Buying a Home in Canada
|Buying a home in Canada is a goal shared by many newcomers. Many new Canadians start saving for a family home right away.|
Home ownership is not only a sign that you have settled in to Canada, but also a great way to become part of the neighbourhood where your children will grow up and go to school.
Buying a home is an exciting and sometimes challenging process, but well worth it, both for your personal comfort and for building a sound financial future.
Where should you begin?
As a first-time homebuyer in Canada, you will have many decisions to make—and just as many questions that need answering. The mortgage representatives at your TD Canada Trust branch are professionals who would be happy to guide you through the process and help you make the right decisions for you and your family.
To get you started, we’ve provided information on a number of home buying topics to consider and to discuss with your mortgage representative, who can provide professional insights and answer any questions you may have.
Also, download and print our Home Buyer’s checklist to help you as you begin shopping for your first home!
Please note: this file is distributed in a .pdf format which requires Adobe Acrobat for viewing.
Renting Vs Owning
If you are renting a home, find out if you’re ready to make the move from renting a home to owning one.
As a homeowner, you can reasonably expect the value of your home, known as equity, to increase over time as your mortgage is paid down. That, combined with regular increases in property values, can be a good way to increase your net worth.
In contrast, a person renting over the same amount of time is left with no property investment, but may have enjoyed lower living expenses.
When comparing owning to renting, you have to add up all of the figures, including the cost of your home, the size of your down payment, utilities, immediate repairs, interest rates and insurance, and compare them with how much you are currently spending on rent.
Of course, you also have to place a value on the enjoyment and satisfaction that you will receive from owning your own home.
If you’ve decided to buy, there’s a lot to consider. Our Home Buyer’s Checklist (pdf) is a great way to help decide what’s important to you and to compare homes that are for sale.
How much can you afford?
By shopping for homes that match your financial situation, you will be able to buy a home confidently.
Home ownership should fit into your budget and lifestyle. Sometimes buyers take on more debt than they can manage and quickly find themselves “house-poor”, meaning they have no money left over at the end of the month to save or use for other expenses.
To find out how much you are able to afford, contact a mortgage representative at your nearest TD Canada Trust branch. You can apply for a Pre-Approved Mortgage that lets you know how much you can borrow before you shop for a home. A Pre-Approved Mortgage gives you extra negotiating power because you will not have to make your offer to purchase a home conditional on being approved for a mortgage.
What type of home makes sense for you?
When it comes to buying a home, there’s a wide range of choices that have as much to do with your personal preferences as they do with finances.
Owning a home is more than just a financial commitment. When it’s your home, you’re responsible for all of the upkeep and maintenance, so it’s wise to choose one that matches your lifestyle.
New homes versus previously owned homes
New homes are often more energy-efficient and you may have the opportunity to customize many of the features such as tiles, flooring and fixtures. However, resale (previously owned) homes are often located in established communities, giving you a chance to get a better feeling for the neighbourhood and what it has to offer your family, such as schools, transit, places of worship, shopping and entertainment.
If you choose a resale home, do you want a home that’s ready to move into or a «fixer-upper» (an older home in need of repairs or renovation)? If you have the time and inclination to renovate, your home will certainly reflect your personal style, but it takes a considerable amount of planning and patience to do a lot of work on your home.
Condominiums (condos) versus houses
Condominiums, more commonly known as «condos», are often apartments, but they can also be townhouses or freestanding houses that are part of a larger complex.
Condominium living is not so much about the type of home, but rather the way that you own it. When you buy a condo, the common parts of the property, such as the grounds, parking lot and the structure of the building itself (in the case of apartment-style condos) are jointly owned by all the homeowners in the complex.
When you buy a condo, you usually pay a monthly fee, over and above the cost of your mortgage. Condo fees should cover all your maintenance costs, freeing you from having to look after chores like snow-shovelling or the upkeep of the grounds. The condo fee may also pay for your parking space, storage space, a gym and other features of the condo complex.
It’s important to keep in mind that when you own a condo, you must obey rules set out by owners, which will vary from one condo complex to the next. Also, you will have little control over the amount of your monthly condo fees, which are subject to change.
As you can see, the choice to own your own home is not only a financial decision but a lifestyle choice, too.
If you’ve decided to buy, there’s a lot to consider. Our Home Buyer’s Checklist (pdf) can help you decide what’s important to you and compare homes that are for sale.
The neighbourhood is important, too!
Your home is the place where you’re going to live for a long time, so make sure that the neighbourhood you choose provides the right combination of services and amenities to meet your long-term needs. Here are some of the lifestyle and financial considerations you’ll want to think about:
- Proximity to schools, friends and family members, places of worship and public transportation
- Real estate taxes
- Recreational facilities
- Distance of commute to and from work
- Traffic flow and availability of parking
- Planning and zoning laws that may limit your long-term plans (for example, building an addition)
Building Your Mortgage and Home Buying Team
Buying a home is a team effort—we can help. Find out who else can help make the home buying go smoothly.
When buying a home, things may go more smoothly if you surround yourself with a team of experienced home-buying experts. In addition to your TD Canada Trust mortgage representative, you’ll want to add the following professionals
- A realtor
- A lawyer or notary
- A home inspector (if you plan to buy a previously owned home)
You don’t have to use a realtor when buying or selling a home, but it is generally a good idea to do so. Having your own realtor ensures that you have someone on your team looking out for your best interests during negotiations. Keep these tips in mind when choosing your realtor:
- Ask friends and relatives for referrals
- Be sure that you feel comfortable with the individual you choose—you may be spending a lot of time together and will be working together to make a very important life decision
- Look for someone with experience locating homes in your desired neighbourhood and price range
- Make sure your realtor has a good understanding of your needs before you start house hunting
Your lawyer or notary
When the time comes to make an offer on a home, you’ll want to have your lawyer or notary review it. They will help to ensure that the offer includes all of the necessary information, including, among other details, the following:
- The proposed purchase price
- A list of items (called chattels and fixtures) included in the sale
- Any conditions you may need to protect yourself, such as “subject-to-financing” and/or home inspection clauses
- The closing date for the sale of the property
Your home inspector
A good report from a qualified home inspector can provide a great deal of comfort when buying a resale home. A home inspection provides:
- A detailed assessment of a home’s current mechanical and structural strengths and weaknesses
- A list of potential repairs that may need to be made
- A reasonable prediction about when repairs should be made
A good home inspection report can help you purchase a better-quality home, have a clear idea of renovations you will need to do, and lead to greater enjoyment and satisfaction.
Knowing what to expect can help you prepare a more accurate budget.
Closing costs are the legal and administrative fees and disbursements associated with buying your home. Understanding each one will help you budget more accurately and lead to a more comfortable home-buying experience.
Conventional Mortgages versus High Ratio Mortgages
A conventional mortgage is a loan for no more than 80% of the appraised value or purchase price of the property, whichever is less. The remaining amount required for a purchase (20%) comes from your savings and is referred to as the down payment. If you have to borrow more than 80% of the money you need, you’ll be applying for what is called a high-ratio mortgage.
You must have at least a 5% down payment when you buy a home. Any purchase where the down payment is between 5% and 19% is considered a high-ratio mortgage, and a
TD Canada Trust mortgage must be insured by Canada Mortgage and Housing Corporation (CMHC) or Genworth Financial Canada. The insurer will charge a premium and an application fee for this insurance. The amount of the fee will depend on the amount you are borrowing and the percentage of your own down payment. Typical premiums range from 1.00% to 3.25% of the principal amount of your mortgage. This amount can be paid up front or added to the principal portion of your mortgage. A TD Canada Trust mortgage representative can help you determine the exact amount.
Land transfer taxes
Most provinces charge a tax when you buy a home. The tax is based on a percentage of the purchase price of the property, and varies from province to province. In Ontario, for example, the rate is .5% on the first $55,000 of the purchase price, 1% on the next $195,000, 1.5% on the next $150,000 and 2% on the remainder. The land transfer tax is payable when ownership is transferred to you.
Legal/notary fees and disbursements
You should be represented by a lawyer or notary during the purchase and a financial institution will require one for the mortgage. As the home buyer, you are responsible for paying the lawyer’s or notary’s fees and disbursements.
You are required by the mortgage lender to have fire insurance effective at the time you legally take possession of your new home. Some insurance companies may demand proof of a home inspection or may not insure certain types of dwellings. Make sure that you contact an insurance agent early.
Completing the Paperwork
Finalizing the paperwork is one of the last steps you take toward securing your mortgage. Arriving prepared with all the documentation you need will make the process quick and easy!
Congratulations! You’ve found your new home and it’s time to finalize the purchase.
Here’s a list of the documentation you will need to bring with you when you meet with your
TD Canada Trust mortgage representative:
- Confirmation of income or employment earnings—a signed letter from an employer for salaried employees or 3 years of tax assessments for commissioned or self-employed individuals
- Current banking information
- Evidence of your down payment amount
- A list of assets, including property and vehicles
- A list of liabilities, such as credit card balances, car loans, the total amount you owe and your monthly payments
- Address and contact information for your lawyer or notary
- A copy of the Agreement of Purchase and Sale
- A copy of the Multiple Listing Service (MLS) listing, which contains property details and photo, if applicable
There is a yearly deadline for your RRSP contributions to count toward that tax year. Typically, you have until midnight on March 1 to make your contribution for the previous year. If March 1 falls on a Saturday or Sunday, the deadline is normally extended to the next business day.
However, you don’t have to wait until the RRSP deadline date: you can contribute to an RRSP at any time of the year and claim the deduction on that year’s income tax return.
The Tax-Free Savings Account (TFSA)
You can use the money you save in a TFSA for any purpose, but it can be an excellent source of retirement income and a natural complement to your RRSP. A TFSA offers tax-free growth and tax-free withdrawals. You can contribute up to $5,5001 each year, regardless of your income, even during your retirement. Your TD Canada Trust branch would be happy to talk to you about how a TFSA can help your overall retirement plan.
1The annual TFSA contribution limit for 2013 is $5,500. The annual limit from 2009 to 2012 was $5,000. Indexed to inflation and subject to change by the federal government.
Dates to remember (in the chart)
Here are some important dates you will need to be aware of in the years ahead:
|Canada Pension Plan (CPP) or Quebec Pension Plan (QPP) benefits||Apply between the ages of 60 and 70|
|Old Age Security||Apply 6 months before you turn 65|
|Federal Pension Tax Credit||Start claiming when you receive income from a company-sponsored pension plan, or at age 65 if you are receiving income from a Registered Retirement Income Fund (RRIF)|
|Converting your RRSPs||At any time, but no later than the end of the year you turn 71|
|Annual minimum RRIF withdrawals||Can start at any time, but no later than the end of the year you turn 72|
The difference between the price for which a home could be sold (market value) and the total debts against it. For example, if your home had a market value of $300,000 and you still owed $100,000 on your mortgage, your home equity would equal $200,000.
The total amount of a person’s assets, including the money in their accounts, their investments, and their personal property such as a home, car or business, less any outstanding debts they may have.
An offer to purchase a home, subject to conditions that must be met within a certain period of time. For example, a buyer can offer to purchase a home, conditional on the buyer being approved for a mortgage or being able to sell their existing home. If the condition is not met by an agreed-upon deadline, the offer is cancelled.
Items included in the purchase price of a home, such as lighting fixtures, window coverings (e.g., blinds, drapes) and furniture.
The items in a house that are not part of the structure but are fixed in place after the house has been built—for example, a refrigerator, stove, dishwasher, lighting and laundry appliances.
Any out-of-pocket payments.
The process of determining the value of a property, such as a home, usually for lending purposes. This value may or may not be the same as the purchase price of the home.
A national listing of homes and other property for sale across Canada. MLS listings can be viewed online at www.mls.ca
For more information on home buying and mortgages, visit a TD Canada Trust branch.
Come in and talk with us today.