Tips for First-Time Homebuyers in Canada

Stepping onto the property ladder signals a huge moment in anyone’s life, but first-time home buyers in Canada face a number of challenges. A lack of affordable houses means a 20% increase in house prices in the past year alone, and the lack of available homes means there’s less affordability.   

As a prospective first-time home owner, it’s imperative that you equip yourself with a winning strategy for your home purchasing endeavours. This quick guide will cover everything you need to know, from first-time home buyer programs to general tips to aid your cause.

1. Ensure a Strong Financial Standing

When buying your first home, it is likely you’ll spend some time preparing for the process. One of the best ways to begin making your home buyer’s plan is to focus on getting the best mortgage deal possible. 

Here are the three essential tips:

• Build up your credit score. This will do wonders for securing the best mortgage.
• Focus on clearing debts. Repayment commitments are subtracted from your salary when calculating your potential loan.
• Save up for the deposit. Typically, you’ll need at least 5% of the loan amount, but new home buyers regularly have up to 20% stashed away.

Obviously, if you can get a salary increase before submitting an application, that will work wonders for boosting your borrowing amount. However, you must be careful not to take out a mortgage based on an unattainable salary, as you could quickly fall behind on the payments. 

2. Get Accurate Calculations

One of the key steps to buying a house for the first time in Canada is understanding the financial aspects related to a loan. While online calculators are great for giving you a rough mortgage estimate, it’s important to remember that they are not actually lenders and often won’t take your full financial situation into account. 

A first-time home buyer in Canada calculator may test for eligibility and affordability when you enter your earnings into the calculator. However, it doesn’t account for your other financial commitments like credit cards, overdrafts, and childcare. These rough calculators often provide a maximum estimate of what you may be able to borrow. In many cases, applicants would be offered less when looking for a first-time home buyer’s loan.

To get the best and most accurate results, it’s best to speak to a mortgage advisor. They will:

• Analyse your income and expenses to work out your true working capital;
• Check the market to see which lenders may accept your mortgage application;
• See what the maximum lending amount and interest rate will be for each lender.

The difference between a 4x multiplied mortgage and a 5x multiplied mortgage could be huge, especially for joint applicants. Likewise, a seemingly small difference in interest rates could be worth thousands of dollars over the life of a mortgage. 

When buying a home in Canada, accurate calculations allow you to enter the market with confidence. There is nothing more frustrating than thinking you can afford a property only to find out that lenders won’t accept you when it comes to making a purchase.

3. Understand the Hidden Costs

Whether you’re a first-time home buyer in Ontario, Toronto, or any other part of the country, it’s crucial that you know the true cost of moving into a property. The figure you agreed with the seller is far from the full cost you’ll encounter. 

Some of the additional costs commonly related to moving into a new home are: 

• Moving fees
• Solicitor fees
• Property survey fees
• Taxes
• Household bills

Additionally, if your saved up deposit is under 20% of the mortgage amount, you can take out the CMHC mortgage loan insurance to improve your chances of being approved for a loan. Having an insurance policy in place can unlock a lower interest rate as your loan is deemed less of a risk.

4. Analyse Your Options

Taking out a mortgage is not necessarily the only option when funding a house purchase. Studies show that parents in Canada give an average of over $80,000 to their children who are buying a home. Not everyone will have this option, but those who do should not feel too proud to take it. Once on the property ladder, you will effectively be saving for your future.

Another solution available to prospective homeowners is a first-time home buyer incentive in Canada, available through Canada Mortgage and Housing Corporation (CMHC). This program provides a downpayment of 5% of the property value through a shared equity loan that needs to be repaid within 25 years of being taken. FTHBI can help you buy a better home without increasing your down payment or monthly repayments.

Alternative financial incentives that can help overcome first-time home buyer Canada down payment issues include:

• The $750 First-Time Home Buyers’ Tax Credit rebate and subsequent land transfer tax credit of up to $8,000, depending on your location.
• Home Buyers’ Plan (HBP) allows you to withdraw from your Registered Retirement Savings Plan (RRSP) and repay it over the next 15 years.
• First Home Savings Account, which uses elements of both TFSA (Tax Free Savings Account) and RRSP, will launch by 2023.

5. Use the Right Professional Help

Taking all the expenses into account, first-time home buyers can get tempted to take the DIY route. After all, asking friends to help you move the furniture in exchange for some beer seems like a good way to reduce the moving costs, meaning more money for the down payment. 

That said, keep in mind that experts are there for a good reason, and while not every service is necessary, some are more essential than others. There are tales of people who skipped a thorough home survey to cut costs, only to find out their property had many issues when it was too late. 

For example, the administrative tasks can be taxing and complicated, which is why solicitors are needed to ensure that everything runs smoothly. Aside from getting things done correctly, hiring a professional will provide you with peace of mind.

Here are some of the experts that are well worth your money:

• Conveyancers
• Realtors
• Mortgage advisors
• Moving experts

Having the right team behind you will reduce your chance of making a regrettable decision. Just be sure to research your options and find the best people for the job. 

6. Buy the Right Home

Finally, you should not fall victim to pressure and rush into the purchase. It’s better to carry on living with your parents or rent a property for another year than to move into the wrong house. If you find yourself switching to another home within the first couple of years of moving in, the taxes and additional moving costs will likely wipe out any progress you made on paying off the mortgage.

When buying a property, you’ll want to think about your mid-term future, such as whether your family is set to expand. Moreover, you should remember that you are buying into a new lifestyle rather than just the property. As such, you must consider the following aspects:

• Is the neighbourhood safe and in a good location?
• Is the property close to amenities and good transport connections?
• Are prices in the area likely to keep growing?

Ultimately, you’re in need of more than just the right property. You need the perfect home. Whether you find it today or in a year, keeping this advice in mind will serve you well.