Buying a house in Canada is an extensive process that can be broken down into 9 manageable steps. Generally speaking, you need to save up for the down payment and closing costs, work with a realtor to find the right home that suits your needs, then finally work with a lawyer to sign a bunch of paperwork.
But just because the process is extensive (especially for first-time home buyers) doesn’t mean you can’t do it – people are buying homes everywhere all the time. I just bought my first home, despite not thinking I’d be able to for many more years to come.
If you’re financially stable and ready to stop throwing your money away on rent, then buying a house is a viable option (depending where you live). But first, read through these 9 steps so you have an idea for what’s to come.
Key Takeaways
- Buying a house starts with saving up enough to cover the down payment (minimum of 5% of the purchase price) and closing costs (around 2.5% of purchase price).
- Once you have the money ready to go, you can get pre-approved for a mortgage and reach out to a realtor to start seeing some homes.
- When you've found the place you love, you can make an offer. If it's accepted, you have some days to finalize any conditions you may have had in the offer (such as home inspection).
- Once the conditions are met, your offer is considered firm and you can reach out to your lawyer to finish up the last details and take you to the closing date.
Step 1: Find out what you can afford
This will involve a lot of introspection and a detailed review of your spending. It can help to think of it in terms of monthly payments – since once you get into hundreds of thousands of dollars, things can get a bit blurry. Use a monthly mortgage payment calculator to see how much homes in your area will cost you per month.
If you’re currently renting, it’s easy to think that you could afford up to your current monthly rent in mortgage payments. You may be right, but you have to keep in mind certain other factors, like:
- You’re now responsible for home repairs, so you need to be able to save up for those separately.
- Heating costs will likely go up if you’re buying a home that’s larger than your apartment.
- If you don’t pay for water with your apartment, you may have to start paying for that as well.
- Home insurance may be more expensive than tenant insurance.
- You’ll have to pay property taxes, which can either be done in one lump sum every year or split up into monthly chunks.
So with those extra costs in mind (and more), it’s better to aim for a bit less than your monthly rent payment to free up some extra room.
If you’re trying to think of more ways to decide how much you can afford, some rules of thumb people often cite are:
- 3-5x rule: Keep the total cost at no more than 3x – 5x your annual household income.
- 28/36 rule: Household expenses don’t exceed 28% of gross monthly income, and household debt doesn’t exceed 36% of gross monthly income.
- Down payment: If you want to avoid mortgage insurance, you could only go for homes that you could afford a 20% down payment on.
When you have an idea of how much you can afford, do some light research of what home prices are like around you by using filters on sites like realtor.ca. This will help you see if owning a home that’s the right size and in the right location for you is realistic.
Step 2: Start saving up for a down payment and closing costs
Once you have an idea of how much you can afford, you’ve also defined your next goal: how much cash you need on hand for the down payment and closing costs. This will be a minimum of 7.5% of the purchase price.
The down payment is the amount you pay upfront, which is applied directly to the principal of your mortgage. The absolute minimum you can put down on a home is 5% (for homes less than $500,000), but there’s no upper maximum. You can pay the whole mortgage off if you have the cash handy.
But it’s important to note that if you do anything less than 20%, you’ll have to buy mortgage insurance, which will be tacked on to your mortgage cost. This isn’t necessarily a deal breaker, and some high-ratio mortgages associated with a low down payment may actually have better rates than a normal mortgage, but it’s often best to avoid extra costs if possible.
Then there’s closing costs to consider, which experts estimate at about 2.5% of the purchase price. This encompasses all the extra costs, including your lawyer fees, land transfer tax, deed transfer costs, and more.
Examples of total cash needed on hand
If you’re looking for the absolute minimum you need to save up for a home, you could take the minimum of 5% for a home priced under $500,000 and then 2.5%. So that means:
| Purchase price | Minimum down payment and closing costs |
|---|---|
| $200,000 | $15,000 |
| $250,000 | $18,750 |
| $300,000 | $22,500 |
| $350,000 | $26,250 |
| $400,000 | $30,000 |
| $450,000 | $33,750 |
| $500,000 | $41,250 |
Once you get above $500,000, the minimum down payment you need changes into:
- 5% of the first $500,000
- 10% on the remainder
So if you you’re looking for a $600,000 home, that would be:
| Calculation | Result |
|---|---|
| First $500,000 x 5% | $25,000 |
| Remaining $100,000 x 10% | $10,000 |
| Closing costs: $600,000 x 2.5% | $15,000 |
| Total: | $50,000 |
Depending what price range you’re looking in, this is a substantial amount of cash.
Step 3: Get pre-approved for your mortgage
Once you know how much home you can afford and have the right amount of money saved up, the next step is to go mortgage shopping and get a pre-approval in hand. This is generally best done before you start looking at homes, because realtors don’t want to waste your time looking at homes you may not be able to afford.
Thanks to online banking, getting pre-approved for a mortgage is easier than ever. All you have to do is:
- search around for the best mortgage rates,
- create a short list of the lenders you like best, and
- follow their instructions for online pre-approval.
What the process looks like will vary from bank to bank. For example, I was able to get a completely online pre-approval from Scotiabank, but for RBC I had to set up an appointment with a mortgage advisor. I ended up going with RBC because the rate was slightly better and she was able to give me a more clear picture of my options.
If the amount of research ahead of you is overwhelming, you can also reach out to a mortgage broker, either online or in person. These are like personal mortgage shoppers that will compare rates for you, and may even argue for lower rates on your behalf. For example, check out Pine:
Mortgage shopping has evolved thanks to online brokers like Pine. Now you can quickly compare the lowest mortgage rates on the market and easily apply – all without even leaving your couch or paying additional fees. You'll even get a faster pre-approval than most banks (usually within 24 hours) and can contact the Pine mortgage team at any time.
- Pine’s mortgage rates are currently lower than big banks
- Pine provides an easy online application process
- You can talk to real people about your Pine application and mortgage
- Pine is only available in certain provinces
- No in-person home advisor
- Some of the lowest advertised mortgage rates in Canada
- Earn $500 for you and a friend with client referral program
- Offers mortgage programs for those with poor credit
- Get a personal mortgage advisor who works on salary instead of commission
But keep in mind that just because you get pre-approved for a $300,000 mortgage, doesn’t mean you need a $300,000 house. I was pre-approved for up to $325,000 but when crunching the numbers, I was very uncomfortable with the monthly payments on that amount of money. The number should be treated as your maximum, and you should keep in mind what you determined you could afford in Step 1 and 2.
Step 4: Find the right real estate agent
Though you’re likely already excitedly looking at homes online by this point, finding the right real estate agent in your area is an important next step. What this looks like for you depends on your preferences, but one important thing is that your agent is communicative, prompt, trustworthy, and helpful.
The first thing you’ll want to understand is the realtors that are listed on the houses are the seller agents, which means their primary interest is selling that home. Instead of reaching out to them, look up a directory of realtors in your area. When you reach out organically like this, they’ll be working as your agent, the buyer’s agent, and their interests are instead making sure you get the best deal. They’ll be the ones reaching out on your behalf to each agent that’s on the house listings.
There are several ways you can find a realtor that’s right for you:
- Do a Google search for realtors near you and read any online reviews,
- ask your friends or coworkers who’ve recently moved within the area if they have any recommendations, or even
- post in Facebook groups or the area’s subreddit to ask for any recommendations.
Personally, I found my realtor through a work colleague and she was amazingly prompt and super helpful. Their experience is invaluable to the home buying process, so don’t be afraid to ask questions. A good realtor will be available to help whenever you need it and explain everything simply.
Step 5: Look at a bunch of homes
Once you have the right realtor, they’ll likely provide you with a list of homes that fit your criteria. You can also send them links to any listings that catch your eye as well, and they’ll be able to check on the home’s status for you.
When you’ve both gathered a few houses to look at, your realtor will set up viewings at a time that works for you – and this is when you’ll shop until you drop. Don’t just look at the ones you love, consider the ones you wouldn’t normally take a second glance at too.
When starting to house hunt, it can be easy to get carried away with all the emotions that come with finding that perfect home for your family. It’s fine to make a wish list of items you’d love to find in your next home, but it’s more important to focus on the true priorities of buying your next home. Think deeper than open layouts and the number of bathrooms.
Here are a few things to consider when you start doing your walkthroughs:
- Does the floor feel wonky in areas? This may point to underlying structural issues.
- Do the doors and windows open and close easily? If not, this could also hint at some issues.
- Do the layout and room sizes work for you and your family?
- If you’re looking in a more rural area, is the internet good at your location?
- What’s the heating and cooling system like? When was it last replaced?
- Does the roof look like it’s in good shape?
- Is there any leaking or seepage in the basement?
- What items are included with the property? Can you ask for anything else to be thrown in?
Compile a list of your most important factors and make sure each home you look at meets the criteria at least satisfactorily. I used a very detailed spreadsheet to track all the information and compare it, which I found was a big help in the process.
Things to consider when house hunting
In my experience, these should be your top priorities:
- affordability,
- the right location, and
- overall functionality for your family.
Location, location, location. This is probably the oldest rule in the real estate world. Even if you think the house itself is your dream home, if it’s not in the right location, you might want to reconsider. Location plays a huge factor in the real estate market, so you may have trouble when it comes to selling that house in the future.
There’s something to be said about buying the worst home in the best neighbourhood – as long as you’re in the right location, you can always add value to your home with renovations, expansions, or simply rebuilding it all together. But you can’t renovate its location. Not by yourself, anyway.
When it comes to finding the right location, look for these factors:
- top-rated school districts,
- scenic views,
- economically stable neighbourhoods, and
- proximity to public transportation.
Buying in these neighbourhoods can cost you, but if you manage to look past aesthetics, you can find affordable homes that are in need of some TLC. And when you choose to sell, you’ll likely reap back all that you put into the home – and more.
Step 6: Make an offer
Once you’ve found the right home for you and your family, it’s time to make an offer. After COVID-19 threw the nationwide housing market into a crazy windstorm, this may end up being the most stressful part of the home buying experience. Luckily, your realtor will handle most of the back and forth for you.
On your end, making an offer involves deciding on a price you’re willing to pay and then any conditions you want to include. This will all be detailed in the Agreement Of Purchase And Sale document that your realtor will provide. The standard conditions that you may include are:
- selling your existing home first (if applicable),
- how much your deposit will be (which is due once the conditions are met and will go towards your down payment),
- getting full financing approval from your mortgage lender,
- getting a home inspection, environmental assessment, and/or water test at your expense,
- receiving confirmation of insurance from a home insurance company, and
- receiving the Residential Property Disclosure statement from the seller (which outlines the home’s electrical, plumbing, structure, roof, and more).
For any of the above conditions you choose to include, you can also specify a date by which it needs to be completed. Usually this is around a business week from the day you submit the offer, which gives you time to get everything together. You will also specify the closing date in this document.
Speak with your realtor to decide which conditions are best for your situation, keeping in mind there are additional terms you can add to the contract. The more conditions you add, the less attractive your offer will be – so it’s important to find the right balance between what you’re comfortable with and what the seller will like to see.
For example, we knew there was another offer on the house, so my realtor recommended we put in an escalation clause which basically said we were willing to pay $2,500 above the highest bid, up to a maximum of $250,000. I believe this was a big help in securing the home.
Another thing you may want to consider is writing the seller a letter about why you and your family love the home. A house has a lot of memories attached to it, and a lot of sellers want to make sure it’s going to the right people so its legacy can live on. This is your chance to assure the seller that you’re the right choice.
$75 GeniusCash + Unlimited transactions for $0 + Ding-free non-affiliated ATM usage.
$25 GeniusCash + $50 bonus for funding a new account, and $0 commissions on stocks & ETFs
$12 GeniusCash + Access trusted news coverage 24/7 + Digital and home subscription options.
$25 GeniusCash + Delicious meal choices with fresh ingredients + Front-door delivery.Step 7: Meet the conditions on your offer
Once you hear the exciting news that your offer has been accepted, you’re officially in the conditions period. You have until the end date specified in your offer to meet everything you decided to include, whether that means finalizing your mortgage or getting a home inspection done.
This part of the process will depend on what you need to complete in this time, so speak with your realtor for the next steps and what your priorities are. They can help make sure you’re on track and can ask the buyer and the seller’s agent any questions that may come up along the way.
One thing you may want to do at this point is find a real estate lawyer in the area and confirm their availability. They won’t need to help you until all your conditions are officially met, but it’s good to make sure they have time for you when you’re ready.
Step 8: Contact a real estate lawyer
Now that you’ve met all the conditions and your deposit is in, you’ve officially bought a house! The next step is a little less exciting, but is still a very important step. When your offer is firm (A.K.A. when all your conditions are met), now is the time to reach out to your real estate lawyer and get that ball rolling.
This is the part where the process largely shifts from being guided by your realtor to being mostly in your lawyer’s hands. It’ll mostly involve signing documents and preparing for closing day.
Some of the things that your lawyer will do for you during this period include:
- making sure the sellers actually own the land (certify the title),
- review and interpret your purchase agreement and mortgage, and
- also help you with any negotiations that come up.
Here’s a 1-minute super informative video that my real estate lawyer provided for me: What does my Lawyer do for me?
Step 9: Close the sale
When it’s finally time to close your sale, there will be a few last things that need to fall into place for the deal to officially close:
- You’ll need to complete the final walkthrough of the property, which is usually done the day before closing. Anything that comes up at this step will need to be negotiated, which your lawyer will help you with.
- You need to provide the full closing costs, including the down payment, as advised by your lawyer.
- Your bank will need to send over the funds, which can happen at different times depending on which bank you’re getting your mortgage from.
If anything goes wrong at any of these points, you may face a delay in actually taking possession of the home. It’s a good idea to have a backup plan for your family and all your stuff just in case the closing day doesn’t go as smoothly as you hoped.
Luckily, your lawyer will help you through this process and they’ve done it many times before. Once everything is sorted out, you’re handed the keys and the home is yours!
What has buying a house in Canada been like for you so far?
Choosing to buy a home that isn’t necessarily your dream home but can work for your family due to price, size, and location, can be one of the smartest financial moves you ever make. Buying a home is a huge investment of time, effort, and, of course, money. Go into it with an open mind, because some things can change – but some things can’t.
How was your first house shopping experience? What did you learn?
Let us know in the comments!
FAQ
What are the steps to buying a house?
Buying a house involves deciding what you can afford, saving up enough cash for about 7.5% of the purchase price, working with a realtor to find the right home, then finalizing everything with help from a lawyer.
Can you buy a house without a down payment in Canada?
No, a minimum down payment of 5% is required to purchase a home in Canada, if the home is priced under $500,000. If the home’s price is more than that, the minimum down payment is 5% of the first $500,000 and then 10% of the remainder. You need to have at least 20% down to avoid mortgage insurance.
Can you use an RRSP to buy a house?
Yes, you can withdraw up to $35,000 from your RRSP to purchase your first home in Canada under the Home Buyers Plan. There is eligibility criteria and you need to start repaying the RRSP amount in 2 years and have it fully repaid within 15 years.
Is the new FHSA something I should look into if I'm hoping to buy a house?
Yes, the new FHSA in Canada is a valuable investment opportunity for anyone hoping to purchase their first home. Currently, the best FHSA comes from Questrade, which means reasonable fees and low minimum balance requirements.
Leave a comment
Comments