and be licensed to practice law. Solicitor costs don’t vary wildly and are typically referred to you by your realtor or mortgage representative. Ultimately, the main thing you’re looking for is that they are licensed and that their firm has experience handling real estate transactions.
You typically will meet twice with your solicitor. Once the solicitor has received instructions, they will reach out to schedule those appointments.
On your first visit (around 1-2 weeks before your closing date):
On your second visit (your closing date):
You won’t have to think about any of these things for a while, but within your Perch profile you can: