Buying a Home
Buying your first home in Canada in 2018? Well, a lot has changed since last year — and you're going to have to understand how those changes impact you.
But that's OK, because we're here to guide you through the buying process.
Our First-Time Homebuyers Guide lays out all the terms you need to know when purchasing your first house, townhouse or condo. We've consulted experts and brokers to simplify all the jargon that makes buying property a complicated experience. We hope our guide will help take some of the stress out of your big decision.
Let's get started.
What you need to know about Mortgages
Federally regulated financial institutions (FRFI) must provide you with certain important information about your mortgage, in clear language, in the mortgage application and the mortgage agreement. Depending on what type of mortgage you get, the information required may vary.
- Applying for a mortgage: rights and responsibilities
What your federally regulated financial institution must provide in the agreement
- Mortgage prepayment: rights and responsibilities
What information about prepayment privileges and charges your federally regulated financial institution must provide
- Mortgage security: rights and responsibilities
What information about standard charges and collateral charges banks will provide
- Mortgage renewal: rights and responsibilities
How much time before the end of the mortgage your federally regulated financial institution must notify you
- Changes to a mortgage agreement: rights and responsibilities
You must be given no less than 30 days notice after the changes take effect
- Mortgage life insurance: rights and responsibilities
You are not required to purchase mortgage life insurance in order to get a mortgage
Before signing, you have a responsibility to read and understand the terms and conditions of your mortgage agreement. Ask questions about anything that is not clear.
What you should do if you feel your rights are not being respected
If you feel that a federally regulated financial institution is not respecting your rights, contact the Financial Consumer Agency of Canada.
The cost of buying a home is always more than the purchase price and a moving truck rental. First-time home buyers are often shocked when they see the total amount they need to pay on closing day. Knowing what to expect ahead of time can help you financially prepare. By familiarizing yourself with more than just your down payment and regular mortgage payments, nothing will come as a surprise on closing day. Plus, with this in mind, you can negotiate with your broker or lender to waive some of these fees.
Home Inspection Fee: $350 to $600
When you put in an offer to purchase a home, you are also expected to provide a deposit. This assures the seller that you will indeed go through with the sale when closing day arrives – and if you don’t, the seller keeps the deposit. If you do go through with the sale, the deposit will be credited in full and put towards the purchase of the house. There is no set amount that you need to provide, but generally speaking, a higher deposit says you’re a serious buyer and can ultimately save you money on interest. Our handy mortgage calculator can even show you how different deposit values can greatly change your total interest paid. And remember – the deposit and the down payment are not the same thing!
Appraisal Fee: $300 to $500
Your lender will only lend you so much when it comes to your mortgage. The amount they lend you will either be a percentage of the appraised market value of your home, or a percentage of the home’s purchase price – often, the lesser of the two.
Legal Fees: $500 to $1,000
Real estate lawyers manage all of the legal paperwork involved when acquiring a mortgage. After your purchase, they draft your mortgage contracts and assess the property to ensure there are no old mortgages or liens on the property. While your lender’s lawyer can do some of the work, it’s a lot of paperwork and you need to ensure everything is verified to completion with your own lawyer, and you’re responsible for the bill. Lawyer fees can be quite hefty and do include HST where applicable.
Land Transfer Tax: 0.5 to 2% of Property Value
Land Transfer Tax (LTT) is paid by everyone who purchases property. LTT is a marginal tax you must pay to the province when “buying land” or, simply put, just purchasing a house or condo. Land transfer tax must be paid once the transaction has been closed, to a max of up to 30 days after closing.
Every province has their own land transfer tax, except for Alberta and Saskatchewan. However, home buyers in these provinces still incur a small transfer fee. Furthermore, certain municipalities, like Toronto, have an additional municipal land transfer tax.
Most provinces use a multi-tiered system to calculate your tax owed. For example, in Ontario, if you buy a home for $250,000, 0.5 per cent is paid on the first $55,000, and one per cent on the remaining $195,000. So on a $250,000 home you would end up paying $275 + $1,950, for a total of $2,225 in land transfer taxes.
Harmonized Sales Tax (HST): Dependent on Province
Harmonized Sales Tax (HST) is the 13 per cent provincial sales tax applicable in Ontario. HST is applied to the purchase price of all new homes, but not to resale homes. It’s also applied to all services, including your lawyer fees, your real estate professional’s commission, the home inspection, and your moving costs.
New Home Warranties
If your home is a new development (it’s not a resale home and you’re the first owner), warranties protect your investment. New home warranties are mandatory in Ontario, British Columbia and Quebec. It is a one-time fee of a few hundred dollars, depending on coverage and price of the house.
Title Insurance – $300
Though not required in all provinces, title insurance protects you from such things as title defects, errors or omissions. This includes errors in the public registry and existing surveys. Title insurance also protects you from undisclosed heirs who may try to claim your property and/or fraudulently discharged mortgages. Although it depends on the property type (resale, new, condo) and the purchase price, title insurance usually costs approximately $300. The cost is minimal and well worth the peace of mind. Ask your lawyer for more details.
Your Own Home Insurance
Home insurance (also known as property insurance) covers any damage related to the home, inside and out. If you’re a first-time home buyer, you likely have never bought home insurance before. But if you do happen to have insurance on a current property and want to transition, you technically will have to cancel your old policy first. That being said, the cost may vary between policies since each property will likely have differing square footage, age, additional structures, and more. While you can stay with your current insurer, this is probably the best time to shop around for a new and better rate. You never know how much you could be saving on your premium with a different provider.
Utilities and Taxes: Only if Applicable
You may have to reimburse the previous owner for utilities or taxes if they were paid beyond the closing date. Referred to as adjustments, they include hydro, water and property taxes.
Moving costs vary, depending on your personal preferences. Although it can be stressful, you can save a lot of money if you take the do-it-yourself route. But don’t forget to include the cost of a rental truck, if necessary. Alternatively, you could hire a moving company to do the work for you. Again, costs vary, depending on whether or not you want them to pack for you, or simply move your belongings.
The amount of your down payment will determine whether you’ll have a conventional mortgage or a high-ratio mortgage, which must be insured.
What’s the difference?
- Conventional mortgage: means your down payment is 20% of the purchase price or more.
- High-ratio mortgage: means your down payment is less than 20% of the purchase price.
Effective February 15, 2016, the minimum down payment for new mortgages have been modified. The new breakdown is as follows:
- For homes with a purchase price less than or equal to $500,000 the minimum down payment is 5%
- For homes with a purchase price greater than $500,000 and less than $1 million, the minimum down payment is 5% of the first $500,000 plus 10% of the remaining balance
- For homes with a purchase price of $1 million or more, the minimum down payment is 20%
High-ratio mortgages must be insured by a mortgage insurer such as the Canada Mortgage and Housing Corporation (CMHC), Genworth Financial Canada or Canada Guaranty. You will be required to pay the premium for this insurance.
The insurance premium:
- Will depend on the amount you are borrowing and the percentage of your down payment. Usually, mortgage default insurance premiums range between 0.6% and 4.50% of the mortgage amount
- Can be paid at the time of purchase, or added to the principal amount of your mortgage.
Tax Credits and You
For cash-strapped first-timers, there are government programs and tax credits to help offset some of the costs for your new home.
The Home Buyers’ Plan
As a first-time home buyer, you’re eligible for the Home Buyer’s Plan, which will allow you to withdraw up to $25,000 from your Registered Retirement Savings Plan (RRSP) to put towards your down payment. The catch? Any amount you withdraw must be paid back fully within 15 years, with a set amount required by the end of each year. If you can’t pay it back on time, the remaining amount is added to your personal income for that year and you will need to claim it on your income taxes.
First-Time Home Buyer’s Tax Credit (HBTC)
The Home Buyer’s Tax Credit (HBTC) is a non-refundable tax credit for qualifying home buyers. HBTC is calculated by multiplying the lowest personal income tax rate for the year by $5,000. For example, in 2017, the lowest rate was 15 per cent, so the 2017 HBTC was $750 ($5,000 x 0.15 = $750). If you and your spouse are buying a home for the first time, you will likely qualify for HBTC. This means you or your spouse have already bought a qualifying home, and haven’t owned or lived in a primary residence for at least four years before the date of purchase.
Land Transfer Tax Rebate
Those purchasing property for the first time may qualify for a rebate on the provincial Land Transfer Tax, depending on the province. For example, in Ontario, first-time home buyers can receive a maximum rebate of $4,000 (or $2,000 for those who registered a land transfer at the rate prior to January 1, 2017). Municipalities with land transfer taxes may also offer rebates for first-time home buyers.