Buying Your First Home in Canada: A Comprehensive Guide

Embarking on your journey as a newcomer, you may envision the day you can proudly call a place your own. However, turning that dream into reality requires a comprehensive understanding of the home buying process. Here’s what you need to know to pave your way towards purchasing your first home in Canada.

 

Can Newcomers Purchase Homes in Canada?

Absolutely! But for most newcomers, having enough savings to cover the full cost of a property is often not feasible. In Canada, the average home price, including various types such as detached houses, townhouses, and condos, stands at approximately $626,3181. In cities like Toronto and Vancouver, homes can be even pricier, frequently exceeding the $1 million mark. As a result, prospective buyers typically make an initial payment, commonly known as a “down payment,” and secure the remainder through a mortgage loan. Subsequently, they repay the loan with interest over an agreed-upon period.

 

To qualify for a mortgage, banks and other lenders adhere to specific criteria to determine who is eligible and how much they can borrow. So, while newcomers are permitted to purchase homes in Canada, meeting a financial institution’s requirements is often the first step to securing a mortgage.

 

For a more comprehensive understanding of the home buying process, consider watching the ‘Buying Your First Home in Canada’ webinar, hosted by Scotiabank in partnership with Prepare for Canada. This informative webinar covers the following crucial topics:

 

Eligibility

Securing the best mortgage rates

Costs associated with buying a house

Scotiabank’s StartRight program

A Q&A session addressing common questions newcomers have about home buying

Who Qualifies for a Mortgage in Canada?

To obtain a mortgage, you must demonstrate a stable income and the ability to manage mortgage payments. Mortgage lenders also evaluate:

 

The size of your down payment

The cost of the desired home

Your overall income

Existing debts, such as car loans or credit card balances

A Canadian credit history, which involves borrowing money in Canada and consistently repaying it on time

Building a robust credit history in Canada can facilitate your mortgage application and potentially secure lower interest rates on the loan. Here are some strategies for establishing a favorable credit history as a newcomer:

 

Obtain a credit card and use it for everyday expenses, ensuring the balance is paid in full each month or at least making the minimum payment to maintain a positive credit record.

Punctuality in paying bills, including rent, electricity, cable, phone, and credit card bills, is crucial for preserving a sound credit history.

Opt for a small loan and ensure all payments are made on time, contributing to a positive credit history. Be cautious not to borrow excessively, as this may impede your mortgage prospects.

Mortgage Options for Newcomers

As a newcomer, you have several mortgage options to consider, based on your work history, credit history, and the available down payment:

 

Conventional Mortgage: Ideal for individuals with a stable job in Canada, meeting the bank’s guidelines, with a full-time position and at least three months of Canadian employment, a positive credit history, and a down payment equivalent to a minimum of 20% of the home’s price.

 

High-Ratio Mortgage: Suitable for those who have worked in Canada for a minimum of two years, possess a good credit history, and can afford a down payment ranging from 5% to 20% of the home’s price. However, this option requires purchasing mortgage default insurance, which ranges from 2.8% to 4.0% of the mortgage loan. This insurance protects the lender in case you cannot repay the loan. (Note: High-ratio mortgages are not available for homes priced at $1 million or more.)

 

Newcomer Mortgage: Designed for individuals who lack the necessary Canadian work and credit history for other mortgage types. For example, you might qualify with only three months of work experience in Canada. If you lack Canadian credit history, you can compensate by making a larger down payment, equivalent to 35% of the home’s price.

 

Who Qualifies for a Newcomer Mortgage?

Temporary residents and permanent residents in Canada, with less than five years of residency, are eligible to apply for a newcomer mortgage. To qualify, you must have a full-time job in Canada, with a minimum of three months of employment. Additionally, you must either:

 

Make a down payment of at least 10% of the home’s price, provided you also have a Canadian credit history and meet the criteria for mortgage default insurance.

OR

Make a down payment of at least 35% using your savings (not from a gift or other loan source).

Each financial institution may offer different programs, so it’s advisable to explore options and inquire about Scotiabank’s offerings.

 

How to Secure Mortgage Default Insurance

If you require mortgage default insurance, your lender will apply for it through one of the three providers in Canada: CMHC (Canada Mortgage and Housing Corporation), Sagen, or Canada Guaranty. You can either pay for the insurance upfront in a single payment or include it in your mortgage loan and pay it off gradually. If you lack a substantial credit history in Canada, the provider may consider your rent payment history or an international credit report.

 

The Home Buying Process in Canada

Now that you understand how to obtain a mortgage in Canada, let’s outline the steps to follow when purchasing your first home:

 

1. Determine What You Can Afford: Before diving into the house hunt, ascertain the types of homes within your budget by utilizing an affordability calculator.

 

2. Get Pre-Approved for a Mortgage: It’s crucial to obtain a mortgage pre-approval before making any offers to ensure you know your borrowing capacity, interest rate, and potential mortgage payments. Pre-approvals are generally valid for up to 120 days.

 

3. Begin Your Search: Armed with your pre-approval information, research homes and neighborhoods within your price range. Feel free to attend open houses and viewings. Many buyers engage a real estate agent to aid in their search and guide them through the process, but online home-search services or self-guided exploration are also options.

 

4. Make an Offer: Once you’ve found a suitable home within your budget, you or your real estate agent will draft an offer. The seller may accept, reject, or provide a counteroffer. Be prepared to include a deposit, typically ranging from 1% to 3% of your offer’s total, to demonstrate your commitment as a serious buyer. In case of a rejected offer, you’ll receive your deposit back.

 

5. Conduct a Home Inspection: To uncover any potential hidden issues or costly repairs, it’s wise to arrange for a professional home inspection, typically costing a few hundred dollars. This inspection is usually conditional when making an offer.

 

6. Finalize the Deal: Engage a lawyer to handle the legal aspects of the sale. At this stage, you’ll also collaborate with your lender to complete mortgage documents. Budget for additional expenses, including land transfer taxes, if applicable.

 

Incentives for First-Time Home Buyers

While Canada doesn’t offer specific homebuyer incentives for newcomers, there are financial benefits for first-time buyers. For instance, the First-Time Home Buyers’ Tax Credit, worth up to $1,500, can be claimed on your annual tax return. You may also qualify for a shared equity mortgage program known as the First-Time Home Buyer Incentive. Additionally, depending on your province of residence, you might be eligible for a rebate on your land transfer taxes.

 

Best 2 ways to get Canada PR

Immigtoronto, an esteemed immigration firm, not only assists newcomers in their pursuit of homeownership in Canada but also provides invaluable guidance on the best ways to obtain Canada PR (Permanent Residency). As an immigrant, achieving permanent resident status in Canada can be a life-changing opportunity. Immigtoronto specializes in navigating the intricate Canadian immigration landscape and offers comprehensive services to help individuals realize their dream of becoming Canadian PR holders. With their expertise, they can guide you through the two best pathways to secure Canada PR, ensuring that your transition to Canada is as smooth and successful as possible.

 

In Conclusion

With a foundational understanding of the home buying process as a newcomer, you’re well on your way to realizing your dream of homeownership in Canada. To explore further, consider Scotiabank’s mortgage options for permanent and temporary residents online, or schedule an appointment with a home financing advisor for the latest information on the most suitable mortgage options. You can also book a meeting with a Scotia advisor to discover more about Scotiabank’s StartRight® Program offerings tailored to newcomers like yourself.

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