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Becoming a homeowner is a wonderful thing — but it’s a complex process. And if you’ve never bought a home before, you’ve probably got a ton of different questions. That’s why we’re going to answer the most frequently asked ones by first-time buyers in-depth right here!
In Canada, some first-time homebuyers are eligible for the eponymous incentive program. The First Time Buyers Program is designed to eliminate or reduce the property transfer tax you pay in the process of buying your first home. Depending on your personal circumstances, you may be eligible for a partial or even full exemption from the tax.
In case one or more of the buyers aren’t eligible, only the interest percentage that the first-time buyer(s) gets in the property qualifies for the exemption.
For instance: say that you buy 60% interest in a property, and your co-buyer acquires 40 percent. If you’re the only one who’s eligible for the tax exemption, it only applies to your 60 percent.
As we’ve mentioned above, you can qualify for a full or a partial exemption at the time when the property is registered.
The conditions for a full exemption are:
There are also certain requirements for the property. It must be:
If any of those conditions aren’t fulfilled, you don’t qualify for a full exemption. However, the conditions for a partial exemption are simpler. Your property has to:
Taxable trustees and foreign entities don’t qualify for the exemption.
There is the specific minimum down payment amounts in Canada, depending on the purchase price of your new home:
Bear in mind that your lender has to approve your minimum down payment. There are reasons why they may decide to request a higher down payment — such as self-employment or subpar credit history.
Below, you can find a couple of examples of minimum down payment calculations.
If you buy your home for $450,000, you fall into the first bracket — which means the minimum down payment is 5%, or $22,500.
This is where things are a bit more complex. So, you’re paying 5% for the first $500,000 — which means $25,000. And then, you’re paying 10% of the remainder — which is $40,000, because the rest of the purchase price is $900,000.
Your total minimum down payment is $25,000 + $40,000 = $65,000.
For a home that cost more than $1,000,000, there’s no sliding scale — the minimum down payment it’s just a simple 20% from the entire balance, meaning $220,000.
Essentially, the size of your down payment affects your affordability, your mortgage payments, and your insurance.
If you have more of your house price in the down payment, you’ll be able to afford a larger mortgage — conversely, a minimum down payment means you’ll have to qualify for more funds.
Your down payment is a simple benchmark that, along with other factors, decides your maximum affordability. Those other factors include your form of employment (self-employed vs. salary), your credit score, debt levels, and income. However, having a larger down payment means lenders will be more likely to overlook hiccups in those areas.
Also, having a bigger down payment logically means needing less money from your mortgage provider — and lower interest and monthly payments as a result. Furthermore, the size of your down payment will affect your insurance premiums.
Your mortgage lender charges you for mortgage loan insurance, which is there to lessen the risk of you defaulting on your mortgage. And seeing as lenders see buyers who put less money in as riskier, your down payment affects these insurance premiums as well.
A conventional mortgage comes with a 20% down payment, while a high-ratio mortgage is one where you put less than 20% as your down payment. These high-ratio mortgages come with higher insurance premiums. You can pay these premiums as a lump sum when you purchase your home, or it can be tacked onto your mortgage; in the latter case, bear in mind that you’re also paying interest on the premiums.
Your mortgage rate is calculated based on several crucial factors, which include:
So, considering this, how much mortgage can you actually afford? There’s no fixed rule, but there’s a rule of thumb we find advisable — don’t let your monthly mortgage rate go above 30% of your monthly household income, and don’t let your overall debt load (meaning your mortgage plus any other loans or debt) go over 40% of your monthly household income.
There’s also the question of choosing between a fixed or a variable mortgage rate. In general, variable rates end up being better because they result in lower mortgage payments. Historically, a huge majority of Canadians that opted for a variable mortgage rate paid less in interest throughout their whole mortgage term. However, if you’re keen on having the stability and predictability provided by a fixed rate, that might be the better option for you.
Getting a mortgage pre-approval is a crucial step in the home-buying process, especially for first-time homebuyers.
When a lender gives you pre-approval, they’re basically stating that you’re eligible for a mortgage loan with certain conditions, and based on the personal and financial information you’ve provided.
Often enough, this pre-approval will specify a principal amount, interest rate, and term — basically all of the most important parts of your mortgage loan. And while this step isn’t necessarily required, it helps because it clearly shows you how much house you can realistically afford.
Besides the obvious cost of your mortgage and down payment, here are some other costs you should keep in mind while calculating your home buying expenses:
Getting a home inspector is optional but highly recommendable — they’re professionals who ensure that the new home is in proper order before you make a purchase. If there are any major issues that require additional investment (like a damaged roof), you’ll want to know about them. And your home inspector is there to help you make the most informed decision possible.
Once you apply for a mortgage, the lender may ask for an appraisal to estimate the value of the property — you may need one to get the required financing.
While sellers sometimes have one ready, your lender might also require an up-to-date land survey on the property; identifying setbacks, restrictions, and buildings that could affect the value of the property, such as shared driveways or overhanging structures.
Your legal representative might encourage you to get a title insurance policy, protecting the lender and yourself from title fraud and other property defects. In this case, the title insurance will be a part of your final legal bill.
Before your lender provides you with the mortgage funds, you’ll have to arrange property insurance to protect the home in case of fire and similar natural disasters.
Once you close the purchase of the new property, you’ll need to pay some taxes, fees, and the mortgage default insurance we’ve mentioned above.
There’s the land transfer tax, which you pay to the government when you buy a property. Its height is calculated based on the property’s purchase price, along with some secondary factors. In British Columbia, you may be exempt from this up to a certain point as a first-time homebuyer.
On top of this, substantially renovated or newly constructed homes could be subject to GST and HST. In that case, though, you may still be eligible for another rebate from these. Also, in case the seller has prepaid condo fees, utility bills, or property taxes, you’ll reimburse them for the costs before you take ownership of the home and the sale closes.
Finally, once again — with a down payment lower than 20%, you’ll also have to get mortgage default insurance. Below that point, lenders will generally add the insurance premium to your loan principal. The more risk the lenders think they’re taking on with a small down payment, the higher your premium will be.
Once the closing day arrives, you’ll get a full transaction report from your lawyer. At that point, you’ll also pay your disbursements and other legal fees. The disbursements account for any costs that your lawyer paid on your behalf. The legal fees vary depending on your location.
There’s no definite answer to this question, seeing as every homebuyer’s experience is vastly different — and the same goes for the length of time it’ll take for you to find and buy your dream home.
However, on average, it takes between 3 to 6 weeks of browsing to find a fitting home in British Columbia. Then, add on another week to perform due diligence and subject removal, and another 2 to 8 weeks for closing.
If your goal is to buy as easily and quickly as possible, we recommend you begin by straightening out your finances. Then, get pre-approved so you’ve got a better understanding of your budget, and choose a real estate agent to help you complete the transaction smoothly. Your choice of lender also matters a great deal.
As you’ve probably realized by now, buying a home for the very first time is an overwhelming experience for anyone. That’s why you need a reliable partner to ensure smooth sailing on this journey to a new home — and that’s precisely who your realtor is.
Also, that’s why choosing a great realtor is the first step you should take when you decide to buy a new home. Ensure you’re picking someone who’s reputable enough so that you know they’re trustworthy. And definitely look for local realtors who have a lot of experience in the area; you don’t want someone who doesn’t know the intricacies of the local market by heart.
In British Columbia, all realtors are regulated and licensed by the Real Estate Council of B.C. However, while a license is a basic sign of a bona-fide realtor, not every licensed professional excels at their job.
There are a couple of different traits that you should look for in your realtor. For one, they should always seem to be a step ahead — if you have to follow them up to learn what the next move is, they’re probably not on top of it.
Also, you want a realtor who listens. Every first-time buyer’s situation is different, and your realtor should recognize that and take it into account as they find a solution that’s perfect for you. Always make sure that your realtor fully understands exactly what you’re after.
As with any other professional, communication is crucial. That’s why you need a realtor that never allows you to become overwhelmed with the process — they should always keep you up to date, instead of leaving you to wonder what the heck is going on.
Finally, and most of all, you need a realtor that’s dependable. You want someone who does exactly what they promise to do in a timely manner — in other words, when they say they’re going to.
With a professional, trustworthy realtor, you’ll have a much easier time buying a home in British Columbia.
Already bought your first home here’s What to do before moving into your new home?