Buying a Home in Canada as a Newcomer

Table of Contents

• Overview
• Should I buy or rent a home in Canada?
• What kind of properties are available to buy in Canada?
• How can I save for my home in Canada?
• How can I find my first home in Canada?
• How much do I need for a down payment in Canada?
• What is mortgage loan insurance?
• What is a mortgage premium?
• What are home buying programs, plans and incentives for homebuyers in Canada?
• What is a mortgage pre-approval in Canada? How do mortgage brokers work in Canada?
• Where can I get mortgage pre-approval in Canada? How do mortgage brokers work in Canada?
• What information should I provide to my lender or mortgage broker?
• What information can I provide for proof of employment in Canada?
• What questions should I ask my lender or broker when getting pre-approved?
• What are costs associated with buying a home in Canada?
• Contact CanadaVisa and Cohen Immigration Law for Assistance

Overview

Welcome to our comprehensive guide on buying a home in Canada. Whether you're a first-time homebuyer or an experienced investor, this webpage is designed to provide you with valuable information and step-by-step guidance throughout the home buying process. From understanding the Canadian real estate market to securing financing and navigating legal procedures, this page will provide important information for homebuyers in Canada.

Should I buy or rent a home in Canada?

When deciding whether to buy or rent your home, it is important to consider a variety of different factors. These include your personal financial situation, your job, the current housing market, the interest rate, and the size of your family.

When evaluating your financial situation, consider the amount you would need to save for a down payment, as well as whether you would be able to maintain a mortgage payment. It’s important to make sure that you are able to commit to staying in one place for the long-term, as it will improve the likelihood of recouping the costs associated with buying a house.

The housing market also plays a key role in the decision to buy or rent. If the market is experiencing a slowdown, it may make sense to rent a home while waiting for prices to rise. On the other hand, if the market is favourable, it is important to act quickly as the prices could start to rise rapidly.

Additionally, interest rates should also be taken into consideration. Low interest rates may make it easier to secure a mortgage and reduce the overall cost of buying a house. On the other hand, if interest rates are high, it may be more cost-effective to wait and rent instead.

Lastly, the size of your family should be a consideration when deciding to buy or rent. Generally, buying a house makes more sense if you are expecting to grow your family in the near future. Renting a home may be a more suitable option if you plan to stay in the same area for a short period of time and don’t anticipate an increase in family size.

What kind of properties are available to buy in Canada?

There are a variety of different kinds of homes available in Canada, with great variance on size between and within each type of home type. These are broadly:

• Apartments/condominiums: Single-family unit in a building or house; one to three bedrooms; some may contain a “bachelor” unit that combines bedroom and living area;
• Single-family detached: One unit, standing alone on its own lot; and
• Townhouse: Three or more units arranged side by side, typically connected by adjoining walls; can also be stacked, so the top floors are separated from the bottom floors.

How can I save for my home in Canada?

To purchase your home, homebuyers in Canada (as in many parts of the world) will first need to make a down payment. A down payment on a home is a sum of money used as part of the total cost of buying the property. It is paid in advance and is typically a percentage of the total purchase price. The size of the down payment can vary, but it is typically a sizable amount that must be paid at closing. It is important for buyers to budget for the down payment before committing to a purchase, as it will have a large impact on the overall cost of the home.

To accumulate the amount you need for a down payment to purchase a home, you'll want to make saving part of your budget. One easy strategy is to have your employer deposit your pay directly into your bank account and set up automatic transfers to a savings account each period. Another is to, choose short-term savings and investment options, like savings accounts, GICs, low-risk mutual funds, or the Tax-Free Savings Account (TFSA), which allows your money to be saved or invested tax-free. The Registered Retirement Savings Plan (RRSP) also lets you save money for retirement. First Home Savings Accounts (FHSA) are also popular investment accounts, as they allow you to accumulate over $40,000 CAD in tax free savings. Moreover, deposit insurance from the Canadian Deposit and Insurance Corporation (CDIC) protects savings held at a CDIC member institution in Canada, so your savings are protected even if your financial institution should fail.

Immigration Refugees and Citizenship Canada (IRCC) has also created a Financial Goal Calculator, which you can use to see how long it will take you to reach your savings goal.

How can I find my first home in Canada?

When looking to find your first home to buy in Canada, there are several resources and strategies you can use:

• Explore local neighbourhoods: Visit the neighbourhoods where you wish to live and keep an eye out for "For Rent" signs on houses or buildings. Approach the superintendent or property manager to inquire about current or upcoming rental availabilities.

• Employing a real estate agency, if possible, is generally recommended, provided that the agent you are working with has been properly licenced and is practicing their trade lawfully. Real estate brokers have access to a wealth of resources for the house hunt, and usually have a rich history of the area that they operate in as well. Additionally they (agents) only make money off of successful commissions, meaning that if you are unsuccessful in your job hunt you do not need to pay anything to your agent;

• Online search platforms: Utilise online platforms such as Realtor.ca, Zumper, and PadMapper to search for rental properties across Canada. These platforms allow you to apply filters based on location, price, property type, number of bedrooms, and more. Google Maps can also be helpful for wider-area searches.

• Classified listings: Check the classifieds section of local newspapers or online classified listings like Kijiji and Facebook Marketplace. These platforms not only list apartments for rent or sale but also offer other items you may need for your new home, such as furniture or appliances.

• Local library resources: Some libraries provide resources and workshops related to finding housing. Look for public libraries in your area that offer assistance on apartment searches, lease reading, and more.

• Bulletin boards: Check bulletin boards in grocery stores, libraries, laundromats, health clinics, community centres, service clubs, or real estate offices. These boards often have rental listings and other relevant information.

• Immigrant settlement agencies: If you are a permanent resident, protected person, or certain temporary resident, local immigrant settlement agencies can offer housing-related services. They can assist with finding a place to live and provide guidance on your rights and responsibilities as a tenant. Conduct a web search to find the services available in your city, district, or province. Government-funded websites like Compass to Connect can also help search for settlement services nationwide.

How much do I need for a down payment in Canada?

Remember that a down payment is the amount of money you put towards the purchase of a home. Your lender (often a bank that grants a loan to buy your home initially) deducts the down payment from the purchase price of your home. Your mortgage will then cover the rest of the price of the home.

Keeping this in mind, the amount you will need to pay for your down payment varies accordingly:

• If the purchase price of your home is $500,000 or less than the minimum down payment is 5% of the purchase price
• If the purchase price of your home is $500,000 to $999,999 the minimum down payment is 5% of the first $500,000 of the purchase price 10% for the portion of the purchase price above $500,000

• If your down payment is less than 20% of the price of your home, you must purchase mortgage loan insurance;
• If the purchase price of your home is $1 million or more, your down payment is 20% of the purchase price

It is generally seen as good practice to make a bigger initial down payment, as this can lessen the mortgage costs, and subsequently save you thousands in interest fees.

What is mortgage loan insurance?

Mortgage insurance, also known as mortgage loan insurance or mortgage default insurance, is a form of protection for mortgage lenders in the event that the borrower is unable to make their mortgage payments. It is important to note that mortgage loan insurance does not protect the borrower; instead, it safeguards the lender's investment.

In Canada, if your down payment is less than 20% of the home's purchase price, you are required to purchase mortgage loan insurance. However, even if you have a 20% down payment, your lender may still require you to obtain mortgage loan insurance under certain circumstances. For example, if you are self-employed or have a lower credit score, the lender may consider it necessary for their protection.

Likewise be aware that mortgage loan insurance has some limitations. It is not available for homes with a purchase price of $1 million or more, and it must meet the standards set by the mortgage insurance company.

What is a mortgage premium?

The cost of mortgage loan insurance is referred to as a premium. The premium amount typically ranges from 0.6% to 4.50% of the mortgage amount and is based on the size of your down payment. Generally, a larger down payment will result in lower mortgage loan insurance premiums.

There are several providers of mortgage loan insurance in Canada, including the Canada Mortgage and Housing Corporation (CMHC), Sagen, and Canada Guaranty Mortgage Insurance Company.

You have the option to pay the premium upfront as a lump sum or add it to your mortgage amount. If you choose to add it to your mortgage, you will be charged interest on the premium at the same rate as your mortgage interest.

In some provinces, such as Ontario, Manitoba, and Quebec, provincial sales tax is applied to mortgage loan insurance premiums. It is important to note that this tax cannot be added to your mortgage, and you will be required to pay it separately when obtaining your mortgage.

Overall, mortgage loan insurance serves as a safeguard for lenders, ensuring that they are protected in case of default. It is an additional cost that borrowers need to consider when purchasing a home, particularly if their down payment is less than 20% of the purchase price.

What are home buying programs, plans and incentives for homebuyers in Canada?

In Canada, there are various home buying programs and incentives offered by the Government of Canada to assist homebuyers in purchasing their homes. These programs and incentives include:

• The Home buyers' amount: Homebuyers may qualify for a non-refundable tax credit of up to $1,500;
• GST/HST new housing rebates: Buyers may be eligible for a rebate on a portion of the taxes paid when purchasing a new home; and
• The Home Buyers' Plan (HBP): First-time homebuyers can withdraw up to $35,000 from their registered retirement savings plan (RRSP) without incurring taxes to use towards the purchase of their first home.
• Additionally, there is the First-Time Home Buyer Incentive, which provides eligible buyers with 5% or 10% of the home's purchase price as assistance for their down payment. Detailed information about this incentive can be obtained from reliable sources.
• Another option is the First Home Savings Account (FHSA), which allows individuals to save up to $40,000 tax-free specifically for the purpose of buying a home. Contributions to this account have an annual limit of $8,000. You can gather more information regarding the FHSA here.
  

To learn more about these programs and determine your eligibility, you can find additional information on the Canada Mortgage and Housing Corporation's (CMHC) official website.
It's worth noting that provincial or territorial governments may also offer their own home buying programs and incentives. To explore these opportunities, it is recommended to get in touch with your respective provincial, territorial, or municipal government for further details.

What is a mortgage pre-approval?

When you're in the process of shopping for a mortgage, it's beneficial to compare the options available from different lenders and get approved for a mortgage loan from your lender (known as pre-approval). Pre-approval serves as an initial assessment to help you understand your potential borrowing capacity and interest rate range. The final approval is typically contingent on additional factors, such as the property appraisal and a more comprehensive review of your financial situation by the lender. This process is commonly known as mortgage pre-approval, although it may also be referred to as mortgage pre-qualification or mortgage pre-authorisation.

Each mortgage lender follows a specific procedure that enables you to:

• Determine the maximum amount of mortgage you could qualify for.
• Estimate your mortgage payments.
• Secure an interest rate for a specific period, typically ranging from 60 to 130 days, depending on the lender.

It's important to note that the specific steps and criteria involved may vary among lenders.

During the mortgage pre-approval process, the lender assesses your financial situation to determine the maximum amount they are willing to lend you and at what interest rate. This typically involves providing your personal information, submitting various documents, and undergoing a credit check.

However, it's crucial to understand that mortgage pre-approval does not guarantee your final approval for a mortgage.

The Canadian government has also developed an online tool to help assess your mortgage eligibility here.

Where can I get mortgage pre-approval in Canada? How do mortgage brokers work in Canada?

In Canada, you have the option to obtain a mortgage pre-approval from mortgage lenders and mortgage brokers.

Mortgage lenders are institutions that directly lend money to borrowers. These lenders include:

• Banks;
• Caisses Populaires;
• Credit Unions;
• Mortgage Companies;
• Insurance Companies;
• Trust Companies; and
• Loan Companies.

Note that different lenders may offer varying interest rates and conditions for similar mortgage products. To ensure you secure the best mortgage product for your needs, it is recommended to consult with multiple lenders. It's crucial to feel comfortable with the lender and the mortgage options they present to you right from the beginning. Switching lenders after signing the mortgage contract may result in a prepayment penalty, so understanding the terms and conditions of your mortgage agreement is essential.

To learn more about the costs associated with breaking a mortgage contract, click here.

Mortgage brokers, on the other hand, do not lend money directly to borrowers but instead act as intermediaries who arrange mortgage transactions by finding a suitable lender for you. While some lenders exclusively offer their products directly to borrowers, certain mortgage products are available solely through brokers. Working with a mortgage broker provides access to a wider range of mortgage products, as they have connections with multiple lenders.

It's worth noting that not all mortgage brokers have access to the same set of lenders, resulting in variations in available mortgage options. When dealing with a mortgage broker, it is advisable to inquire about the lenders they work with.

Typically, mortgage brokers do not charge fees for their services. Instead, they receive a commission from the lender once they successfully arrange a mortgage transaction on your behalf.

To find a list of mortgage brokers in your area, you can do a quick web search for "mortgage professionals/brokers" in your area. Crucially however, the regulation of mortgage brokers is handled by provincial or territorial authorities. It is always best practice to confirm a broker's licensing status so you are able to verify their credentials, or to file a complaint if necessary.

What information should I provide to my lender or mortgage broker?

When considering your pre-approval, lenders or mortgage brokers will assess the following aspects:

• Your assets (what you own);
• Your income; and
• Your level of debt.

To complete the pre-approval process, you will be required to provide the following documentation:

• Identification;
• Proof of employment;
• Evidence of your ability to cover the down payment and closing costs;
• Information regarding other assets you possess, such as a car, cottage, or boat; and
• Details about your debts or financial obligations.

To verify your employment, you may need to submit:

• Proof of your current salary or hourly pay rate (e.g., a recent pay stub);
• Your job title and tenure with the employer; and
• Notices of assessment from the Canada Revenue Agency for the past two years (if you are self-employed).

Additionally, your lender or mortgage broker might request recent financial statements from your bank accounts or investments. These documents will assist them in determining your down payment capability.

Your debts or financial obligations encompass monthly payments related to:

• Credit card balances;
• Child or spousal support;
• Car loans;
• Lines of credit;
• Student loans; and
• Any other outstanding debts.

What information can I provide for proof of employment in Canada?

When verifying your employment in Canada, you might be required to provide:

• Proof of your current salary or hourly pay rate (e.g., a recent pay stub);
• Information about your position and length of time with the employer; 
• A letter of employment that provides additional details about your job, including pay, hours, responsibilities, etc.; and/or
• Notices of assessment from the Canada Revenue Agency for the past two years, specifically if you are self-employed.

What questions should I ask my lender or broker when getting preapproved?

When seeking mortgage pre-approval, clear communication between yourself and your lender is paramount. Some questions that you can ask your lender or broker to ensure clarity include:

• How long is the preapproved rate guaranteed for?
• Will I automatically receive the lowest rate if interest rates decrease during the pre-approval period?
• Is it possible to extend the pre-approval if needed?

Additionally, don't hesitate to ask your lender or broker about anything that you find unclear or need further clarification on, especially before any documentation is signed.

What are costs associated with buying a home in Canada?

When purchasing a home, there are additional costs beyond the mortgage that you need to consider. These upfront costs, also known as closing costs, are one-time fees that are paid when you buy a home. Typically, these costs are settled by the time the sale is finalized. Examples of these expenses include fees for home inspection, legal services, property tax adjustments, and title insurance. It is important to be prepared to allocate approximately 1.5% to 4% of the purchase price of the home for these associated costs.

Other costs associated with buying and moving into a new home in Canada may include:

• Appraisal fee: This is the cost of assessing the value of the property, which is usually required by your bank or credit union. It typically ranges from $250 to $350;

• Mortgage loan insurance premium: If your down payment is less than 20%, your lender may require mortgage loan insurance, which can be added to the mortgage or paid upfront;

• Home inspection fee: An inspection fee of around $500 covers a report on the home's condition and is recommended before finalising the purchase;

• Estoppel certificate fee (not applicable in Quebec): This fee, up to $100, applies when buying a condominium in a strata unit or condominium;

• Land registration fee: Some provinces charge a fee based on a percentage of the home's price for registering the property;

• Prepaid property taxes and/or utility bills: These reimburse the seller for amounts already paid, such as property taxes and fuel tank filling;

• Property insurance: Coverage for the structure and contents of the home is necessary upon closing the sale;

• Survey or certificate of location cost: The bank may require an up-to-date survey or certificate of location, costing between $1,000 and $2,000;

• Legal fees: These fees, starting at $500, are payable upon completing the sale;

• Title insurance: It may be recommended to cover any ownership-related issues with the property;

• Water tests: If the home has a well, testing the water quality is important; and/or

• Septic tank inspection: For homes with septic tanks, an inspection ensures it is in good working condition.

Other costs to consider include appliances, gardening expenses, snow-clearing equipment, window coverings, decorating materials, hand tools, moving expenses, renovations or repairs, service hook-up fees, and condominium fees.

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