The Home Buying Process Explained: Tips for First-Time Buyers

From start to finish, the home-buying process can be as quick as a few weeks to as long as a few years. It all depends on the current conditions of the market you want to buy a home in, whether you have a pre-approved mortgage or not, the availability of homes, legal paperwork, and the buyer’s decision-making process. 

Given these variables, repeat and first-time buyers should be well-informed about each phase of the homebuying journey. We explore every step of the home buying process, from securing financing to choosing the right property so that you can navigate the market confidently. Our friends at Zoocasa explain everything you need to know about buying a home:

Examine Your Financial Situation

One of the most important steps to buying a home is determining how much you can afford. This goes beyond figuring out what a lender is willing to give you; it’s also about deciding what you’re comfortable paying each month while still being able to enjoy your life. 

Calculating your debt-to-income ratio is a good place to start as this is what lenders use to determine your ability to manage monthly payments. You can calculate this by adding up how much you owe each month and dividing this by how much you earn. The government of Canada recommends that your debt-to-income ratio not exceed 44% of your gross household income. However, this doesn’t mean you can’t qualify for a mortgage if you are above this, it just may be riskier. 

You’ll also want to make sure you’ve saved enough for a down payment. Down payments are typically 5% to 20% of the home’s value. If the home purchase price is $500,000 or less, it will be 5% of the purchase price, but if the home purchase price is between $500,000 to $999,999 then it will be 5% for the first $500,000 plus 10% for the portion of the purchase price above $500,000. For example, if you bought a home at the December 2023 national benchmark of $710,300, the required down payment would be $46,030. 

Get Pre-Approved for a Mortgage

To get pre-approved for a mortgage, you’ll need to submit several financial documents to a lender. These documents include recent pay stubs, tax returns, bank statements, and any outstanding debt or loans you have. 

After submitting these documents and filling out a mortgage application, your lender will perform a credit check. A credit score tells the lender how reliable you are and if you are likely to default on payments. Once that information has been reviewed, you should receive a pre-approval letter from the lender that outlines how much they are willing to lend you and the interest rate. Though a pre-approval is not a guarantee, it can help guide your home search and show sellers you are serious about buying. 
 

Finding the Right Real Estate Agent

Now that you’re ready to start looking at homes, you’ll need to find a qualified agent. You can ask an agent several questions to determine which one is right for you, such as how long have you been in the industry, how well do you know the local market, how do you handle negotiations, and what is your availability? Don’t be afraid of looking around and talking with multiple agents. It’s a big decision to buy a home and you want to work with someone you feel comfortable with. 

Make an Offer

If you find a home you’re happy with, the next step is to make an offer. First, your agent will prepare a written offer, also known as a purchase agreement. This details a purchasing price, dates, any contingencies or conditions, and the rights of the buyer. It’s important to remember that this is a legally enforceable document, meaning it can be difficult to back out of the purchase agreement if you change your mind. 

Once the offer is accepted, which may happen after a few rounds of negotiations, it’s time to make a deposit. This begins the contingency period which is when you will get the home inspected and finalize your mortgage. 

Closing Costs

The last step to homeownership is paying off closing costs, which include the down payment, the PST on your mortgage loan insurance premium, land transfer tax, legal fees, title insurance, and other additional expenses. These must be paid upfront in cash and are due on closing day.

You can expect to pay anywhere from $15,000 to more than $100,000 in closing costs depending on where you plan to live. Closing costs vary from province to province and city to city, so it’s important to research your city so that you can properly prepare. Fortunately, for first-time homebuyers in Ontario, there is a Land Transfer Tax rebate which can be as much as $4,000. 

Buying a home is an exciting time in your life, however, it is also an important financial commitment. That’s why it’s essential to go on this journey equipped with the right background knowledge and insights. As long as you take the time to assess your finances, explore your housing options, and talk with experts, you can successfully find the right home for you.