Purchase A Property
Purchasing a home is a common ambition among Canadians. Owning a property offers you more control over your living situation than renting does, in addition to enabling you to accumulate wealth.
Decide if home ownership is right for you
In a real estate-obsessed country like Canada, it’s easy to feel pressured to buy a house. But homeownership isn’t a shortcut to a worry-free future. It’s a lot like having children: It changes your lifestyle completely, requires daily sacrifices and can keep you up late at night worrying about the future. Oh yeah, it’s also really expensive.
One way to decide if the hard work and commitment will be worth it is to first consider why you want to buy a house. Will it make you feel complete, or that you’ve accomplished one of the primary goals of adulthood? Or is your motivation more financial, and you want your house to be part of your retirement plan, or the first piece of your real estate investing portfolio? There’s no real wrong answer.
How to Get a Home Mortgage
To obtain a mortgage, the person seeking the loan must submit an application and information about their financial history to a lender, which is done to demonstrate that the borrower is capable of repaying the loan. Sometimes, borrowers look to a mortgage broker for help in choosing a lender.
The process has several steps. First, borrowers might seek to get pre-qualified. Getting pre-qualified involves supplying a bank or lender with your overall financial picture, including your debt, income, and assets. The lender reviews everything and gives you an estimate of how much you can expect to borrow. Pre-qualification can be done over the phone or online, and there’s usually no cost involved.
How much down payment do I need to buy a house in Canada?
The down payment is typically the main matter you will have to think about for your purchase. In Canada, the minimum down payment of 5% is required for homes worth $500,000 or less. If the purchase price is between $500,000 and $1 million, the down payment required is 10%. For houses over $1 million, the minimum down payment required is 20%.
Here are certain rules that apply to the down payment when purchasing a home:
- The down payment must be in the purchaser’s account within 90 days of the home purchase -If the home value is less than $500,000 then the minimum down payment is 5%
- If the home value is between $500,000 to $999,999 then the minimum down payment is 5% of the first $500,000 and 10% of any amount over $500,000
- If the purchase price is $1 million or more then the minimum down payment is 20%
- The amount of the down payment can include gifts from family
How important is your credit score for your mortgage approval?
One of the main deciding points for lenders when reviewing a candidate’s inquiry about a mortgage loan is their credit score. Put simply, the credit score is a measure of an individual’s financial health and therefore it assesses the level of risk to the lender in lending you money. Credit score is a value between 300 and 900 with a score of above 700 representing that you manage your finances well and that the risk level to the lender is low. A number lower than 700 proves that you mismanage your finances and hence seem as a higher risk to the lender. Lenders may consider a higher interest rate for those with a score lower than 680.
Frequently asked questions
What is a conventional mortgage?
A conventional mortgage is a mortgage loan that does not exceed 80% of the purchase price or appraised value of the home and will not need to be insured. What is a high ratio mortgage? A high ratio mortgage refers to mortgages that exceed 80% and are up to 95% of the purchase price or appraised value of a home. This type of mortgage requires Canada Mortgage and Housing Corporation to insure the mortgage for the lenders. Other insurers include Federal Government corporations, or Genworth which is a private insurer. The amount of this insurance is added to the mortgage amount or paid at closing as a lump sum.
What does your credit score predict about your mortgage approval?
Your Credit score predicts which financial institution you can get a mortgage from and approximately what interest rate you will be approved for. Traditional financial institutions such as major banks will give you a mortgage if your credit score is 680 or above. In certain situations, they will consider a credit score of 600 to 680 but require a stronger application to even out the lower credit score. If Financial institutions decide to give you a mortgage, they typically charge a higher interest rate for those with lower scores than 680.
What is an adjustable rate mortgage?
An adjustable rate mortgage refers to the type of mortgage where the monthly mortgage payments remain constant while the ratio of principal and interest can vary depending on the rates fluctuating. This means that when the interest rates go down, more of the monthly payment goes to the principal because less is going into interest. Another advantage of this type of mortgage is that for the first 3 months of the mortgage a large discount on the rate is given to the borrower.
What is bridge financing?
Bridge financing is a unique short term mortgage loan that covers the gap between the sale of two properties where their closing dates don’t match. This usually means that the property being purchased closes before the one being sold. There is a fee of about 2-3% on top of the bank’s prime rate and a set up fee that the lender charges on this type of mortgage as you are now carrying two mortgages for the two properties for a short period of time.
There Are Incentives In Being A First-Time Homebuyer
First Time Home Buyers
Who are first-time home buyers and what are the benefits of being a first-time home buyer? Any individual that has not purchased a home before in Ontario is considered a First-Time Home Buyer. The Canadian government has put in place certain incentive programs to make it easier for Canadians to purchase their first home. These incentives include the First Time Home Buyer’s tax credit, Land transfer tax rebate, Provincial first time home buyer’s plan, RRSP home buyer’s plan and the and GST/HST new housing rebate.
First Time Home Buyer Eligibility
- RRSP funds you borrow must be in your account for at least 90 days prior to withdrawal
- You must be a Canadian citizen
- You cannot have owned a home before
- If you have used the home buyers’ plan before, you will not be eligible if you still owe a balance
- The purchasing home must be for your primary residence
What are the requirements for the Ontario first time home buyer’s incentives?
- The home must be in Ontario
- The home is new or existing such as single, semi, townhouse, mobile home, condo or apartment
- You must live in the home within one year of purchase
- You or your spouse must be the registered owner of the home
- You cannot have lived in a home owned by your spouse in the previous four years
- You must be able to present proof of purchase
Incentives
What is the Ontario RRSP home buyer’s plan?
This plan allows you to withdraw up to $35,000 tax free towards your down payment as long as you are a first time home buyer and the money is in your RRSP account 90 days prior to the purchase of the house.
What is the First Time Home Buyer’s Tax Credit in Ontario?
The First Time Home Buyers’ Tax Credit in Ontario, is a rebate that works out to $750 for all first-time buyers. You have one year to claim this rebate from the date of purchasing your home. If there are more than one person involved in the purchase of the home the total claim cannot exceed $750. To receive your $750, you must include the purchase of the home with your personal tax return.
What is the Ontario Land transfer rebate?
In Ontario every home buyer is required to pay Land transfer tax. This tax typically costs 0.5 to 2% of the entire purchase price and is considered as the biggest portion of the closing cost. In order to assist first time home buyers, the Ontario government waives a portion or all of the Land transfer fee. In addition to the provincial Land Transfer rebate, home buyers in Toronto can also qualify for yet another tax rebate called City Land Transfer tax.
Frequently asked questions
When should I get a mortgage pre-approval?
You should get pre-approval before beginning your home search. A pre-approval will let you know how much mortgage you can afford, what your interest rate will be, and it will indicate to real estate agents (and sellers) that you are serious about purchasing a property.
What kinds of properties qualify for the First-Time Homebuyer Incentive?
You may purchase any new construction, resale house, or new or resale mobile home in Canada, provided that the property is owner-occupied and available for full-time occupation. The incentive cannot be used to purchase a rental property.
How much of a down payment do first-time home buyers need?
You must put down at least 5% of the property's value, but if you don't want to pay for mortgage default insurance (or you're purchasing a second home), you must put down at least 20%.
What is mortgage default insurance?
If you cannot afford a 20% down payment and will be putting down less, you will be required to get mortgage default insurance in order to qualify for a mortgage. The premium may be paid beforehand or added to the monthly mortgage payment.
How can someone with poor credit buy a house?
It is possible to purchase a home with low credit, but the mortgage rate may be costly. You must examine your credit score for errors, be willing to pay higher interest rates and greater down payments, submit a loan application, and restore your credit score.
