How to Buy your house in Canada

In Canada, both permanent and non-permanent residents are allowed to purchase property under specific conditions, such as holding a work permit. However, owning a home does not grant permanent residency or alter your visa terms.

1. Meeting the Eligibility Criteria to buy Property

Here are the key requirements for homeownership and mortgages in Canada:

• Proof of Funds: You must demonstrate that you have enough funds for a down payment, which must have been held for at least three months. If the funds are from outside Canada, you need to have them in your possession and be able to prove their source.
• Credit Report and Bank Account: A good credit score (minimum 680) and a Canadian bank account are essential. Building a credit history in Canada is necessary, even if you have a credit report from your home country. Responsible use of a credit card can help improve your credit score.
• No Canadian Credit History? If you lack a Canadian credit history, you’ll need to prove your creditworthiness by showing a good payment record for public accounts, like electricity bills, over the past 12 months.
• Additional Documentation: Financial institutions may require further documents to assess your credit report and debt ratio, especially if you have debts outside of Canada. Some banks also require a temporary resident visa (with a work or study permit) before granting a mortgage.

As of January 1, 2023, a new law restricts non-Canadians from purchasing residential property in Canada for two years. This law aims to limit foreign investments in Canadian real estate to stabilize the market. Exceptions apply to diplomatic officers, temporary residents with specific study or work permits, refugees, and asylum seekers under certain conditions. For more details, consult the Government of Canada website.

Note: If you are on work permit, then before beginning your property search, it’s advisable to consult a lawyer to confirm your eligibility to purchase a home in Canada.

2. Understanding Mortgage-Related Terminology

Buying property in Canada involves specific terminology, which might differ from your home country. Here are some common terms:

• Mortgage Loan and Down Payment: A mortgage loan is the amount you borrow to cover the portion of the purchase price you can’t pay in cash. The down payment is the cash portion, with minimums depending on the property value and type of loan.
• Amortization and Term: Amortization is the period over which you repay your mortgage, generally 25 years for an insured loan. The term refers to the duration of your mortgage contract, typically three to five years, after which you must renew or transfer your loan.
• Interest Rate: You can choose between a fixed rate (consistent throughout the term) and a variable rate (fluctuates based on economic indicators).

3. Determining Your Down Payment and Budget for Purchase Costs

When planning to buy a property, it’s crucial to assess your available cash for the down payment and other fixed costs. In addition to the down payment (minimum 5% of the property price), other fees to consider include:

• Inspection fees
• Notary or lawyer’s fees
• Real estate (Land) transfer tax
• Taxes (GST and QST) on new homes
• Adjustment of municipal and school taxes
• Moving expenses
• Furniture and appliance purchases

Expect to spend an additional 2% to 3% of the property value on these costs, excluding the down payment.

4. Evaluating Your Borrowing Capacity and Getting Pre-Approved

To estimate your mortgage potential, you can:

• Consult a mortgage advisor.
• Use an online mortgage calculator.

Getting pre-approved for a mortgage before house hunting is strongly recommended. Pre-approval proves your borrowing capacity, protects your interest rate for a set period, and signals to sellers that you’re a serious buyer, enhancing your negotiating power.

5. Finding Your Home and Making an Offer

Once you’ve identified your ideal neighborhood and property type, begin your search. After finding a home that meets your needs, make an offer to purchase. A real estate agent can assist in preparing the offer, which outlines your purchase terms, including inspections and the amount you wish to offer.

6. Securing a Mortgage Loan

If your offer is accepted, it’s time to finalize your mortgage loan. This step involves negotiating loan terms like the repayment schedule and providing necessary documents, such as the offer to purchase and proof of employment income. A notary or real estate lawyer will handle the legal requirements to complete your purchase.

7. Bonus: Understanding Incentives and Resources Available

There are several incentives and resources available for first-time homebuyers in Canada, including:

• Mortgage Loan Insurance for Newcomers: Mandatory for down payments under 20%, mortgage insurance reduces risk to lenders. Several organizations offer specific insurance programs for newcomers.
• Home Buyers’ Plan (HBP): Allows you to withdraw up to $35,000 from your RRSP tax-free to finance your first home’s purchase or construction.
• First Home Savings Account (FHSA): A tax-free savings account for first-time homebuyers. Contributions are tax-deductible, and the funds can be used to buy your first home.

At Homelife Paramount Realty

At Homelife Paramount Realty, we have a team of experienced agents who can help you find a home that perfectly matches your needs and desires. If you have any questions or want to discuss your options, feel free to contact Ritesh Jhamb, your Realtor and Mortgage Advisor.