How to Buy a House in Canada

How to Buy a House in Canada

When you consider how to buy a house in Canada, there are many factors to review. Homeownership is a significant goal for many people, and while the cost of buying a home consistently increases, there are essential steps you can take towards your first mortgage. Based on the average cost of a new home and the minimum requirement of 5% for a down payment, you can expect to save between $27,000 to $30,000. If you’re able to save more than 5%, this will reduce the amount you’ll need to finance as part of the mortgage.

Saving for the Down Payment and Associated Costs

Planning how to buy a house in Canada is easier than you may think, as long as you establish a solid plan and follow it through. To start, you’ll need a regular source of income and a savings account. An automated savings plan will transfer a set amount, determined by you, into an account expressly set up to save for your home. Based on your household income, you’ll want to set aside enough funds to cover the down payment, closing costs, land transfer tax, and other expenses associated with buying a new home.

Additional Expenses to Consider When Buying a Home

Saving for a new home includes more than the down payment when you learn how to buy a house in Canada. Additional, essential expenses you’ll need to include with the overall costs of investing in a new house, condo, or property. While your down payment is a priority, you’ll need to plan for an additional 2-5 % of your home’s price to cover these additional fees, known as closing costs. The bulk of these fees are legal and administrative costs, which you’ll need to save to avoid additional debt when you purchase your home.

Land transfer tax is a requirement that varies from one region or province to another. This amount is based on a percentage of your home’s costs.  To prepare applicable documents for the purchase of a new home, you’ll need to hire a lawyer specializing in real estate, which can vary from $1,200-$2,000. Understanding the importance of taxes is critical when you learn how to buy a house in Canada.

A home inspection is an essential, though often overlooked, step in buying a new house. The fee for the inspection can typically range from $500-$1,000 and safeguards you from investing in a house or property that may be damaged or incur unexpected, high costs. An inspection will give you peace of mind that your home is safe and a good investment.

Taxes on the house sale and PST on mortgage default insurance (also known as CMHC insurance) are requirements. CMHC insurance is a mandatory insurance policy you’ll need to add to the cost of buying a house with less than a 20% down payment. Title insurance is also a critical fee to consider, as it can protect a lender if there is a dispute involving ownership. This fee is usually around $300, and it’s purchased directly through a lawyer.

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How to Save for the Costs of Buying a Home

Saving for the purchase of your first house may seem like an uphill challenge. However, by making a few adjustments to your spending and saving habits and setting realistic goals, you’ll accumulate enough funds to get started on your homebuying journey. The first and most important step is opening a savings account, then establish a regular schedule of contributing to it. A large down payment may seem daunting at first, though even on a moderate income, you can save $3,000 a year or more, and this will not impact your daily expenses.

A budget calculator is a significant step towards learning how to buy a house in Canada. It’s also an essential tool to set your financial goals. This tool will give you realistic expectations on how to plan and the length of time you’ll need for adequate funding to buy a home. Suppose you receive gifts during the holidays, at your wedding, or other occasions where family and friends are aware of your homebuying goals. In that case, these make significant contributions to buying a house.

A tax refund is also a fantastic way to contribute to your new home, whether you directly fund your savings account, or add it to your RRSP, provided you have enough room to contribute within the year. The Home Buyers’ Plan offers new homeowners the option of accessing up to $35,000 from an RRSP account towards a down payment, with significant tax savings. Setting up a tax-free savings account (TFSA) is an excellent way to keep your home savings separate from your monthly expenses. Automatic withdrawal amounts can be scheduled weekly, monthly, or coincide on each payroll day.

Focus Beyond the Hot Real Estate Market

As you navigate the real estate market and determine how to buy a house in Canada, you’ll notice many of the highest home prices are concentrated in the “hot” markets in Vancouver and Toronto. Since many of these homes are expensive, the down payment required will increase accordingly, making them less affordable for many people. If you search outside of these areas, you’ll find a drastic change in overall cost and lower down payment.

In some cases, you may find a home just outside of a “hot” market region, with significant savings, without a long commute to work. Some condominiums and townhouses are less expensive, and smaller homes with a small lawn or no backyard can save you a lot in the long term. Unless you’re set on buying a property with green space, you’ll find a smaller home with a bit of lawn is ideal in terms of cost and affordability.

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Increasing Your Income to Buy a Home

If you’re earning a decent income and confident that you’ll have enough disposable income to save, a budget tracker will keep you on target. This can be done with a simple spreadsheet or a more comprehensive program to ensure you’re getting the most out of your disposable income. Adjusting your budget to maximize savings is one of the most critical aspects of how to buy a house and focus on your goals.

If you’re not earning as much as you need to afford a home or need a bit extra to make it affordable in the long term, a second part-time job or starting a side business, in addition to your full-time work, can give you a significant boost over just a few months or a year. The longer you’re able to work extra hours and earn additional income, the further ahead you’ll get within a shorter period.

Earning extra income may give you the impression there are many additional funds, though it’s essential to ensure all this income is transferred to your savings solely for your home. This process makes your savings account grow fast, and it’s how you buy a house without having to rely on family or friends for financial assistance. Fortunately, many online platforms and gigs are easy to find to earn side income, whether you work online or find a part-time job outside of the home.

While earning extra income may not be feasible for some people, when you learn how to buy a house, you may find some online, social media-related jobs that can help you earn a few extra bucks. Just a few hundred dollars each month can go a long way to helping you realize your dream of owning a new home and learning how to buy a house for the first time.

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Reduce Your Spending and Focus on Saving

Saving for a down payment and other costs associated with buying a home may take a few years. For this reason, you’ll want to make sure you have enough funds to afford the cost of living now while planning long-term goals for significant savings. If you have other spending goals, such as purchasing a new vehicle or taking a vacation, you may want to consider postponing these goals for a few years until you have sufficient savings for your new home.

Learning how to buy a house requires more determination and focusing on goals than you may realize. While your family and friends offer advice on how to buy a house, condo, or property with good intentions, you’ll want to gain some valuable information through online resources. If you need further support, consulting with a professional credit counselor is a terrific way to help you learn how to buy a house and save adequate money to achieve your goal.

Conclusion

Learning how to buy a house in Canada requires taking essential steps to secure your credit, maximizing your savings, and increasing your income as needed. You can make the most out of your situation by improving your credit score, keeping your debts low and manageable, saving as much funding as possible, and earning extra income. You’ll find that when you find how to buy a house in Canada, the process requires patience, planning, and maintaining focus for the long-term benefits.

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FAQs about Buying A House In Canada

What is the current mortgage rate in Canada?

For 5-year mortgages the current rate is around 1.85%, 7-year mortgages have a rate of 2.64%, and 10-year mortgages have a rate of around 2.95%. Variable rate mortgages have a rate of around 1.39%.

What can you do to save on mortgage rates in Canada?

You are already taking the first steps to saving on mortgage rates. When you apply with Comparewise, we automatically match you with the best deal for your situation.

How do I save for the downpayment of my home in Canada?

First of all you have to follow a stable plan. You need to have a good source of income and savings account. Make sure you set enough money to pay for your downpayment.

How do I work out the cost of buying a home in Canada?

You can use a budget calculator to set your finances. This kind of tool will provide you with real expectations on buying a home in Canada.

What are the tips for buying a home in Canada?

One of the tips we have mentioned is to look at beyond the real estate market. Try looking for home outside the popular real estate market, you might find an affordable price.

June 19, 2021
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