Buying a new house in Canada: Tips for newcomers

You may be yearning to find a place to call home when you’re living abroad. Being new to a country gives you a lot of good feelings, but a sense of stability is often not one of them. However, rushing to buy a new house without doing the proper research can waste you tens of thousands of dollars.

If you’re itching to secure a new home, please read this guide first so that you don’t make silly mistakes. In this post, we will go through each step you should consider from the second buying a new house enters your mind to the time you close the deal.

Let’s get started.

Step 1: Build your credit score

Your home credit score does not follow you to Canada. Depending on your credit score back home, this could be good or bad news for you. Either way, you’ll be happy to know that Canada is a lot more friendly towards newcomers when it comes to opportunities compared to many other countries.

Everyone knows that a better credit score will better your chance for favorable rates on any type of financing. We won’t go into too much detail there. However, we do want to debunk a myth surrounding mortgages specifically.

Many think you can’t secure a mortgage from a top financial institution in Canada without a credit score, but this isn’t true. Sure, it won’t be on the most favorable terms, but most of the top banks in Canada do offer programs specifically designed to help newcomers. For starters, use the search query: “newcomers to Canada” and the name of the top banks. Start with BMO and TD bank.

If you find the newcomer programs are not for you, you still have other options to build credit. Ideally, you will want an unsecured credit card to start building your credit, but if you’re finding it hard to get approved for a good one, you’ll want to consider secured credit cards. A secured card is different from an unsecured credit card in that you essentially borrow money from yourself and it still gets reported to the credit bureau.

Another small way to build credit is by getting a postpaid mobile plan instead of a prepaid one.

Next, let’s talk about setting a budget.

Step 2: Lock down a budget

A best practice for setting your budget is to try to get a preapproved mortgage first. This will give you an idea of just how much you can afford. You could do this by visiting banks or private lenders directly or by going through a mortgage broker.

Something to consider next is to keep an additional 1-2 percent of property cost to put towards basic expenses like administration fees, lawyer fees, land transfer tax and other fees that could catch first time buyers by surprise. If you opt to use a real estate agent, they can be very helpful with this step.

Once you have decided on a rough budget, next you will want to calculate how much of a down payment you can afford. Take into consideration that in Canada, if you put any lower than a 20% down payment, you’ll have to pay CMHC insurance premiums. These insurance premium rates can be up to 4 percent of your mortgage down payment.

Leverage first time home buyer incentives

On top of being very supportive of newcomers, the Canadian government is also very supportive of first-time buyers. They offer incentives such as the First-Time Home Buyer Incentive, which could save you thousands of dollars, and the Home Buyers’ Plan, which allows you to withdraw 35k from RRSP without any penalty. Also, be sure to check any rebates from your provinces (e.g., the land transfer refund that Ontario offers). Talk to your mortgage lender to see if you qualify for the program.

Step 3: Go house hunting

This is the exciting part. You’ve secured a preapproved mortgage and locked in a budget. Now it’s time to go house hunting.

An obvious first step is to choose an ideal location. Buying a home in Toronto vs. the extended GTA might mean a difference of hundreds of thousands of dollars. Next consider services that you’ll find important like nearby public transportation, grocery stores, and schools, if you have kids or plan on having kids.

A highly recommended online site to check out is realtor.ca. They have a lot of handy tools for new home buyers and a good search function. Another step that’s highly recommended is getting in touch with a real estate agent. The right one can offer you great insight and tips to get the best bang for your buck.

However, if you choose to go at it solo, here are a few tips:

• Once you choose a location, ask around to see how much nearby houses were sold recently. This can give you negotiating power.
• Register online with all builders' websites in the area you’re looking at. This will allow you to be one of the first to get notified for phase 1 building, which is often cheapest.
• Ensure your builder has a good reputation.

Depending on your preferences, you may consider buying during a specific stage in the building process. A couple of questions to ask yourself are: “Can I wait around a year as the house gets ready?” If you want a house as soon as possible, buying a house that’s still in phase 1 might be a problem. “How much flexibility do I want when it comes to how the house looks?” If you buy a house late in the construction process, you likely won’t have much room to change how the house looks.

There are pros and cons you’ll have to weigh when deciding on the best phase to buy a house in.

Step 4: Seal the deal

Here is where a lot of people make costly mistakes, so read carefully and do your research. Just because it’s a new house does not mean it’s going to be perfect. You should still consider the following:

• A building inspection
• Hire a lawyer to do all the background documentation and backwards and forwards of contracts
• Keep in mind that upgrade costs can get high really quick, but this is also something that is commonly negotiable.
• Get clear on when the house will be finished. Builders can purposely be vague about this.
• Have important things in writing. Conversations are not legally binding.
• Make sure there’s a favorable warranty.

Conclusion

Buying a new house could be a stressful process for many, but it should also be fun. Many people dream about the day they finally buy a new house and the time is near for you. Approach your research with excitement and not dread.

Once you secure a home that is everything you wanted, you’ll thank yourself for all the freedom it affords you. The tens of thousand dollars you save during the process can be used to enjoy the finer things Canada has to offer, like snowboarding, ski resorts, and lots of poutine.