Assess your present household budget and your annual income to determine if you are eligible for a mortgage and how much you can comfortably afford.
Also check out the Mortgage Affordability Calculator at www.itpaystoknow.gc.ca.
Assess your present household budget and your annual income to determine if you are eligible for a mortgage and how much you can comfortably afford.
Also check out the Mortgage Affordability Calculator at www.itpaystoknow.gc.ca.
Mortgage lenders use two calculations to help determine your eligibility for a mortgage — your Gross Debt Service (GDS) ratio and your Total Debt Service (TDS) ratio.
Your GDS ratio is the percentage of your gross monthly income used for mortgage payments, taxes and heating costs or - if you are buying a condominium - half of the monthly maintenance fees. As a general rule of thumb, your GDS ratio should not be more than 32% of your gross monthly income.
Your TDS ratio is the percentage of gross monthly income required to cover monthly housing costs, plus all your other debt payments, such as car loans or leases, credit card payments, lines of credit payments and any other debt. Generally, your TDS ratio should not be more than 40% of your gross monthly income.
Getting pre-approved for a mortgage before looking at properties gives you a more realistic expectation of what you can afford.
However, keep in mind that the pre-approved amounts can overestimate what you can actually afford to pay.
Pre-approval does not guarantee you will be approved once you actually apply if market conditions, interest rates, or your personal circumstances change.
Order a copy of your credit report to make sure it does not contain any errors because lenders will check it before approving you for a mortgage. A credit report is a summary of your financial history and shows whether or not you have had any problems in the past paying off debts.
The Financial Consumer Agency of Canada (FCAC), a federal government agency, has tips on how to order your credit report for free and how to improve your credit rating. Visit FCAC's website at: www.itpaystoknow.gc.ca.
A mortgage is a loan, generally used to buy a property. How much you pay depends on how much you borrow (the principal), the loan’s interest rate, and how long you take to pay it back (the amortization period).
Do not be afraid to negotiate interest rates and mortgage terms with different lenders. They are offering you a product and talking to more than one lender helps you make an informed decision.
By switching from monthly payments to accelerated weekly or biweekly payments, you can pay off your mortgage faster. Explore your options for mortgage payments and see how much interest you could save by using FCAC’s Mortgage Calculator Tool at: www.itpaystoknow.gc.ca.
You may have to pay charges if you prepay large portions of your mortgage early or if you break your mortgage due to unforeseen life changes, such as marital breakdown, death of a spouse or relocating for a job.
It is your right to know how lenders calculate prepayment charges. Read your mortgage contract carefully and make sure you understand how charges will be calculated before you sign.
A down payment is the portion of the property’s price not financed by the mortgage. You will need a down payment of at least 5% of the purchase price of the home. For example, to buy a home for $200,000, you will need at least $10,000 as your down payment. If your down payment is less than 20%, you will need mortgage default insurance.
When you buy a home with less than a 20% down payment, the mortgage needs to be insured against default. This type of insurance protects the mortgage lender in case you are not able to make your mortgage payments. It does not protect you.
If yes, you require mortgage default insurance which generally adds 0.5% to 3% to the cost of the mortgage depending on the total amount borrowed.
Mortgage default insurance enables you to purchase a home with a minimum down payment of 5% (10% for multi-unit dwellings) with interest rates comparable to those of a conventional mortgage.
Major providers of mortgage default insurance include Canada Mortgage and Housing Corporation (CMHC), Genworth Financial Canada, and Canada Guaranty Mortgage Insurance Company.
The federal government has assistance programs to help homebuyers. Research government program requirements to see if you are eligible.
Government programs can change over time. For the most up-to-date information, refer to Service Canada’s website: www.servicecanada.gc.ca.
First-Time Home Buyers’ Tax Credit — a $5,000 non-refundable income tax credit on a qualifying home. The credit provides up to $750 in tax relief to assist first-time buyers with purchase costs. For more information, check the Canada Revenue Agency’s (CRA) website: www.cra-arc.gc.ca.
Home Buyers’ Plan — a one-time withdrawal up to $25,000 from a Registered Retirement Savings Plan (RRSP) by first-time buyers to help purchase or build a home. Generally, you have to repay all withdrawals from your RRSP within 15 years. For more details, visit CRA’s website at: www.cra-arc.gc.ca.
CMHC Green Home program — when you use CMHC-insured financing to buy or build an energy-efficient home or make energy-saving renovations, you may qualify for a premium refund of 10% on your mortgage default insurance and a premium refund for a longer amortization period (if applicable). Check out CMHC’s website for more information: www.cmhc.ca.
Finding your perfect home can be a long process. Your REALTOR® will help identify the right type of home for you and continually research new listings in neighbourhoods that meet your needs.
Check out www.howrealtorshelp.ca to see how your REALTOR® can make the home buying process easier for you!
Check out www.REALTOR.ca to see personalized listings for a variety of different housing and homeownership types.
After seeing many different homes, you have finally found one worthy of an offer! What are the next steps?
An offer is a formal, legal agreement to purchase a home and is legally binding once accepted by the seller. Offers to purchase a home can be made conditional on factors such as financing or a home inspection. If any of the conditions are not met, you can change or cancel the offer, even if the seller has already accepted it.
You will need to present a deposit along with your offer. The amount varies based on the home’s purchase price and the market.
The federal Proceeds of Crime (Money Laundering) and Terrorist Financing Act(PCMLTFA) requires REALTORS® to identify clients involved in the buying and selling of real estate. REALTORS® need to record your name, address, date of birth and occupation for their files which are kept for at least five years. They need to see valid government-issued ID.
The Financial Transactions and Reports Analysis Centre of Canada (FINTRAC) provides more information about the Act on its website: www.fintrac-canafe.gc.ca.
Closing costs are the legal, administrative and disbursement fees associated with buying a home. Understanding these fees will help you budget more accurately. Remember these are additional costs over and above the price of the home.
The land transfer tax is a one-time tax levied by your province when you purchase a property. The tax is based on a percentage of the purchase price of the property, and varies from province to province. Some municipalities also charge a land transfer tax (for example, Toronto).
Legal costs cover your lawyer’s fees or, in Quebec, your notary’s fees. These may include:
A home inspector assesses a property’s condition and can tell you if something is not working properly, needs to be changed, or is unsafe. They may be able to identify where there have been problems in the past, such as a leaking basement or termite damage.
Your REALTOR® can help you navigate the complexities of purchasing a home – to anticipate, understand, and make informed financial decisions. Choose from the seven icons to learn more.
Assess Financial Readiness
Finding a Home
Consider Mortgage Options
Making an Offer
Mortgage Default Insurance
Closing and Related Costs
Research Government Programs
The following information is for information purposes only and is not legal advice or a substitute for legal counsel. The trademarks REALTOR®, REALTORS®, and the REALTOR® logo are controlled by The Canadian Real Estate Association (CREA) and identify real estate professionals who are members of CREA.