The 2021 first-time homebuyers guide for Canadians

Buying your first home in Canada in 2021? Well, a lot has changed since this past year – and you are going to have to know how those changes impact you.

But that's OK, because we're here to guide you with the shopping process.

Our First-Time Homebuyers Guide explains all the terms you should know when purchasing the first house, townhouse or condo. We've consulted experts and brokers to simplify all the jargon which makes buying property an elaborate 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

As a first-time homebuyer, you may be likely to apply for a mortgage. This section will expose you to all the basic concepts you should know so you can apply for one feeling totally prepared.

What is a mortgage?

A mortgage is a kind of loan you apply when ever you are in the market to purchase a home. Mortgages can be acquired by making use of online, by walking into a bank or by dealing with a broker. It's backed by property, meaning that if you do not keep up with the payment schedule, that is negotiated at the outset, the lending company can take having the home. Generally, when you apply for a mortgage, you're asking for a lot money. It usually takes decades to pay off a mortgage.

What is a mortgage term?

A mortgage is more than the usual large sum of money – it's a contract with your lender. Whenever you enter any contract, your other party have to agree with some key boundaries at the start. A mortgage term refers back to the period of time that the details from the agreement are valid. Lenders offer terms which range from 6 months to 10 years, with most Canadians favouring five-year terms.

When your mortgage term expires, you are able to decide to renew your mortgage with the same lender, or you can compare rates and choose another lender. A few of the problems that could change at the time of renewal include the kind of mortgage (fixed-rate or variable-rate are a few examples – more about these below) and the rate of interest you're charged.

What is amortization?

Basically, the amortization period may be the period of time it'll get you to repay both the principal and interest in your mortgage. That means a lender will provide financing hoping you'll pay the loan back within Twenty five years, the maximum time period in Canada (it used to be 30 years but that changed this year for insured mortgages. You can still visit 3 decades for uninsured mortgages. More about that below). You can get a mortgage for under 25 years – with time, it would mean you'd pay less in interest. Conversely, the more you stretch out your instalments, the greater you end up paying.

Fixed versus variable?

When are applying for any mortgage, you need to figure out how big you want your mortgage payment to become every month. In order to answer part one, you need to decide whether you need to a fixed-rate or variable-rate mortgage.

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The interest rate on the fixed-rate mortgage stays the same throughout the mortgage term also it can't be renegotiated without penalty until the term reaches its expiration date.

A variable-rate mortgage, also referred to as a floating rate mortgage, can change according to market conditions. More specifically, variable-rate mortgages are influenced by the lender's prime rate, which is affected by bond yields and also the Bank of Canada's overnight rate. If either of those two rates increase, it could imply that the eye rate in your mortgage may also increase. It doesn't always happen though. History shows that variable rate mortgages remain constant through the duration of the word, it doesn't matter what rates of interest do.

Open versus closed mortgages

The other factor you have to consider is how much flexibility you need built into the mortgage agreement with your lender. A wide open mortgage can be prepaid or renegotiated anytime without penalty. A closed mortgage cannot be repaid, renewed, or renegotiated early without incurring a problem. Closed mortgages have lower rates of interest associated with them rather than open ones – that's because the lending company has got the certainty that you will stick with them throughout the term of the mortgage, or you will need to pay them for breaking your contract early.

What is really a prepayment charge?

One of the basic bits of personal finance advice is to repay your mortgage as soon as possible. So, the truth that your mortgage company can charge a fee for topping your payment per month sounds totally counterintuitive – however they can totally do this. It's called a prepayment charge also it can set you back thousands. How can this be even a thing? Prepayment charges exist to safeguard lenders, who rely on interest payments to create lending money profitable. When loans are repaid earlier than anticipated, lenders make less cash off you. However, you can ask for prepayment privileges, which may allow you to make extra payments without incurring any extra charges.

How will i qualify?

It's pretty simple: you need to be able to prove to your lender that you could afford a home loan. According to the Financial Consumer Agency of Canada, to be able to figure out how a mortgage you can carry, lenders will appear at: your income before taxes; your living expenses; the money you owe; your credit report and score; the amount of mortgage you're requesting and also the amortization period.

How large should your mortgage be?

Ah, the million-dollar question (this really is to be taken literally if you reside in Toronto or Vancouver).

Traditionally, lenders rely on two basic metrics to guide their decision-making: your gross income and the amount of debt you have. Banks abide by the Canadian Mortgage and Housing Corp.'s gross debt service ratio (GDS), which states that your monthly housing costs should be no a lot more than 39% of the gross monthly income. The 2nd metric banks me is the total debt service ratio (TDS), which explains your loans and debt payments.

But in 2021, there was a shakeup in the realm of lending: Canada's banking regulator, the Office of the Superintendent of Financial Institutions (OSFI) introduced new guidelines that decreased purchasing power for several buyers. By Jan. 1, 2021, first time homebuyers must show they can withstand an interest rate increase of two percentage points above the type of loan they qualify for, or at the five-year benchmark rate authored by Bank of Canada (whichever the first is higher).

The new rules are estimated to possess reduced purchasing power for many potential homebuyers by 18%. Only Canadians renewing their mortgage using their existing lender are exempt.

Should I recieve pre-approved?

Getting pre-approved for a mortgage means you speak with a lender before you officially need a mortgage. The lender will check your credit rating and request evidence of your earnings. By taking this preemptive measure, you'll know just how much you're capable of borrow and also at what rate. Pre-approval can be a strategic advantage if you are trying to purchase in a competitive market: it enables you to make offers without attaching a financing condition, it saves you time (which may be crucial if your seller is fielding multiple bids), and it locks you into mortgage loan for some months (however, if rates drop, you can always get a lower rate – pre-approval isn't binding).

Banks versus brokers (and also the rest)

Generally speaking, there's two ways to get a mortgage: through a bank or perhaps a broker. Lenders are licensed professionals with use of multiple lenders – just like insurance brokers can offer insurance products from multiple insurers. Banks offer mortgages for their customers, and the cost of borrowing is founded on that institution's prime lending rate. Mortgages secured from brokers tend to are less expensive than ones advertised through the banks because brokers can purchases loans in bulk and may pass on the savings to the consumer. However, the banks do allow some room for negotiation.

Credit unions, that are non-profit organizations and not technically banks, also provide mortgages, though they favour candidates with large down payments.

More recently, non-traditional lenders called mortgage investment corporations (MICs) happen to be cropping up across Canada. MICs give loan to people who have been rejected through the traditional lenders and charge significantly higher interest rates: think 10% or more. MICs are totally unregulated by any provincial or authorities and the mortgages they provide aren't insured by the Canada Mortgage Housing Corp. MICs have been gaining lots of traction in hot housing markets like Toronto and Vancouver, as numerous eager homeowners rely on their services to buy homes and bridge financing gaps.

Getting the very best rate

Our research shows that Canadians are faithful to banking institutions. It runs deep – millennials may choose the bank their parents use. But you can't always count on the banks to reward you for the loyalty. The important thing for you to get the best type of loan would be to compare the marketplace.

Websites like ours attempt to simplify that process with tools like our mortgage comparison pages, where we display rates by province and even by city, so that your search could be hyperlocal. We try to become an impartial informational source for consumers. So even though you decide to go together with your bank – maybe you're vying for that bank's mythical “discretionary” rate, that is well below the ones they advertise – at least you're going into negotiations better informed. Details are the ultimate bargaining chip.

Extra costs

Rising interest rates

After years of rock-bottom rates of interest, the financial institution of Canada (BoC) has finally begun an offer to hike interest rates. With the U.S. Federal Reserve likely to make three or four rate increases in 2021, homebuyers should brace themselves for the BoC to follow along with suit. This, coupled with OSFI's new stress-test regulations, means mortgages are about to have more expensive. To put it in perspective, even a 25 basis point increase on the $3,340 a month mortgage means paying $1,092 more annually.

Land transfer taxes

A land transfer tax is charged whenever property changes hands. It is calculated based on the cost. Most provinces charge a provincial land tax. In some instances, very first time homebuyers might qualify for a discount.

The Town of Toronto is so far the only real municipality that charges homebuyers its very own land-transfer tax, so if you're buying in Toronto, you'll pay the provincial and municipal tax.

Appraisal fees

An appraiser determines exactly what a rentals are worth and they're an important part of the mortgage approval process. Lenders typically have their very own stable of appraisers, but they'll still spread the cost for you, the homebuyer. An appraisal will usually cost around $300-$500.

Title insurance

The title is really a legal indisputable fact that denotes the lawful who owns a property. Title insurance offers homeowners protection from fraud, identity theft, and forgery.

While quite common within the U.S., you are not legally necessary to purchase it in Canada – actually, it only started on offer in 1991, whenever a number of American insurers started selling it. There is some debate around whether you need to or shouldn't get title insurance – be sure to ask your lawyer about the benefits and if it's best for you. If you do decide to get title insurance, it could cost you around $250-$350.

Property tax and utility adjustments

If you're buying a property and moving in halfway through the month, the previous owner might have prepaid their tax bill. Or they may have used utilities which will then get charged to you whenever you take over the utility account for the unit.

Your real estate lawyer will handle any property tax adjustments that should be made, and include them in the closing costs before your closing date. As for utilities, contact your utility and be sure that upon transferring the unit into your name, that any previously incurred cost is charged towards the original owner.

Furniture

According to Statistics Canada, the typical Canadian household spent $2,300 on furniture and other related supplies. Graduating from the condo to a house? You'll need more stuff, so be prepared to open your bank account a bit more this season.

Even more costs

But wait, there's more costs to go over!

We've gone over all the mandatory costs you have to pay, but then you will find non-standard and elective ones we haven't touched on yet. For example, GST/HST charges. Some home purchases are susceptible to a florida sales tax. These are generally added to sale of newly-built homes and never on resale properties. Not all provinces apply a sales tax, and you will be eligible for a tax rebate if you do end up paying tax.

Also, when you're approved for a mortgage, your bank offer you life insurance coverage. This is an additional cost that'll get tacked onto your monthly mortgage payment and it's purely optional. With a benefit of up to $500,000 to become put towards your mortgage in the event of your death, mortgage life insurance coverage does offer some reassurance.

New construction homes will also be included in a warranty program, and these fees might be integrated into the purchase price or might be due at closing – make sure to find out if this is actually the case. There could be also enrollment fees and solicitors fees owed to the builder.

And don't forget the fees that are likely to come up on moving day: you'll need to pay the movers (you may even go for moving insurance), as well as all of the service individuals who will charge fees for hooking-up various utilities.

Down payment

What is really a deposit?

There's a high probability you will not pay for the new home all at one time, in cash – it's much more likely that you will be getting a home loan loan from the bank to pay the vendor, and spending a lot of time paying credit off in monthly installments.

Legally, however, a home loan cannot be used to cover the whole cost of your home. To secure the house that you would like, you'll also need to give its seller a down payment – a large chunk of money that the buyer provides upfront – on top of your mortgage funds. The deposit is then deducted in the price of your home.

Down payments cannot be financed from your mortgage. They can be financed by other types of loans, though taking out any loan to invest in a down payment can be a risky move that needs to be approached with caution.

How much in the event you put towards your deposit?

It's type of your decision how much money you place towards your deposit. But it is not necessarily as easy as laying down a twenty and calling it a day.

In Canada, there's a minimum percentage of the value you have to bring about your down payment. The minimum is a number of the total purchase price of your house, and that percentage will vary depending on which price range your home falls into.

The following are the price brackets and deposit sizes required for each, as reported by the government of Canada:

A home that costs $500,000 or less – 5% from the purchase price
A home that costs $500,000 to $999,999 – 5% of the first $500,000 of the purchase price, and 10% for that portion over the cost above $500,000
A home that costs $1 million or more – 20% from the purchase price

Of course, it's generally better to put as much money as possible into your down payment – the greater you put towards your house upfront, small your mortgage – and interest payments – is going to be.

What's the 20% rule?

Another reason to put down a larger down payment? A Crown corporation called the Canada Mortgage and Housing Corporation (CMHC).

By law, in case your mortgage is going to be covering more than 80% of your home's purchase price, that mortgage must be insured by the CMHC. Quite simply, in case your deposit covers less than 20% of your home's cost, you'll need to pay insurance costs for the duration of your mortgage period, along with everything else.

The premium you'll get charged is dependant on how big your deposit – the CMHC includes a calculator on its website which you can use to figure out what your premium rates will be.

Note that even premiums around the budget of the price scale could still add 1000s of dollars to the total cost of your house.

How big should your deposit be?

A bigger down payment can spare you against the CMHC's insurance costs, but sometimes, it's just not feasible – and that's okay.

As always, assess your financial allowance to figure out a comfortable amount of money that works for you. So that as we mentioned, we advise against borrowing money for the deposit.

What may be the House buyers Plan (HBP)? Is it suitable for me?

The HBP essentially allows you to borrow money out of your Registered Retirement Savings Plan (RRSP) to finance your house.

To understand the benefits (and limits) of the route, you'll first need to comprehend how an RRSP works.

For many Canadians, contributing to an RRSP is the main technique for building a retirement fund. An RRSP is especially beneficial for those who are earning around the higher end from the income spectrum, since it functions as a temporary tax shelter: any money you contribute to your RRSP isn't taxable before you withdraw it. That permits you to defer income tax with that money into retirement, whenever your taxes may be reduced.

The key words here are “until you withdraw it.” Any time you take money out of your RRSP, it's susceptible to taxation.

The HBP is excellent because it enables you to withdraw money from your RRSP without getting taxed. You are able to withdraw as much as $25,000 on your own to use toward purchasing a home, or withdraw it and gift it to a child with a disability. The issue is your withdrawal will count as a loan, as opposed to a regular withdrawal – the Canadian government gives HBP participants up to 15 years to put the money back into your RRSP.

The biggest factor for deciding if the HBP fits your needs, is whether you'll be able to keep up with the repayment schedule. But but, too. Browse the Canadian government's HBP FAQ for more information.

Home Insurance

What it does

You've just dropped hundreds of thousands of dollars on your first home. You most likely feel elated, and possibly also- mild terror. A house is likely the most expensive investment you'll make in your life, and if anything bad transpires with it, you'll have to drop much more money repairing the harm – and possibly even risk depreciation.

Enter homeowner's insurance. A fundamental policy will protect both your belongings as well as the physical structure of your dwelling, so they cover theft, damage, and also the personal liability of you (the policyholder), your partner, and your children.

What it doesn't do

A basic policy can only achieve this much for you personally. Among the things it won't cover is flood damage, earthquakes, the theft of high-value items like jewelry or art, regular maintenance, and hazards that you simply could've technically planned for. Fortunately, with the exception of maintenance, most insurers offer add-ons to cover these things.

How do I get it?

As with any kind of insurance, the very best policy would be to do your research and shop around to find the best rates. At LowestRates.ca, we provide a home insurance quoter to help make the task easier. After you've filled out the form, we'll scan the marketplace for you and also give you up to ten quotes customized for your situation.

What basically rent out my property?

Homeowner's insurance is for those who will be living in and taking care of the insured property. If you plan to rent out your the place to find someone else, the thing you need is income property insurance – not homeowner's.

Why?

For all the same reasons you would want homeowner's insurance: to safeguard your home. Like a landlord, you're also at greater risk for a liability claim, so you'd require more liability than if you were just a homeowner. Income property insurance will even offer you a choice of covering less of your belongings – and if you're not living around the insured property, chances are, few of its furnishings will fit in with you.

And the renter?

To protect their belongings, they'll need renters insurance.

House hunting

Where will i start?

Believe it or otherwise, the house hunt begins before you actually start looking for houses – it starts with a checklist. Before getting a realtor or taking a look at houses online, you need to decide on your 'needs' as well as your 'wants'. In order to keep on track, you need to know which items in your list you will cannot budge on and the things that you'll be in a position to survive without, around you wish you could have everything. For example, a necessity could be location whether it's important for you to live near work or good schools, whereas a want could be a huge walk-in closet.

Real estate agent versus websites

Buying your first house is a massive experience, and it's to your advantage to have someone inside your court. When it comes to house hunting, that person is a real estate agent. Realtors will discover you exclusive listings you wouldn't be able to find on your own online, they are able to quickly answer your questions concerning the current market, they're skilled negotiators, and eventually – if they are good – they'll stop you from entering a bad deal.

If you're really against using a real estate agent and you'd like to tough it alone, there are plenty of resources available that can help you out, including websites that post listings. If you want to be very thorough, you are able to combine websites and obtain a realtor.

Choosing the best neighbourhood

Most people know what municipality they would like to reside in according to their job location and proximity to friends and family. However, deciding on the best neighbourhood requires a lot more thought. When you start to feel overwhelmed, refer to your checklists of 'needs' vs 'wants' and begin there. While everyone's “wish lists” look different, here are a few helpful pointers to help you get started. When you prioritize, you'll be able to narrow down your search.

• Type of home you want
• Proximity to work
• Proximity to transit
• Access to varsities and daycare
• Access to trails, parks and outdoor space
• Access to retail and grocery stores
• General walkability
• Overall safety

Bidding wars

You i never thought this very day will come, but, you've finally found 'the one' and now, with the help of your real estate agent and lawyer, it's time to put in an offer. If the stars take presctiption your side, the seller will accept your offer and you'll officially be the proud who owns your very first home!

But it's not always that easy. You could find yourself inside a bidding war – which occurs when multiple buyers put in purports to compete for the same property. You won't know what other medication is offering and the seller need whichever offer they want without providing grounds why – discuss adding even more stress to your house hunt.

To encourage multiple offers on a property, the selling agent will indicate that provides should be submitted on a certain date hoping that the deadline will receive a bidding war started. However, some eager buyers will submit a deal anytime, referred to as a “bully offer” using the objective of enticing the seller to simply accept before seeing other offers.

If you do end up in a bidding war, our advice is to keep the cool and know your maximum budget. After all, this stressful situation can cause even the most level-headed buyers to create a rash decision that may be detrimental.

The closing costs

Buying a home is more than simply having the ability to afford the mortgage payments and condo fees. To put it simply, homeownership provides extensive extra costs. Listed here are the most typical closing and after-closing costs to be ready for:

Home inspection fees

A home inspection is definitely an in-person inspection of a home's overall condition and structure and it's something every homeowner should spend money on. Although it's not legally required, it might save you big money over time since an inspection will examine major aspects of a house, reveal potential issues, and a ballpark cost of repairs. Typically, home inspection costs will vary from $300 – $600 with respect to the size and type of home.

Land transfer taxes

Land transfer taxes are calculated in line with the cost of the house and can vary by province. Some cities for example Toronto in addition have a municipal land transfer tax. What's promising for first time house buyers? You might be eligible for a full or partial refund on land transfer taxes in certain provinces.

Legal fees

Working having a property lawyer once you want to place in an offer on the house is important. Why? Your lawyer will be able to assist you to review your offer, explain the legal terms in plain language, and assist with the legal work required on closing day. You'll need to invest in your lawyer's time and expertise, in addition to disbursements, that are any expenses they incur, for example registrations and supplies which are required. It is really an average, but attorney's fees can cost between $1,000 to $2,500.

What you need to know about renovations

Many Canadians choose to do some renovations after buying their home, particularly if you're purchasing a resale.

The good news is the fact that there are a variety of incentives to help lower renovation costs. But it's vital that you understand what projects are covered, and how much you're eligible to claim. Knowing everything will help you budget better.

If you are a homebuyer who's 65+ prior to the end of the tax year or somebody who has a disability, you may be entitled to the government Home Accessibility Tax Credit (HATC). The tax credit is non-refundable, and you may claim up to $10,000 for any projects that improve accessibility or safety in your house – this includes guide rails, ramps, special bathtubs and greater doorways.

Individual provinces in Ontario offer their very own home rehabilitation tax credits. Ontario, B.C., New Brunswick and Quebec residents can all make the most of provincial tax credits for home renovations.

If you're hiring contractors, protect yourself

Some home rehabilitation projects are past the scope of non-professionals, which means hiring contractors to do the job.

It's important that you understand the risks that come with getting a professional to complete work on your home. Any project must start by contacting your home insurer and filling them in on the work that you will be doing. You might want to purchase additional coverage to ensure that contrary goes wrong, you will be covered on your end.

It's extremely essential that whoever you hire to complete the job also has their own insurance coverage. The contractor should have their own commercial general liability policy to ensure that should there be any harm to your personal, they can make a claim and reimburse you.

Tax credits and you

Luckily for you, buying your first home includes some nice regulations. When you won't necessarily qualify for all the breaks open to you, we've listed all the home-buying related tax credits you should know of when the time comes to file your claim.

The Homebuyers ' amount online 369

If you are a first-time buyer, you are able to claim up to $5,000 in your taxes when choosing the first home. This is actually the First-Time Homebuyers (FTHB) Tax Credit. If you have a disability, it is possible to claim this amount everytime you buy a house. There are several requirements on both fronts, however.

• The home must be owned by you, or perhaps your spouse/common-law partner
• The buyer has not lived in another home they owned in the year of purchase, or within the previous four years

All the following property types come under the FTHB tax credit:

• single-family houses
• semi-detached houses
• townhouses
• mobile homes
• condominium units
• apartments in duplexes, triplexes, fourplexes, or apartment buildings

GST/HST new housing rebate

This credit can be claimed if you plan to make the house you're buying your primary residence (or the primary residence for a close relation). You are able to claim this if:

• You bought a home, constructed a brand new house, or renovated a house
• Bought shares inside a co-operative
• If your home was built or renovated, the fair market price from the property needs to be less than $450,000

This rebate varies between provinces – for more information, read the full guide here.

Line 398 – Home accessibility expenses

As mentioned, if you're renovating your house to support whether senior (65+) or perhaps a person having a disability, you can potenitally claim a renovation tax credit like a medical amount.

Pay careful attention as to the qualifies, however:

• The renovation allows an individual to gain access to, or perhaps be more mobile/functional within their home
• Risk of harm or injury is reduced to the qualifying individual
• If you carry out the work yourself, you may be in a position to claim expenses for:
• the price of building materials
• fixtures
• equipment rentals
• building plans
• permits

However, you won't be able to claim tools or perhaps your labour. Another expenses that can not be claimed:

• financing costs for that renovation
• any renovation costs incurred mainly to increase or maintain the worth of the property
• any routine repair or maintenance of the upgrades
• cost of household appliances
• housekeeping, security monitoring, gardening, outdoor maintenance, or similar services

Line 219 – Moving expenses

If you're buying a home as part of a move because of work or education, great news – you are able to claim your costs.

The only catch is that the move needs to provide you with 40 kilometres closer to your new school or work.

Home business tax breaks

If you're using your brand-new property as both a residence and for your home based business, you are able to claim tax breaks. The cost of your mortgage and utilities are some of the costs you can claim when filing.

However, you should note that the number you deduct can't exceed your business's net income.

Additional links and resources:

If you still have questions and they weren't answered in our guide, we've listed some resources below which are useful for both first-time and experienced homebuyers. We also advise contacting real estate agents, property managers or real estate lawyers for questions which are very specific to a certain property – they'll be in a position to supply you the tailored answers you need.

The LowestRates.ca Mortgage Calculator
CMHC Mortgage Loan Insurance Overview
The Canadian Real Estate Association
CREA National Average Price Map
Housing Market Outlook: Canada Edition
TREB Land Transfer Tax Calculator
Canadian Home Workshop
New B-20 Mortgage Rule Guidelines