Buying a home for the first time is often a stressful and complex process. You haven’t purchased before and there’s a lot of moving parts to consider, all of which are important, so you’ll likely have a lot of questions: “What can I afford? How do I find a great real estate agent? How do I get a mortgage? What’s a home inspection?”
Long story short, feeling overwhelmed is common and to be expected, but don’t worry, buying your first home shouldn’t be scary, it’s supposed to be an exciting process. The key is to take things one step at a time and lean on trusted professionals for advice as you need it. That’s why we’ve created this comprehensive “First-Time Home Buyers Guide” to help you through the many steps of buying your first home in 2021. Let’s get started!
Step One: How ready are you to buy your first home?
Home ownership is typically preferred to renting but don’t get carried away with the idea that “you must have that new home right now”. Buying a home is one of the biggest decisions you’ll make in your lifetime – so make sure you’re ready.
In our experience it’s important to look down the road (about four to six years) when deciding to buy your first home. Do you see yourself moving within the next four years for a career, your family or for a change of scenery? If so, then maybe it’s better to hold off on home ownership until you’re more settled.
However, if you’re likely to stay put in your community then buying a home could be a great decision for you. To help you stay put, make sure your new home meets your current needs and leaves you room to grow.
Step Two: Get a real estate agent on your team
Now that you’re ready to start shopping for a home, it’s time to choose a real estate agent that will help you throughout the home buying process. Your agent should be an expert in their field and in your chosen buying areas, as well as someone who you feel comfortable interacting with – because there will be a lot of that. Your agent should also be available full-time and committed to helping you find the perfect home. Remember to ask for a signed buyer representation agreement to ensure your chosen agent is bound to your interests throughout the home buying process.
Our platform is designed to find you the perfect realtor who will help put you in the perfect home as quickly and cost effectively as possible. Click here to learn more about what makes a great real estate agent.
Step Three: Market research begins
You’ve decided that homeownership is right for you and you’re ready to find your perfect home, great. Most home buyers have two main considerations in mind when buying a home – your needs and desired location.
In step one, you spent time thinking about your future, a critical step to determining which property will help you get there. Make a list of requirements to filter out prospects that will not serve your needs.
If you aren’t sure where you want to live yet, then that will be your starting point. Here are a few deciding factors that can help you find the perfect neighbourhood to look for a home in:
- Commute to work and access to transit
- Nearby amenities including shopping and community centres, restaurants, parks etc.
- Proximity to schools, police and fire stations and hospitals
- Property taxes
Researching the market will not only help you figure out where you want to live and how much that will cost, it will also give you a better understanding of your city and the living options it provides. Your real estate agent is the best way to get more detailed information on what’s available to meet your needs in your target area.
Step Four: Determining your budget (In 3 parts)
Part 1: Down payment
When you first decided to buy a home, you’ll have started saving up your down payment. This is often a lengthy process and varies based on your individual financial situation.
Homebuyers will typically be required to come up with a deposit during the offer negotiation process. A typical deposit is equal to 5% of the offer price. The deposit is held in trust by the selling agent’s brokerage pending completion of the transaction and may be kept by the seller if you fail to live up to your end of the purchase agreement. As a result, buyers typically need to have a fairly liquid upfront cash reserve to place offers on properties even though they may not close for several months later.
Homebuyers are also required to provide a down payment upon closing when buying a home. The down payment is deducted from the purchase price of the home and your mortgage will cover the rest. The minimum down payment amount that is required will depend on the purchase price of your home and the amount of mortgage financing you obtain.
Minimum down payment structure
| Home purchase price (CAD$) | Minimum down payment |
|---|---|
| $500,000 or less | 5% of purchase price 5% of the first $500,000 of purchase price |
| $500,000 to $999,999 | 10% for the portion of purchase price above $500,000 |
| $1 million or more | 20% of purchase price |
The larger your down payment, the smaller your mortgage, which will reduce the amount of interest you will need to pay over the life of the mortgage. You may be forced to come up with a larger down payment if you do not qualify for the amount of mortgage you desire.In Canada, any down payment under 20% will require the buyer to purchase mortgage loan insurance. Depending on your specific circumstances, your lender may require mortgage loan insurance even if you provide 20%. This is usually the case if you are self-employed or have a poor credit history.
The Government of Canada offers several programs that can help you increase your down payment and save costs. See Appendix A for details.
Part 2: Determining your budget
Back in step 3, you decided on the type of home you want to buy, and now you’ll need to calculate your budget – what can you realistically afford to spend? Does it match with your expectations or do you need more time to get your finances together? Factor in any existing debt, your current savings, monthly payments, credit score, costs associated with buying a home, and remember you’ll still need finances for normal living.
Your budget will depend on your mortgage (mortgage pre-approval) so the first step is to put together all the required documents you’ll need to apply:
- T4 tax return
- Letter of employment
- 2 Year track record of income
- Credit score report (As of 2021, Canadian homebuyers are required to carry a minimum credit score of 680)
Fore more information about your credit report and credit score basics check out this resource:
Part 3: Research first-time homebuyer programs
There are a number of government programs available to help make homeownership easier for Canadians to afford.
List of available first-time homebuyer programs:
- First-Time Home Buyer Incentive
- RRSP Home Buyers’ Plan (HBP)
- Land Transfer Tax Rebate
- First-Time Home Buyers’ Tax Credit (Home Buyers’ Amount)
- GST/HST New Housing Rebate
(See Appendix A for program details)
Step Five: Speak with a mortgage specialist
To get a mortgage you’ll need a licensed loan originator. This could be your bank, a direct lender or often a mortgage broker. This person will be your go-to for your financing needs.
The job of your loan originator is to help you through the mortgage process, find you a great rate and help you decide on the best type of loan for you. This includes deciding on the length of your mortgage – the shorter the mortgage term, the higher the payments but the less interest you’ll pay over the course the mortgage.
Step Six: Get preapproved for your loan or mortgage
All sellers will want to know that you can afford to pay for their home which means you’ll need a preapproved loan. After choosing the lender that suits you best, you’ll ask for a preapproval letter that proves you’ve been tentatively approved to borrow funds. However, a preapproval letter is subject to verification and does not guarantee financing.
Step Seven: Start actively looking for homes
You’ve already researched the type of home and location that would best suit your needs, so now it’s time to turn that information into actual homes for you to view and ultimately purchase. This is where your real estate agent will really shine by finding listings of homes that are a good fit for you and sending them to you instantly. Your agent will know the ins-and-outs (pricing/availability) of your desired location, be able to arrange viewings, make bids and more. It’s important to view as many homes as possible so you can make an informed decision and end up in your dream home.
You might find that as you view homes your idea of what you’re looking for changes. While having a solid plan of what you’re after is great, sometimes remaining flexible can really pay off and you might be surprised as to what fits your needs in the end. The home search is often one of the most fun parts of buying a new home, so don’t stress out, enjoy yourself and let your agent guide you around all the great homes for sale.
Step Eight: Making an offer on a home
Once you find a house that fits you and checks all the boxes, it’s time to make an offer. Your agent’s expertise will be key to making an offer that’s competitive and gives you the best shot at having your offer accepted without overpaying. You can choose to make a firm offer, or an offer that is subject to conditions such as financing, inspection, or other conditions. Firm offers will typically improve your chances of getting the property but are not always the best fit. Consult with your realtor to make the correct decision based on the situation. Negotiations are common and can be stressful but are necessary to balance your expectations with that of the seller.
For more information, read our in-depth guide about how to make an offer on a house.
Step Nine: After your offer is accepted
If your offer is accepted, you’ll be under contract and enter the due diligence period. This involves inspecting the home to ensure you know what you’re buying and agreeing to the condition of the property, getting appraisals for any required repairs, and finishing negotiations with the seller. These steps may not be required at all but let your real estate agent guide you through what’s necessary and what isn’t.
Home inspections
A satisfactorily completed home inspection should be included as one of the specified conditions in your offer. Aside from a traditional home inspection, there are several specific supplemental home inspections that may apply to your home (septic systems, water well etc.). Home inspections should be taken care of in a timely manner, typically within two weeks of signing the contract. Sometimes properties already have a home inspection so this step may not be required. Your real estate agent can help you determine your best course of action.
The home inspection will help you figure out what if anything is wrong with the home, as repair or renovation costs can add up very quickly and you’ll be on the hook if you don’t negotiate for these costs before closing. Many first-time homebuyers are surprised by how much value or costs lie in the main components of a house – HVAC, water heater, roof, doors, and windows should all be inspected before purchase.
Getting appraisals
An appraisal is often required (your lender will schedule one) if you’re using a mortgage to purchase your home but is good practice even if you’re buying your home paid in full. Your bank may not share the appraisal report with you and will only inform you if their requirements are met. If the appraisal comes back weak, you (the buyer) may need to increase your down payment. Let your real estate advise you how to proceed.
Further negotiations
In case the home inspection found any issues, or the appraisal value is lower than your offered price, you can renegotiate with the seller or withdraw your offer without penalty. It’s quite common for inspections to uncover issues that the seller didn’t mention or wasn’t aware of that affect the value of the home. This renegotiation can often be confusing for first-time buyers but don’t worry, your real estate agent knows what to do and will help you through this often-uncomfortable process.
Step Ten: Acquiring homeowner insurance
Securing homeowners insurance is necessary to close your loan (mortgage). Homeowners insurance covers everything from your home’s structure, your possessions inside and your liability if something happens to or on the property.
It is recommended that buyers consult with multiple insurance agents or providers and get quotes to find the best deal. Buyers can often save on insurance costs by bundling homeowners and car insurance together.
Step Eleven: Title search & Underwriting
The title search is used to ensure the seller has full rights to sell the house. This means they are free of outstanding taxes, liens or other ownership issues which might make them ineligible to sell the property. The title search is not necessary, but it is good practice to have your lawyer do it. This should take place before the transaction is finalized.
At this time, your title company will also provide title insurance that protects your lender against ownership claims to the property in the future. As this title insurance only protects your lenders interests it is recommended to purchase an owner’s policy as well to cover your own interest while you maintain ownership of the property. Your lawyer will typically take care of this if the lender hasn’t done it automatically. If nothing has been brought to your attention, ask your lawyer or real estate agent about it.
The underwriting aspect is handled by your mortgage broker occurring sometime before closing the transaction, usually before you even make an offer. An underwriter will inspect your loan documents and ensure they are all in order. Your identity will be verified, your finances assessed, and all official documents will be double checked for clerical errors.
Step Twelve: The Final Walkthrough
You’re almost there! One of the last steps before you’re a homeowner is the final walkthrough. Here you’ll have a chance to visit the property and ensure everything is in order with the house. Look for fresh damage that may have occurred as the seller moved out and make sure the home is in the condition you’re expecting so there’s no nasty surprises after you’ve closed the deal. The final walkthrough typically happens 24-48 hours before you close.
In normal situations, all the hard work and stress of buying is behind you and you can focus on the excitement of being about to own your new home.
Step Thirteen: Closing the deal
Last step! Closing means signing the papers, paying your money, and finalizing the deal. It usually takes just under an hour for you to go over all the documents and make sure everything is in order. Prior to closing, your lawyer or the seller’s lawyer will provide you with a statement of adjustments to review for accuracy. You will have the opportunity to discuss any discrepancies before your money is paid from your lawyer directly to the seller’s lawyer.
Your personal information, the payment total and the interest rate numbers should be correct on all the documents. There should generally be no changes at closing, only verification. Once you sign, the deal is done and you own your new home.
Step Fourteen: Welcome to homeownership
Congratulations, you’re now a homeowner!
It’s been a long process, but you’ve made it through and now you’re about to reap the benefits. It’s an exciting time and owning your own home is a very different feeling to renting an apartment or condo. There’s a certain pride that comes with it, but also a responsibility. Unlike renting, if something breaks, it’s on you to get it fixed. Some repairs you can do yourself while others will cost you money, which means that even though you’re feeling elated, it’s important to stay grounded. We recommend putting together a broad home maintenance plan which could include things like changing the locks, locating the circuit breaker or the water shut off valve, getting your internet installed, lawncare sorted out and porch light functioning. It’s also wise to make sure you have some finances put aside to pay for repairs if something breaks.
Be smart, plan ahead and most of all ENJOY your new home! You deserve it!
Appendix A – First-time homebuyer programs
1. First-Time Home Buyer Incentive
This incentive from the Government of Canada is a shared equity mortgage that helps lower your monthly mortgage payments. The government participates in the upside and downside of your property’s value over time. You are able to borrow 5% or 10% of the purchase price of the home but must repay the same percentage of the value of your home if you sell within a 25-year period. The incentive acts like a second mortgage on your home.
The First-Time Home Buyer Incentive provides:
- 5% or 10% towards a first-time buyer’s purchase of a newly constructed home
- 5% towards a first-time homebuyer’s purchase of a resale (existing) home
- 5% towards a first-time homebuyer’s purchase of a new or resale mobile/manufactured home
You may be eligible for this incentive if you meet the following requirements:
- Your qualified income is under $120,000.
- Your total borrowing is not more than four times your qualifying income
- You or your partner have never previously purchased a home
- You are a Canadian citizen, permanent resident or non-permanent resident and are authorized to work in Canada
- You meet all minimum requirements for down payments with traditional funds (savings, withdrawal/collapse of a RRSP, or a non-repayable financial gift from a relative/immediate family member)
- You did not occupy a home owned by a current spouse or common-law partner in the last 4 years (the 4-year period begins on January 1 of the fourth year prior to the incentive being funded and ends 31 days before the date the incentive is funded)
- You have experienced the breakdown of your marriage or common-law partnership (even if the other requirements are not met)
- Your mortgage must be greater than 80% of the value of the property and is subject to a mortgage loan insurance premium.
Additional Resources
https://www.cmhc-schl.gc.ca/en/nhs/canada-first-time-home-buyer-incentive
https://www.placetocallhome.ca/fthbi/first-time-homebuyer-incentive
2. RRSP Home Buyers’ Plan (HBP)
The Home Buyers’ Plan (HBP) is a government program that allows you to withdraw funds from your RRSPs to purchase or build a qualifying home for yourself OR are purchasing or building a qualified home on behalf of a related person with a disability. The withdrawn funds can be payed back within a 15-year period.
The Home Buyers’ Plan (HBP) provides:
- You the option of withdrawing funds from more than one RRSP provided you are the owner of each account.
- Your RRSP issuer will not withhold tax on withdrawal amounts of under $35,000.
You may be eligible for this incentive if you meet the following requirements:
- You must be a first-time home buyer OR are purchasing or building a qualified for a related person with a disability
- You must provide a written agreement stating you’re purchasing or building a qualified home for yourself or a related person with a disability
- You are a resident of Canada from the time you withdraw funds from your RRSPs under the Home Buyers’ Plan until the time a qualifying home is bought or built
- You must intend for the qualifying home to be your principle place of residence within one year of purchasing or building it. If purchasing or building for a related person with a disability, you must intend for that person to occupy the home as their principle residence
- If you meet all other conditions, you may qualify to use HBP again if your repayable HBP balance is zero on January 1st of the year of your planned withdrawal
Additional Resources
3. Land Transfer Tax Rebate
Buying land or an interest in land located in Ontario requires you to pay land transfer tax. This rebate incentive allows eligible first-time homebuyers to receive a refund for all or a portion of the land transfer tax.
You (purchaser) may be eligible for this incentive if you meet the following requirements:
- You must be at least 18 years of age
- You must be a Canadian citizen or permanent resident. Purchasers who are currently not Canadian citizens have 18 months from the date of registration to become eligible.
- You must occupy the qualified home as your principle residence within nine months from the date of land transfer
- You must never have owned an eligible home, or an interest in an eligible home, anywhere in the world, at any point in time.
- Your spouse or common law-partner cannot have ever owned an eligible home, or interest in an eligible home, anywhere in the world at any time while they were your (the purchaser) spouse.
- Further rules, regulation and additional requirements may apply
Additional Resources
https://www.fin.gov.on.ca/en/bulletins/ltt/1_2008.html
4. First-Time Home Buyers’ Tax Credit (Home Buyers’ Amount)
The Federal Government of Canada provides a tax credit to first-time home buyers based on a down payment of $5000. As of 2019, eligible buyers who purchased a qualifying home can receive a tax refund of $750 by filling out Line 31270 of their tax return.
You (purchaser) may be eligible for this incentive if you meet the following requirements:
- You or your spouse or common-law partner have bought a qualifying home
- You (the purchaser) must be a first-time home buyer and as such have not resided in another home owned by yourself or your spouse or common-law partner during the year of acquisition or during the four years preceding the buying of a qualified home
- Persons with disabilities are not required to be a first-time home buyer to qualify
- You must complete your tax return to claim the home buyers’ amount
Additional Resources
5. GST/HST New Housing Rebate
This rebate will return a portion of the GST/HST you paid when purchasing or substantially renovating a home that is used as your primary residence. The GST/HST new housing rebate is very complex and consulting with your real estate agent, mortgage broker or accountant is highly recommended.
You (purchaser) may be eligible for this incentive if you meet the following requirements:
- You have purchased or substantially renovated housing from a builder for use as your primary residence. (This includes housing on leased property provided the lease term is for a minimum of 20 years or gives the option to purchase the land.)
- You have purchased share in a co-op housing corporation and plan to use a unit in a new or substantially renovated co-op housing complex as your primary residence
- You have newly constructed or substantially renovated your home (primary place of residence) or hired someone else to do, if the fair market value of the home is less than $450,000 upon completion
Additional Resources
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