Canada has been witnessing a significant rise in homeownership as money-savvy people or investors know that it is one of the most profitable long-term investments. Whether you are buying a house in Canada, or even townhome or condo, the process can be daunting as you may not know where to start. This step by step guide from mortgage pre-approval to closing will help you close the deal in Canada with confidence.

One of the most important steps to buying a house is preparation. Here is where to start your home buying process

Step 1: Know Your Resources & Budget

It implies knowing your financial resources and affordability. Effective budgeting also helps you save money for your down payment and extra costs. It eases your research to find the homes falling under your budget.

Want to know how much of your income should be spent on housing? It is recommended that your home should not cost more than 5 times your annual household income if you wish to pay a 20% down payment and take a moderate level of debt. At this point, also collect critical documents that may be required for a mortgage application.

Before you start the process of buying a home, you should anticipate your mortgage. Let's see how in 3 steps:

Step 2: Check Credit Score

Checking your credit score lets you see where you stand on the scale and determine how you can improve your credit score before initiating your mortgage application. In general, a low credit score means fewer chances for mortgage approval. The great news is that Borrowell, a Canadian financial tech company, lets you get a free credit score, without affecting your credit score. Meanwhile, if you have a low credit score, there are ways to improve it.

Step 3: Investigate Mortgage Solutions

There are many kinds of mortgages. If you can't pay a 20% down payment for a traditional mortgage, you may get a high ratio mortgage, along with mortgage default insurance, as it entails less down payment.  Following are some of the options:

  • FHA Loans

These loans are granted by the FHA (Federal Housing Administration) and carry less risk for lenders. These loans are insured by the government in case of borrower stops making payments. Hence, these loans don't essentially require a high credit score.

  • VA Loans

These mortgage loans are intended for veterans and active-duty members of the Armed Forces. These can be obtained at 0% down if service standards are met. These loans are insured by the Department of Veterans Affairs.

  • USDA Loans

The USDA loan, also backed by the government, is granted to people living in rural and suburban areas to buy homes. These loans are available at 0% down, However, the home location and income criteria must be met.

Step 4: Get Pre-approved for Mortgage

Before you start the process of buying a home in Canada, it is better to get pre-approved for a mortgage. To do this, just give your income, savings, and investment information to your mortgage banker. After review, the lender would tell the approximate amount they can lend you. This also gives you an idea of the price range of homes you should consider. Then, get pre-approved for credit, where you provide financial documents like bank statements, paycheck stubs, etc. for verification of your credit and financial status by the lender.

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Step 5: Hire a Realtor / Real Estate Agent

Your realtor or real estate agent plays a key role in the process. The best one is the combination of a consultant, advisor, and negotiator. The realtor or agent will show homes matching your parameters, advise you through the process, make negotiation for the best price, and handle closing documentation. The best thing is that hiring a qualified and experienced realtor doesn't cost you much as they get a commission from the seller.

However, it is also possible to buy a house without a real estate agent. If you don’t want to hire a real estate agent and are confident to handle the deal yourself, you can skip this step.

Step 6: Start Home Searching

Make notes on the homes you visit, and even take photos and videos. The things that you should check include plumbing (by running the shower), electrical system (by switching the lights on and off), fixture (windows and doors working properly), neighborhood situation (are other homes well-maintained?), traffic on the street, availability of parking, the convenience of location (proximity to public transport, schools, malls, grocery, etc.).

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Step 7: Make an Offer & Do Inspection

Once you find the right one, let your realtor or agent negotiate for the offer based on the market value of comparable homes in that locality. Usually, the offer is made in writing, mentioning the buyer details, price, and deadline for the seller to respond.  It may also include money deposit details, which is usually 1 to 2 percent of the purchase price. Your agent can negotiate on your behalf regarding the offer in case if the seller presents a counter offer. Once the deal is agreed between you and the seller, have a home inspection to thoroughly check the fixing required.

Step 8:  Finalize Your Mortgage Loan

As we mentioned earlier, there are various kinds of mortgage loans, and the one you get is based on many factors, especially your credit score. Get the help of mortgage bankers to select the best loan as per your requirements like low monthly installments, fixed monthly installments, etc.

Step 9: Home’s Appraisal

Your mortgage lender’s appraiser appraises the home you intend to buy, by giving an impartial estimate of the home’s value. The appraiser is a third party and not directly related to the lender. Its job is to ensure that a buyer is paying a fair price for the home.

Step 10: Documentation

Aside from the purchase and sale agreement, there is other paperwork involved. Your lender’s title company will handle it to ensure the seller is the rightful owner of the home you are buying.

Step 11: Closing

The deal closing includes signing the final approval of your mortgage, insurance, and other conditions. Once all documents are received by the lender, the funds are transferred to the seller within a couple of days. Afterward, you are ready to move into your new home.

Final Thoughts

Buying a home in Canada is a daunting experience as you must determine your finances, saving opportunities, get pre-approved for a mortgage, and hire a reliable real estate agent, and other professionals. It might be overwhelming, but for most, it's worth owning a property in Canada. If that’s you, this step by step guide will get you one step closer to your dream home. Good luck!