Buying your first home is an important step. If you’re an immigrant, the process can seem complex. This step-by-step guide to homeownership is a great tool to help you make your dream of settling in Canada a reality.
Things to Consider When Looking for a Home in Canada
Before you shop for a home, you’ll want to plan ahead for the costs of owning a home. Costs will include:
- heating
- property taxes
- home repairs
To search for a home to buy:
- visit the Realtor.ca website
- visit areas where new homes are being built
- read the new homes section in newspapers or real estate magazines
- tell friends, family and work colleagues, that you’re looking for a house
- visit real estate websites for information and photographs on different homes
- drive around a neighbourhood that you like and look for “For Sale” signs
Real Estate Agents
A real estate agent can help you find and buy a home. They will:
- listen to your needs
- arrange for home visits
- arrange a professional home inspection
- help you get a good price
To find a real estate agent:
- ask your bank and people you know if they know a real estate agent
- look for the names of real estate agents on “For Sale” signs in neighbourhoods you like
- visit the Find a REALTOR search section on the Canadian Real Estate Association website
Requirements to Buy a Home in Canada
In Canada, both permanent residents and non-permanent residents are permitted to purchase property under certain conditions, for instance, if they hold a work permit. However, becoming a homeowner won’t give you access to permanent residency and won’t change the terms of your visa. (Point of Note!)
Here are the mandatory requirements for home ownership and mortgages in Canada:
You’ll need to prove that you’ve got sufficient funds to make a down payment. It is essential that you’ve held this amount for at least three months. If the money comes from outside Canada, you must have it in your possession and be able to prove its source.
It’s also important to have a bank account and a good credit report, with a score of at least 680. A credit card can help you build your credit history and improve your score as long as you use it responsibly. That means paying off the balance, or at least the minimum payment due each month. Even if you’ve already built a credit report in your home country, you’ll still need to build one in Canada.
If you do not have a credit history in Canada, you will need to demonstrate that you have a good payment record and that you are creditworthy. You can do this by providing proof that you’ve paid your bills on time for public accounts, such as electricity, for the last 12 months.
Additional documentation may be required to assess your credit report and debt ratio, especially if you’ve got debts outside the country. Also, be aware that some financial institutions require a temporary resident visa (with a work or study permit) before granting a mortgage. Make sure you understand the requirements before choosing a bank.
Understanding Mortgage-Related Terminology
The terminology associated with purchasing property can differ from one country to the next. To help you find your way around, here are commonly used terms in Canada.
Mortgage loan and down payment
A mortgage loan, or simply a mortgage, is the money you’ll need to borrow to cover the portion of the purchase price that you can’t pay in cash.
The down payment is the portion of the price that you’ll have to pay in cash. In Canada, the minimum down payment for a property of $500,000 or less is 5% of the purchase price and 10% for the portion exceeding $500,000 if the mortgage is insured.
The down payment must be 20% for an uninsured loan, regardless of the purchase price. For non-permanent residents authorised to work, the minimum down payment required is 10%, while it could be 5% for a temporary resident.
Amortization and term
Amortization is the number of years you need to pay off the mortgage. At the end of this period, the property will be paid off in full. Amortization is generally 25 years for an insured loan and 30 years maximum for a conventional loan.
Your amortization period is divided into several terms of either three or five years. The term is the length of the mortgage contract that dictates the terms of your loan, such as your interest rate and the amount of your mortgage payments over a given period. When your term expires, you’ll need to renew or transfer your contract.
Interest rate
You can choose between a fixed and variable interest rate. The fixed rate will remain the same throughout the term and is usually higher than the variable rate. The variable rate, which is usually lower, will fluctuate according to certain economic indicators. The Bank of Canada’s key interest rate, which varies from bank to bank, affects Canadian mortgage rates.
Cost of Buying a Home in Canada
Before purchasing a home in Canada, you need to consider the various costs associated with the property. Remember that depending on your situation, you’ll have to pay a minimum of 5% of the price of the property as a down payment. As well, you’ll have to consider additional fees such as:
- Inspection fees
- Notary or lawyer’s fees
- Real estate transfer tax (welcome tax), which is payable in some provinces, including Quebec
- Taxes (GST and QST) payable on a new home
- Adjustment of municipal and school taxes at the time of purchase, if applicable
- Moving expenses
- The purchase of furniture and appliances
To get a good idea of what these fixed costs are, excluding the down payment, you can expect to pay 2% to 3% of the property value.
How to Obtain a Mortgage Loan
Finally, if your offer to purchase is accepted, it’s time to officially obtain the mortgage loan. This is where you can negotiate the various terms of the loan, such as the term and payment frequency. You’ll need to provide several documents at the time of application, including the official offer to purchase and proof of employment income.
Once your mortgage is approved, you can then finalize your purchase. To do this, you’ll need to hire a notary or a real estate lawyer who will take care of the necessary legal steps.
Please note that as of January 1, 2023, a new law imposes certain restrictions on the purchase of a residential property in Canada by a non-Canadian for a period of two years (external link). You can consult a lawyer or a notary if you’ve any questions. Introduced by the federal government, the law is intended to curb the purchase of residential property by foreign investors to stabilize the real estate market in Canada.
