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A Simple Breakdown of the Mortgage and Home Purchase Process in Canada

Bianca Foti - June 4, 2021, 3:03 pm

Buying a home and getting a mortgage can seem like a complicated process, especially if it's your first time around. There’s no doubt that there are many steps involved along with a laundry list of many things to consider. That’s why at Homewise, our top priority is to make this process simple and easy so you can confidently secure a mortgage and find a home that’s within your budget. If you’re buying a home, here is a simple breakdown of the mortgage and purchase process in Canada: 

Mortgage Pre-Approval

Getting pre-approved for a mortgage is always a good idea – especially if you’re buying in today’s competitive market. Mortgage pre-approval gives lenders the opportunity to look through your financials, review your credit score(s) and more importantly, pre-approve the loan amount that you are eligible to borrow, giving you an idea of your affordability. Although it’s not a mandatory step, mortgage pre-approval is highly recommended because it allows buyers to understand what they can afford from the start, set a clear budget, shop homes that they can actually afford and lock in a mortgage for 120 days. At Homewise, we’ve made getting pre-approved for a mortgage simple, easy and stress-free with our 5-minute (free) online application. 

Home Inspection 

It can be hard to find anything wrong with a home that you’re certain is “the one.” However, it’s especially difficult for home buyers with an untrained eye to notice any deficiencies or shortcomings at the onset, especially if the home has been professionally staged. That’s why it’s recommended to make a conditional offer pending the results of a thorough home inspection. A home inspection helps to ensure that the property is up to code with no hidden issues and includes an in-depth examination of the home’s structure, foundation, windows, roofing, plumbing and electrical systems. Getting your home inspected requires an additional cost of roughly $300 but it’s well worth it, as it gives you the peace of mind and insight you need to confidently make this investment.

Deposit and Down Payment 

When buying a home, in most cases, you’ll be required to provide an upfront deposit of 5% of the home’s purchase price – which indicates to sellers that you’re serious about making a purchase. If and when the home closes, home buyers can redirect those funds toward closing costs or their down payment. Not to be confused with a deposit, a down payment involves putting money toward the purchase of your home and must be a minimum of 5% to 20% depending on the price of the home. 

What are the different types of down payments?

There are three main categories of down payments. These include: 

High Ratio: down payment between 5%-19.99% for a home below $1 million. This requires CMHC insurance, which is a cost that ranges between 2.8% to 4% of your mortgage. 

Example: If you’re looking to purchase a $620,000 home and want to make a down payment of 10% ($62,000), your mortgage size will be $558,000. With a CMHC premium of 4%, you will be required to pay $22,320 in CMHC insurance. This cost is amortized over your full mortgage length and included as part of your mortgage (i.e., 25 years).  

Conventional Insurable: down payment is 20% for a home below $1 million. This does not require CMHC insurance. 

Conventional Uninsurable: down payment is at least 20% for a home $1 million or more. This does not require CMHC insurance. 

If you’re a first-time home buyer, this point in the process would be a good time for you to look into some of the government incentives available to you. If you’re new to Canada and looking to buy a home, you could also consider the Newcomers to Canada Housing program. Each of these programs are intended to provide both first-time buyers and newcomers some financial assistance to make a down payment and meet their homeownership goals. 

Choosing a Lender

Heading to your current bank might seem like the easiest way to find a mortgage, however, you’ll only be presented with one mortgage option out of the many that actually exist. The main difference when going to a mortgage company like Homewise is that we work with over 30 lenders including banks, credit unions and monoline lenders to find options that specifically meet your needs. This allows us to guide our clients in comparing the various mortgage options in the market so that they can better understand the different mortgage features and rates available and to save thousands of dollars at the same time. Having an unbiased mortgage advisor who prioritizes your best interests during this process will give you the confidence and reassurance you need to secure a mortgage that directly aligns with your financial situation.

Mortgage Approval 

If you’ve already been pre-approved for a mortgage, that’s great! However, it’s important to remember that it doesn’t mean you’re 100% clear for final approval and lenders can go back to review your application before closing. During the time between getting pre-approved and when your home is ready to close, be sure to avoid making these five common mistakes so that you can successfully achieve final approval. 

To complete the mortgage approval process, you’ll need to collect key documents and information to validate your employment and determine your eligibility for approval. This includes: 

  • A credit score report

  • A letter of employment

  • A copy of your pay stub

  • Your T4 documents (last two years) 

  • A description of your current job position

  • A copy of your tax returns 

  • A notice of assessment 

  • Government-issued photo ID

  • Bank and financial statements

All of these details combined with your debt-to-income ratio will help your lender better understand your financial stability to validate your approval for a mortgage.

Property Insurance

Your home is likely your most valuable asset, which is why getting property insurance with a provider like Sonnet is essential. Property insurance provides your home protection from fire, lightning, smoke, weather damage, vandalism, theft and any other potential sources of damage to the inside and outside of your home. It is an annual expense that ranges between $600 to $800 and is typically paid as a monthly premium. 

Real Estate Lawyer 

Real estate lawyers oversee the legal matters related to purchasing a home and take this responsibility completely off of your hands – because let’s face it, legal terms can get confusing. Their services span from reviewing all legal documents such as the Agreement of Purchase, confirming that a valid title has been put on the home, calculating land transfer taxes due upon closing, as well as ensuring that property taxes are up-to-date and no claims are listed against the property. Not only will hiring a real estate lawyer help to alleviate the legal work involved in the process but it’s also a great step to avoid any costly mistakes by doing things on your own. While the fee for a real estate lawyer varies based on the price of the home and the lawyer you choose, this cost is typically $1,200 and up. 

Closing Costs

When buying a home, it’s important not to put all of your savings toward your down payment. The reason being is that there are other costs associated with buying a home, known as closing costs. Some of these costs include: 

Appraisal Fee: A lender fee to appraise the home value (sometimes covered by a lender) and not required on a CMHC insured mortgage. This cost is roughly $300. 

Closing Adjustments: This cost is an estimate of the bills that the previous owner has prepaid such as property taxes and utility bills. 

Land Transfer Tax (Provincial): In most provinces, this cost is calculated as a percentage of the property value. Typically, this cost ranges from $2,000 to $4,000. 

Land Transfer Tax (Municipal): Some cities in Canada like Toronto and Montreal add a municipal tax in addition to the provincial land transfer tax. This could range from $2,000 to $4,000. 

New Hydro Account: This cost is only charged if the buyer has never had a hydro account before and typically amounts to $200. 

Title Insurance: This provides coverage for a homeowners rights to ownership, including fraud, forgery and missing heirs. The cost is approximately $300. 

At Homewise, we understand that buying a home and getting a mortgage can feel overwhelming. From understanding all of the jargon to knowing what features make up the best mortgage, it can be time-consuming and stressful to navigate all on your own. That’s why our team of dedicated Mortgage Advisors are here to take the weight off your shoulders and make this process easier by guiding you at every step. We work with over 30 banks and lenders and do all of the negotiating for you so that you can secure the best full-featured mortgage and meet your financial goals at the same time. Start our online application to pre-approved in just 5 minutes today.

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