Best Tips for First Time Home Buyers Canada

Your credit score directly impacts the interest rates you’ll receive. A higher score can mean lower mortgage rates, which translates to significant savings over time. In Canada, a score of 700 or higher is typically considered good, and anything above 800 is excellent.

A poor credit score can result in higher rates or even a denied mortgage application. A few percentage points on your interest rate can mean thousands of dollars in extra payments over the years.

Pay your bills on time: Timely payments on credit cards, loans, and utilities help maintain a positive payment history, which makes up about 35% of your credit score.

Reduce outstanding debts: High debt levels can negatively affect your score. Aim to pay off high-interest debts first, such as credit cards. A lower debt-to-income ratio will improve your credit score.

Use credit responsibly: Aim to keep your credit card utilization below 30%. For example, if you have a credit limit of $5,000, try not to carry a balance of more than $1,500.

Avoid multiple credit applications: Each time you apply for a loan or a credit card, it generates a “hard inquiry” that can temporarily lower your score. Limit these inquiries to maintain a higher credit score.

Monitor your report: Errors can occur, such as accounts listed as unpaid that are actually paid. Discrepancies like this can harm your score. Use free tools from Equifax or TransUnion to review your credit report at least once a year.

Dispute inaccuracies: If you notice any mistakes, file a dispute with the credit bureau. A small correction could improve your score dramatically.

Understand the Requirements

For homes under $500,000, the minimum down payment is 5%, but for homes above $500,000, you’ll need 10% of the portion above that threshold. For example, for a $600,000 home, the down payment will be 5% of $500,000 ($25,000) + 10% of the remaining $100,000 ($10,000), for a total of $35,000.

Homes over $1,000,000 require a down payment of 20%. This is a significant amount, so it’s essential to plan and save accordingly.

Tips to Save

Automate savings: Set up an automatic transfer into a high-interest savings account or a TFSA (Tax-Free Savings Account). Small, consistent contributions add up over time without you even noticing.

Track your progress: Use a budgeting tool or app to monitor your down payment savings. This will help you stay on track and encourage you to save more when possible.

Cut back on unnecessary spending: Identify areas where you can cut back—eating out, subscription services, and unnecessary shopping. Every little bit helps!

Government Programs

First-Time Home Buyers’ Incentive: This program can help lower your monthly mortgage payments by sharing the cost of your home with the government. It’s a great tool for easing the financial burden of a large down payment.

Tax-Free Savings Account (TFSA): Using your TFSA to save for a down payment can make a significant difference since any interest or investment gains are tax-free. Maximize your annual contribution limits to make the most of this benefit.

Provincial Rebates: Some provinces offer additional benefits or rebates, such as Ontario’s Land Transfer Tax Rebate for first-time buyers. Research your provincial offerings to maximize your savings.

Plan for All Costs

Beyond just your mortgage, consider property taxes, utilities, home insurance, and maintenance. Property taxes alone can add hundreds of dollars to your monthly costs, so plan accordingly.

Include one-time costs: Don’t forget about legal fees, home inspection costs, and title insurance. These are typically due at closing and can range from 1.5% to 4% of the purchase price. Create a separate fund for these so you’re not scrambling at the last minute.

Mortgage Types

Fixed-rate mortgage: Offers stability since your interest rate and monthly payment remain the same for the life of the loan. Ideal for those who want predictable payments and are risk-averse.

Variable-rate mortgage: The interest rate fluctuates with market conditions. This can be advantageous if rates decrease, but there’s also a risk of higher rates in the future. If you plan to stay in your home for a short time or have the flexibility to handle fluctuations, this might be a good option.

Understand Your Needs

Research neighborhoods that fit your lifestyle—close to work, schools, parks, and public transportation. Make sure you also look into local amenities like grocery stores and medical facilities.

Use platforms like Realtor.ca to compare properties, check the average price for a home in your desired area, and see how long properties typically stay on the market.

Explore the neighborhood: Visit neighborhoods at different times of day—morning, evening, and weekends—to get a true feel for the area’s noise levels, traffic, and community vibe.Realtor.ca

Assess Long-Term Value

Investigate future development in the area. A new park, transit line, or school can boost property values. But be cautious of negative factors like new highways or shopping centers that may increase noise and traffic.

Why You Need a Mortgage Broker

Brokers have access to multiple lenders, offering a range of mortgage products at competitive rates. This gives you more flexibility and ensures you get the best deal.

AJP Mortgage can also guide you through government programs and help tailor your mortgage to your specific financial situation.

Brokers take care of the paperwork, application process, and negotiations, reducing the time and stress involved in obtaining financing.

Real Estate Agent Tips

Choose an agent who is experienced in your desired neighborhood and knows the local market well. They can provide valuable insights into property value trends, school ratings, and future development plans.

Your agent should also help you manage offers, counteroffers, and negotiations to ensure you’re getting the best deal.

Know the Market

Research the property’s asking price and comparable home sales in the area to understand its fair market value. This will help you avoid overpaying, especially in a competitive market.

If the property is priced below market value, it might attract multiple offers. Set your budget early and avoid getting caught up in bidding wars.

Key Contingencies

Financing: This ensures you can back out of the deal if your mortgage doesn’t get approved.

Home inspection: Provides an out if hidden issues are found during the inspection.

Appraisal: Protects you if the home is appraised for less than the purchase price, which could affect your ability to secure financing.

Negotiation Strategy

Work with your real estate agent to craft a reasonable offer. If possible, try to avoid being too rigid in negotiations. Offer a fair price, but be willing to adjust based on the seller’s needs.

Why It’s Crucial

A detailed inspection can reveal hidden issues like foundation problems, mold, or outdated electrical systems. If these issues aren’t addressed before purchase, they can lead to expensive repairs.

Additional Steps

Request a written inspection report: Ensure that the inspector provides a thorough report detailing any issues with the property. This document can be useful for future reference and maintenance.

Renegotiate if necessary: If issues are uncovered, use the findings to negotiate a lower price or ask the seller to make repairs.

Typical Costs

Include legal fees, land transfer taxes, title insurance, and appraisal costs. Depending on the location, land transfer taxes can be significant, especially for higher-priced homes.

Plan for the Unexpected

Set aside additional funds (usually 5%–10% of the home’s purchase price) to cover any unforeseen costs. This ensures you’re not financially stretched when it’s time to close.

Ask for Transparency

Request a detailed breakdown of closing costs from your lender early in the process. This will help you plan better and avoid surprises on closing day.

Annual Allocation

Allocate 1–3% of your home’s value each year for ongoing maintenance. For example, if your home is valued at $500,000, budget $5,000–$15,000 annually for upkeep.

Routine Checks

Regularly inspect your roof, plumbing, electrical, and HVAC systems. Preventative maintenance is key to keeping repair costs down and ensuring your home remains in good condition.

Insurance Tips

Review your coverage annually: Home insurance policies can change over time, so it’s important to ensure your coverage still fits your needs.

Consider bundling your home insurance with other policies (auto, life, etc.) for discounts.

First-Time Home Buyers’ Tax Credit

This program offers a tax rebate of up to $1,500. Apply when filing your taxes to offset your initial home-buying costs.

Home Buyers’ Plan (HBP)

If you have an RRSP, you can withdraw up to $35,000 tax-free (or $70,000 as a couple) to put toward your home purchase. This can significantly boost your down payment, reducing the amount you need to borrow.

Examples

Ontario and BC offer Land Transfer Tax rebates for first-time home buyers. Check if you qualify for these rebates as they can save you thousands in closing costs.

Alberta’s programs assist with closing costs, which can be a huge relief, especially if you’re on a tight budget.

Energy Efficiency Grants

Consider upgrading your home with energy-efficient features like double-glazed windows or enhanced insulation. These upgrades can lead to long-term savings and also increase your home’s value.

Sarah and Mike were first-time homebuyers in Ontario. They had a modest savings account and a credit score of 690, but they weren’t sure they could get the best mortgage rate. After working with AJP Mortgage, we helped them secure a competitive rate by connecting them with a lender offering flexible terms.

With our expert guidance, they were able to budget for their down payment and manage closing costs without any stress. Today, Sarah and Mike are happily settled in their new home.

Emily, a first-time buyer in Vancouver, faced challenges with a low credit score due to student loan debt. AJP Mortgage worked with her to improve her score and connected her with lenders who offered specialized programs for buyers in her situation.

With our help, Emily secured a mortgage at a competitive rate and was able to purchase her dream condo. She’s now on track to achieve her long-term financial goals while enjoying her new home.