If you’re buying your first home in Canada, you’ll likely need a mortgage to finance this very important and large purchase.
When the Laghari family immigrated to Canada from India in 2016 they landed in Toronto. As many immigrants do when they first arrive, they spent the first couple of years renting a house. But, with the high cost of housing in the Greater Toronto Area, they realized that with a decent down payment, they could pay a monthly mortgage at close to the cost of their monthly rent.
A recent survey conducted by Royal LePage revealed that newcomers represent a growing segment of the Canadian real estate market. Some of the findings from the 2019 survey showed that newcomers:
- represent 1 in 5 home buyers across Canada
- live in Canada for about three years before they purchase a home
- arrive with savings intended to buy a home
It makes sense that newcomers are eager to enter the Canadian real estate market. Indeed, owning your own home is exciting for many reasons. Home ownership can be a great investment and way to build personal wealth. Young families may want more space with a backyard for children to play. Or, buying a home in Canada may be an important part of your immigration dream!
What to consider when buying your first home in Canada
Buying your first home in Canada is a big decision that can be complicated and confusing. Add in bidding wars that can take place in large cities such as Toronto and Vancouver, and it becomes even more complex.
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So, where do you start and what do you need to know?
What home is right for you?
There are many things to consider before you buy your first home in Canada. You need to think about:
- What you need and want in your house (number of bedrooms, bathrooms, storage needs, etc)
- The location and neighbourhood that you prefer (close to schools, work, shopping, place of worship, transportation lines, and other services)
- The type of house you want and desire (condominium, detached or semi-detached home, townhouse, duplex or triplex)
When you define what you want, you’ll be in a better position to start your search.
What to know about financing your home?
In addition to defining what home is right for you, you need to determine how much you can afford. To start, here are three homebuying financial concepts you need to understand:
1. What is a down payment?
A down payment is a percentage of the total cost of the home that you need to pay. Your savings can be used as a down payment for your home.
Many newcomers arrive in Canada with savings intended to buy their first home. According to the Royal Lepage survey, 75% of newcomers arrive with savings to help buy a home in Canada.
The more money you have to put down on your mortgage, the more money you will save over the long term. With a larger down payment, you will save on:
- monthly mortgage payments
- the amount of interest you pay over the lifetime of your mortgage.
2. How much can you afford?
As a guideline, financial experts state that you should not pay more than 30% – 32% of your total household income for housing and home-ownership costs such as:
- Mortgage interest
- Property taxes
But, that’s a guideline. You may decide that you’ll budget more for housing or, cut back on other discretionary expenses such as entertainment or dining out.
3. Are you pre-approved for a mortgage?
A mortgage pre-approval means that a lender has stated that you qualify for a mortgage loan based on your current income and credit history. The pre-approval will indicate the:
- Pre-approval term (usually 90 – 120 days)
- Interest rate
- Mortgage amount
Benefits of a pre-approved mortgage when buying your first home
There are a number of benefits to getting pre-approved. A pre-approved mortgage:
- Shows your financial qualifications and how much house you can afford
- Protects you against interest rate increases while you look for your first home
- Provides an important edge against competition in situations such as bidding wars
- Increases your credibility when dealing with sellers and real estate agents
- Is available at no cost with no obligation to use the lender that pre-approved you.
With so much to consider when buying your first home in Canada, it’s helpful to get expert advice. A mortgage broker can help you:
- understand amortization, different mortgage types, and how to get your dream home
- understand the mortgage qualifying process and other concepts such as the importance of credit and debt-service ratio
When you know how to buy your first house in Canada, you’ll be on your way to achieving your homeownership dream.