Katherine Al Haddad

By Katherine Al Haddad

March 22, 2014

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Guide to Buying Your First Home

Article revised on 28 July 2017

You’ve weighed the pros and cons and come to a decision: You’re going to become a homeowner! But from the moment the idea is born to the first turn of the key, there are quite a few steps that need to be taken.

Here’s a practical guide for purchasing your first home.

1. Evaluate your financial situation

As a general rule, financial institutions consider that you should not spend more than 30 to 32% of your gross income on housing, and not more than 40% on paying off debt. In fact, your maximum expenditure also depends on other factors such as the down payment and mortgage interest rates. The best way to determine what you can afford is to make a budget.

2. Put together a down payment

A down payment is the amount of money you pay up front when purchasing a home. Some people mistakenly believe that down payments must be 20% of the property price. In Canada, however, the minimum required amount for this first payment is 5%.

But if the down payment is not 20%, the financial institution making the loan must have it insured. The insurance premium, which is based on the down payment percentage and the value of the property, can be added to the loan amount or paid at the time of sale.

Don’t forget that the Home Buyers’ Plan (HBP) allows you to withdraw up to $25,000 from your RRSP tax-free to finance the purchase of a new or existing home. It has some rules such as you are required to reimburse the amount withdrawn from your RRSP within a certain number of years.

3. Find trustworthy professionals

Purchasing a home means relying on professionals who are there to help you but who can also, in certain cases, cause you problems. That’s why it’s important to carefully screen professionals before hiring them.

To ensure that your home construction complies with standards, the building inspector and building contractor (in the case of a new house) must be trustworthy.

The notary must equally protect your rights as well as those of the seller.

The financial security advisor must help you evaluate your financial situation and be able to recommend an action plan suited to your needs. He or she can also advise you on the type of mortgage loan to choose and—because you never know what the future holds—offer you Mortgage Credit Insurance to protect your investment in the event of death, critical illness or disability.

4. Avoid unpleasant surprises

Whether you are buying a new house, an existing one or a condo, you’ll have some extra expenses, usually referred to as start-up costs. Here’s a partial list:

  • GST and QST (before rebates) on new houses
  • Building inspection
  • Municipal, school board and transfer taxes
  • Insurance premiums (CMHC or other), if applicable
  • Notary fees
  • Moving expenses
  • Monthly condo fees, if applicable

Include these expenses when you do your budget!

Note: This article is intended for information purposes only and should not be construed as legal, financial, tax or other advice. The circumstances or factors may vary depending on your individual situation. Before taking action, we encourage you to consult a professional. La Capitale shall not be held liable for any consequences arising from any decision taken based on the content presented in this article.

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