The house remains the most important purchase of a lifetime. It’s complicated and scary for first-time buyers. We offer you 10 steps to prepare for it.
• Read also: Expenses to cover when buying a house
1 Do you have the means to access the property?
First of all, make your budget by calculating ALL your current expenses, including savings and RRSPs (use budgetenligne.net); add the expenses related to your future home, taking into account the difference between your rent and any mortgage, plus municipal taxes. Ask for a mortgage pre-authorization, which will establish your borrowing capacity with your financial institution. Please note: this limit is often greater than your actual room for manoeuvre; you will have to limit your ambitions.
2 Establish your needs
Most people buy too big. The more it is, the more it costs to maintain, clean, insure, heat and finance. And the municipal taxes are to match. Conversely, if you’re telecommuting, make sure you have a dedicated room that’s well-lit and comfortable to spend eight hours a day in. And maintaining your property is more demanding and expensive than being a tenant.
3 Where are you going to live?
Many people rely on the selling price alone and choose the farthest reaches of the suburbs. But the two or three cars parked at the door sometimes cost more than a house closer to public transport or work. If one of the couple telecommutes, the cost of their car could be funneled into a bigger mortgage. Do your calculations. Use the WalkScore app. Make a list of towns or neighborhoods that interest you and walk there to pay attention to noise and inconvenience, and chat with your potential neighbors. Establish specific criteria: Is the yard so important if the children go to the arena and play video games? Do you want to buy a single family or a duplex (are you a handyman), in the countryside, in the suburbs, in the city? How much time are you willing to sacrifice in traffic jams? Are the grocery store, the school, the park on the other side of the world? Are you going to have zero, one or three children? Some buy a condo to access the property and resell it when their first child starts school…
4 Consolidate your funding
Find out about the Home Buyers’ Plan (HBP), the CELIAPP and the First-Time Home Buyer’s Incentive. Your credit report must be excellent to be able to borrow: paying off your credit card in full each month is essential.
5 Determine your down payment
It is calculated as a percentage of the price of the house. For example, 5% of a $300,000 house is $15,000. Why not wait a few years to accumulate more? If you can borrow a few thousand more dollars from your relatives (love money) to advance more than 20% of the initial down payment, you avoid CMHC mortgage loan insurance and save tens of thousands of dollars.
6 Shop and make an offer
Few people find on their first visit: the process can take months! Shop online and visit many properties within your budget, take notes. There is never an emergency: ask lots of questions about the state of the house, about the work done or that needs to be done. If you find the rare pearl, make an offer to purchase (which includes price, goods included/excluded, conditions): this binds you like a contract, you cannot back out if it is accepted… Normally, an offer of purchase is conditional on obtaining financing. Expect that yours may be refused, if the owner accepts a higher one. Some buyers improve their chances by attaching a letter to their offer where they introduce their family and why they fell in love with the property, insisting that they will take care of it… Never buy without a pre-purchase inspection, which gives room for negotiation and establishes your maintenance-renovation budget.
7 Shop around for your mortgage
Think about the type of financing that suits your needs and your personality. It varies according to the type of rate (fixed or variable), the term and the amortization (number of years to repay the loan). Shop around for the best rates and terms: a 0.5% difference means savings of tens of thousands of dollars. Add to the financing an annual maintenance-renovation budget of at least $2,000. Boycott promotional gimmicks like cash back.
8 Credit
Some fear variable rates: keep calm when interest rates rise; they always come down eventually and you save compared to fixed rates. Home equity lines of credit allow prepayment without penalty, and you can do major work without going to the notary. But they require discipline not to finance too high a lifestyle and end up retiring with a mortgage. To be watched: penalties if you resell the house before the end of the contract (separation, move linked to a promotion, etc.) and early repayments without penalty (inheritance, bonus, tax refund). Choose the weekly payment to save thousands of dollars.
9 Protect yourself
It’s when things are going well that we must foresee a separation or a death. Make sure you have good life insurance (cheaper and more advantageous than the mortgage insurance offered by the lender). De facto spouses: have a cohabitation contract and protection mandates, drawn up before a notary. Make sure the property is not affected by an easement. Obtain all the documents relevant to the purchase of a condo (building condition report, contingency and self-insurance fund, building insurance policy, reference unit, minutes of meetings, maintenance).
10 Prevent unforeseen events and document yourself.
According to experts, notary fees, welcome tax, curtains, fences, landscaping, furniture and contingencies cost up to 5% of the price of a house. Consult CMHC and OACIQ guides for more information.