Guide to homebuying: Your step-by-step process on how to buy a home
Wondering how to buy a home? Whether you’re window shopping or seriously house hunting, this info will help you get started.
Wondering how to buy a home? Whether you’re window shopping or seriously house hunting, this info will help you get started.
Maybe you live in the best apartment ever, with a great landlord, and would never dream of leaving. Or maybe the space you're renting is a house, with a gorgeous backyard and the garage of your dreams.
If you’ve rented for a while, you may be starting to feel uneasy about that money going into someone else’s pocket, rather than towards a space that you own.
We’ll hazard a guess that you’ve felt curious—even if just a little—about buying a home, and about how to get a mortgage. Credit union experts are here to help you find out more about how it works.
So, you think you might be interested, but where do you start? Condo or house? City or suburbs? Fixed or variable rate mortgage? Open or closed? What’s an amortization period, anyway?!
There’s no need to add stress to this complicated process (although the mortgage stress test is not as bad as it sounds) but it’s important to find the right partner for buying your first home.
This guide to homeownership is a great place to start. From helping you understand how much buying a home really costs, to walking you through the entire process from property viewings to move-in day, and even to paying your mortgage off early, it covers all the stages of homeownership.
This is the single-biggest investment of your life, so let’s get started and learn how to do it right.
The true cost of buying a home goes beyond the purchase price and your mortgage payment. There are several upfront costs involved in the process. Closing costs, inspections, appraisals, taxes, maintenance, legal fees, and a down payment are costs that should all be factored into your initial budget.
As a credit union member, you have access to experts who’ll sit down with you and walk through these fees that can otherwise feel like hidden costs. It’s never too early to learn about this part of the process, and you’ll feel better when you’re comfortable with this information.
Think of homeownership as an investment in your future. If you have a stable, secure income, and are ready to start building equity, homeownership is definitely something to investigate.
When you own your own home, you can do whatever you want. You can go ahead and paint that powder room lime green. On the other hand, you’ll be on your own when it comes to fixing a clogged sink or if your washing machine bites the dust.
There’s no sugar coating the fact that owning a home can be a lot of work. At the same time, there’s a great reward in taking a house and really making it your home.
Are you looking for a home with a yard that’s big enough to plant seven varieties of kale? Or is downtown or condo living more your style? What kind of neighbourhood do you want to live in? Are schools or public transit a consideration? Do you want your home to be move-in ready, or are you willing to roll up your sleeves and get your hands dirty?
Take the time to think about everything you’re looking for in a home—from size, to location, to amenities—and write it all down. Take your list with you when you start looking at homes with your real estate agent. It’ll help keep you on track.
Your monthly home ownership costs (including your mortgage payment, property taxes, and heating expenses) ideally should not be more than 35% of your gross monthly income. Your entire monthly debt load (including housing costs, plus all other debt payments like student loans, car loans/leases, credit card payments, line of credit payments, etc.) ideally should not be more than 42% of your gross monthly income.
Figuring these numbers out can feel stressful, so consider talking to a credit union expert for some honest advice on your numbers. Credit union teams are motivated by your success, and they want to help you feel as informed as possible as you decide whether homeownership is right for you.
You’re feeling confident that you want to start seriously planning to buy a home. And that’s a great thing. There are many points to keep in mind as you begin viewing potential homes. Here are a few to consider.
You’ve heard it before, but it’s worth saying again. While you can always add on an extra room or even a floor to your home, you cannot change where it’s located.
Think about what’s important to you when you consider different locations—things like yard size, rural vs urban, amenities you may want, and even public transportation. Knowing what’s important to you will help you know which areas to search for homes in.
The answer to this question is drastically different for every buyer. There is such a thing as not having enough room. Conversely, it’s also possible to have too much house.
Do you need a home office? Do you need a few or many bedrooms? Is a finished basement important to you? Make a list of the things you can’t live without and take it with you when you look. Always remember, too, that this can impact a home’s price. Be realistic about your house needs, and your budget too.
You’ve likely heard of a diamond in the rough. This can apply to homes, too. Many can appear boring at first, but a closer inspection often reveals hidden potential. Look beyond the surface, and remember that a new coat of paint, light fixtures, and furniture can make a world of difference.
The same goes for a house that has been professionally staged. Remember that you are not buying the furniture (unless it’s up for negotiation). Look beyond the flashy presentation and focus on the home’s structure and overall layout. That’s really what you’re buying.
Look up at the ceiling, then down at the foundation. Flush the toilets, run the showers, open cabinets and closets, and analyse every nook and cranny. You may feel awkward, but try not to. It’s important to take your time and look through the home thoroughly if you are thinking of making an offer.
If there are unexplained marks—especially water marks—on floors or ceilings, or hasty repair jobs, make note and have your home inspector take a closer look.
The only questions you’ll regret are the ones you didn’t ask. Ask all of the questions you can think of. How long did the previous owners live in the house? How old are the appliances? What are the neighbours like? When was the last time the roof was redone? What are the average monthly utility costs? How much is the annual property tax?
The real estate agent might not know all the answers. If you don’t find an answer, write them down as thoughts to share during your house inspection. Your credit union team can even help you think of what questions to put on your list.
As you walk through the house, it may feel easy to remember certain details. After seeing a few homes, however, those details may start to feel blurry or blend together. Take photos as you view and, after completing each viewing, organize your photos and attach them to notes. List your concerns, likes, and dislikes, and the pros and cons for each one.
This is a good way to process what you’ve seen, and to be objective about what can easily become an emotional decision. It will also come in handy when you’ve narrowed your search down to a couple of possibilities and want to look at them side by side.
Your next key step in making your dream home a reality is finding the right lender for your mortgage and diving into the world of home financing. Buckle up, because this part of the process can often feel the most stressful.
So how does financing a home work? Let’s walk through it together.
Getting approved for a mortgage to purchase your first home is a big deal. It’s a big financial commitment, but also an important—sometimes even emotional—decision.
The first step is getting a financial institution’s pre-approval on a mortgage amount. This will give you a frame of reference for what you can afford. It all starts with a pre-approval meeting with a trusted financial institution.
We recommend taking documents like ID, proof of address, proof of employment, proof of income, social insurance number, account balances, etc. (our full checklist is linked at the end of this guide) with you to this meeting. This will inform the lender about your overall finances and will increase the odds of them approving an amount that fits your homebuying budget.
Your down payment amount is another big factor in determining how much mortgage you will be pre-approved for. Down payments generally start from 5% of the purchase price. The more you can save to put towards your down payment, the more you’ll save in the long run—we’re talking thousands of dollars.
A mortgage is essentially a secured loan used to purchase a property. To guarantee the repayment of the loan, the property is used as security. This means your lender can take ownership (possession) of your property if payments are not made on time.
Lenders will loan mortgages under a certain rate of interest. Your mortgage is your principal (the actual amount you asked to borrow) and your interest is the amount your lender is charging on top of that principal. This interest is essentially the cost of borrowing that money over the full mortgage term. When you make a mortgage payment, you are paying a combination of this principal and your interest rate.
Honest tip: How much house payment can you afford?
Use our mortgage calculator to find what size payment best fits your budget. To learn more about interest rates, check out our article on how interest rates work.
A conventional mortgage is a mortgage that is no more than 80% of the purchase price or the appraised value of the home (whichever is less). The benefit of a conventional mortgage is, if you can save at least 20% of your purchase price, you will save the added expense of having to pay for default insurance, which is required with a high ratio mortgage.
A high-ratio mortgage is a loan over 80% (up to 95%) of the purchase price or appraised value of the home (whichever is less). This mortgage option requires the value of the mortgage to be insured against default by an approved insurer, like the Canada Mortgage and Housing Corporation (CMHC), a federal government corporation, or a private insurer like Sagen™.
You will have to pay a premium for this insurance, which can be paid upfront or included in the principal portion of your mortgage. The benefit of a high-ratio mortgage is if you are unable to save a 20% down payment, you can still potentially purchase a home.
There are many different kinds of mortgages. Each feature different benefits or risks by offering different interest rates, flexibility in payment schedules, and options for renegotiations. When you meet with a financial advisor (or credit union expert) they will discuss these options with you and answer any questions you may have about choosing the right mortgage for you.
The chart below outlines the features and benefits of your mortgage options. Credit union experts can help you determine which options are best suited to your needs, based on a full assessment of your current financial situation and future goals.
| TYPE | FEATURE | BENEFIT |
|---|---|---|
| Fixed Rate Mortgage | Interest rate locked for the term of the mortgage. | Security and peace of mind. Your mortgage 'term' is the fixed period of time that you've committed to a specific interest rate and conditions with a lender. Common terms range from 1–5 years. At the end of the term, you will need to renegotiate a new term. |
| Variable Rate Mortgage | Interest rate changes with the market. | Low interest rate. If interest rates go down, you could pay off your mortgage faster. If interest rates go up, you risk paying more interest over the term of the mortgage. With an uncapped (adjustable rate) mortgage, your monthly payment will fluctuate with prime rate. With a capped (variable rate) mortgage, your monthly payment doesn’t change when prime rate changes. The only exception is when rates soar, you’re not paying all the interest. The payment generally rises to cover the interest due. With a capped mortgage, the rate will fluctuate depending on the market, but will never exceed a maximum rate established when you originally take out your mortgage. |
| Open Mortgage | Pay off your mortgage at any time without penalty. | Flexibility. Short-term option. An open mortgage offers flexibility to pay off your mortgage in part, or in full, at any time without penalty. It also allows you to renegotiate your term at any time. This option comes at a higher interest rate and therefore is usually only considered for the short-term. This could be a great option if you plan to sell again in the short-term. |
| Closed Mortgage | Cannot pay off your mortgage without penalty. | Lower interest rate. Long-term option. A closed mortgage does not offer the flexibility to pay off or renegotiate your mortgage at any time. However, you do receive a lower interest rate reducing the overall interest cost of your mortgage over the term. |
| Mortgage Secured Line of Credit/ Home Equity Line of Credit | Use the equity in your home to secure up to 80% of the purchase price of value of your home. | Low interest rate. Flexibility. This is a great option for anyone who is confident in their ability to manage the line of credit responsibly and anyone who can ensure that a payment schedule will be put in place to manage the funds. Funds can be used for any reasonable purchase, such as home renovations, a new car, etc. |
| Collateral Mortgage/ Collateral Charge Mortgage | Register your mortgage for up to 125% of the value of your home at closing. | Access to more funds after closing without extra costs. A collateral charge mortgage generally makes it easier to refinance by avoiding legal costs. It doesn’t allow a lender to change a fixed rate or the discount on a variable-rate mortgage. However, it does allow the lender to change the rate if you ask for more money later or if you have a line of credit portion with a floating rate. |
Whether your dream home has gorgeous sunset views, a dog-friendly yard, or a huge garage for hobbies, your credit union is here to help you get there.
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