If you’re an aspiring first time home buyer in Canada, you might be wondering how to buy a house in Canada. What steps can you take? What resources are out there to make the process easier and more affordable? Luckily, we’ve got your back. Here’s everything you need to know.
How to buy a house in Canada
The first thing you’ll want to do when considering buying a home is determine your mortgage affordability. This will help you determine whether or not a particular home is in your budget, and the maximum price you can afford. You’ll also want to calculate how much cash you’ll need on hand, in addition to the down payment for the home, you’ll need.
Luckily, our handy mortgage affordability calculator will help you figure that out. Let’s take a look, using an example.
Using the calculator, we’ll assume a household income of $120,000. We’ll also assume you don’t have any other debts. Finally, we’ll allow the affordability calculator to estimate property taxes and heating costs. For our purposes, they are calculated at $419 and $159 per month, respectively. (These can all be toggled based on your own parameters when you play around with the calculator on your own.)
Assuming these parameters, your maximum affordability would be $761,856, with a down payment of 20% ($152,371).
The calculator goes a few steps further, though.
It also tells you how much extra money you’ll require, in addition to a down payment, in order to purchase the home.
For example, assuming you’re buying a home in Toronto, you’ll need $23,424 to cover land transfer taxes (thanks double land transfer tax!). If you’re a first time home buyer, though, you would qualify for a land transfer tax rebate of $8,475, dropping your required taxes to $14,949.
In additional taxes, the calculator also estimates other required fees.
You can plan to fork out an additional $1,000 for lawyer fees, $762 for lawyer fees and an additional $600-$900 for home inspection and appraisal fees, according to our estimates.
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Calculate mortgage payments
Now that you’ve figured out how much cash you’ll need, up front, to buy a home in Canada, it’s time to crunch the numbers to see if the monthly carrying costs fit within your budget.
You can calculate mortgage payments using our mortgage payment calculator. You can play around with home prices and estimate monthly costs by toggling various mortgage rates in Canada to determine your monthly payments.
Using our above home price of $761,856, assuming 20% down, and a five year fixed rate of 2.39% (the best available five year fixed rate in Canada) amortized over 25 years, you would pay $2,697 per month.
Get a rate hold
After you’ve determined how much mortgage you can afford, you’ll want to speak with a mortgage broker to get a rate hold. Rate holds allow you to lock a rate in for up to 120 days; if rates increase over that timespan, you’re still guaranteed the lower rate. However, if they drop, you can qualify for the lower rate.
Once you’ve figured out how much you can afford, calculated your mortgage payments, re-written your budget, and obtained a rate hold, it’s time for the fun part: Searching for your home. The best plan is to speak with a real estate agent who has expertise in the area you’re interested in. They can help you find a home within your budget and provide all the guidance you’ll need to find the perfect home.
Resources for first time home buyers
There are tax rebates available to first time home buyers, as well as tax credits. The Liberal government also launched a first time home buyer incentive program earlier this year, which provides interest free loans to Canadians to help them lower their monthly mortgage costs.
To see a list of the programs available, check out our list of first time home buyer programs.
Who should you vote for if you’re buying a home in Canada?
With the Federal Election mere days away, we’ve put together a handy guide to help you figure out where each party stands on housing issues.
The Liberal Party
Under Justin Trudeau, the Liberals plan to go forward with its first time home buyer incentive program, which gives Canadians access to interest free loans of up to 10% on the purchase of a new home.
They also promise to implement a national tax on vacant homes owned by non-Canadians who don’t live in Canada.
Finally, the Liberals promise to crack down on financial crime in the housing sector, which has long been speculated to be a driver of out-of-control housing prices in Canada’s hottest housing markets.
The New Democratic Party
If elected, Jagmeet Singh and the NDP party promises to create 500,000 additional affordable houses in Canada. They have also promised to waive federal taxes on the construction of rental housing, which would incentivize developers to address this much needed housing segment.
They have also promised to double the Home Buyer’s Tax Credit to $1,500 as well as increasing the maximum amortization for CMHC-insured mortgages from 25 years to 30 years.
Finally, the NDPs promise to crack down on money laundering the housing industry and implement a foreign buyer’s tax on homes sold to people who aren’t Canadian citizens.
The Conservative Party
If elected, Andrew Scheer’s Conservatives have vowed to remove the stress test for mortgage renewals; increase the maximum amortization for CMHC-insured mortgages to 30 years; address money laundering; and increase housing construction by making more land available to developers.