BUYING A HOME
Seven steps to buying a home
Do you want to leave apartment life behind and buy a home?
Buying a home is one of the most important transactions you will ever make. Being prepared will make the process easier and help you make educated choices.
Getting a mortgage?
Are you searching for the home of your dreams, a home that will be yours and offer you freedom and peace of mind?
Becoming a homeowner for the first time requires time and energy. To help you in the process of obtaining a loan, you can choose to work with a mortgage broker. He or she will give you the tools needed to go through this process and will guide you at each step of the home-buying process. Your mortgage broker will also help you choose the mortgage product that will meet your needs and correspond to your situation from among a wide rage of products.
To make it easier to assess your file and advise you properly, your broker will require several documents. Here is a non-comprehensive list of documents that your broker may request during your first meeting, that you can get together beforehand:
- Your new property: signed offer to purchase, information sheet, municipal and school tax account, your lawyer or notary’s contact information, etc.
- Your job: confirmation of employment (hire date, gross salary and position), paystub, etc.
- Your financial situation: origin of your down payment, list of your assets and debts, void cheque, etc.
When buying a home, a minimum 5% down payment is required for a single-family home. A down payment is an amount of money not financed by your mortgage that you must pay to purchase your home. If you make a down payment of less than 20%, your loan must be covered by a mortgage insurer like CMHC or Genworth. This insurance will cover the lender’s risk with respect to repayment of the loan. The insurance premium will be financed by your loan and is calculated based on the percentage of your down payment.
Buying a home can involve related costs that buyers tend to forget about. These fees usually represent a percentage of the value of your new home, between 1.5% and 4%. You should plan for inspection fees for your new home, the transfer tax (welcome tax), lawyer or notary fees, the 9% tax on the mortgage insurer premiums and, if applicable, the payment of municipal and school taxes.
Once you choose your mortgage lender, you will be required to make important decisions about amortization, term and type of interest rate.
Amortization - The maximum period for paying back your mortgage is 25 years, but it can be reduced during the loan based specifically on the type of interest rate or method of payment chosen.
Terms - It can vary between one and five years. Closed terms offer better interest rates. Open terms are usually used for the short term. The difference between the two is as follows: an open-term loan can be repaid at any time penalty-free. However, the interest rate for an open term is higher than for a closed term.
Rates - A fixed rate guarantees that you pay the same rate and make the same payment for the duration of the term. A variable rate is based on the Bank of Canada’s prime rate less a discount established with your lender at the start of the term.
Home insurance protects you against damages to your home and provides legal liability coverage that protects you against accidental physical injury to or damages to property belonging to another person. In general, if you take out a mortgage to buy your home, your lender will require you to take out home insurance.
There are different coverage options available to you, including named-peril and all-peril coverage (covers most incidents that can damage your property).
In the event of disability or death
Most lenders recommend that you take out mortgage loan insurance (term life insurance) that will enable you to meet some or all of your financial obligations in the event of early death.
This type of insurance the option of financial protection in the event of disability or critical illness, and covers you for the duration of the loan. Thus, you property will never become a financial burden on your family.