Buying a property can seem overwhelming, especially for first-time buyers unsure of where to start. Having the guidance of experienced professionals is essential to make well-informed decisions throughout the process.
At XpertSource.com, we simplify your experience by connecting you with a network of certified professionals, such as mortgage brokers, real estate agents, inspectors, appraisers, and notaries. Tell us about your buying project, and we'll connect you with the appropriate experts who match your unique requirements, at no cost to you.
Our guide breaks down the property buying journey into 10 essential steps, providing clear and straightforward advice through each stage of the process.
Determining your reasons to become a homeowner
Deciding to become a homeowner is a serious commitment that requires careful consideration. It involves financial obligations and a long-term mortgage commitment, which necessitates having a stable financial foundation.
Before moving forward, it's crucial to assess if this is the right time for you to pursue homeownership and whether your motivations for doing so are strong enough.
Here are several key points that often serve as excellent motivations for becoming a homeowner.
Investment
Investment is a key reason why many individuals choose to become homeowners. Some aim to eliminate rental expenses by purchasing a property, while others invest funds from gifts or inheritances into real estate.
Security
For many individuals, renting can represent a lack of security. Landlords may choose to sell the property or undertake renovations, leading to potential moves at any time. Owning your own home offers a stable solution to this uncertainty.
Heritage
Real estate is often seen as an investment that appreciates over time. This motivates many people to purchase property with the goal of establishing a family legacy to be passed down to their children, providing them with a secure foundation for the future.
Change
Buying a new home doesn’t always mark your first venture into real estate. Many individuals already own one or more secondary properties. Furthermore, some choose to sell their primary residence to purchase another one that better aligns with their current needs.
Good to know: Owning a home comes with financial responsibilities and ongoing maintenance. You'll be responsible for handling repairs and upkeep as they arise, along with covering expenses like property maintenance and municipal taxes.
STEP 1 - Understanding your borrowing capacity
While buying a home can be a sound investment, timing is crucial. If you currently have multiple loans or a less-than-ideal credit score, it may be wise to delay your real estate plans.
To assess your borrowing capacity, you need to calculate your debt-to-income ratios. Typically, two main ratios are considered: Gross Debt Service (GSD) and Total Debt Service (TDS). Lenders typically require your GDS to be below 32% and your TDS to remain under 40% to qualify for a mortgage.
It’s crucial to understand your repayment capacity bases on:
- Gross monthly income (pre-tax and deductions)
- Monthly rent or mortgage payment (including utilities, insurance, condo fees, and taxes)
- Existing loans (credit line, personal loan, credit card debt, car lease)
- Alimony (if applicable)
Good to know: Expenses that do not contribute to debt, such as groceries, telephone plans, transportation, or recreation, are typically excluded when calculating debt ratios. However, it's highly recommended to take these expenses into account to gain a comprehensive understanding of your overall budget and financial obligations.
STEP 2 - Understanding mortgages loans
Buying real estate is likely the most significant investment you’ll undertake, often requiring a long-term commitment through a mortgage. Before consulting a broker to help you find a suitable loan, it’s essential to grasp fundamental concepts such as the different types of mortgages and their key features.
Closed mortgage
A closed mortgage requires making fixed payments throughout the mortgage term. While it typically offers a lower interest rate, this rate is fixed over a longer period. There are financial penalties for increasing payments to pay off the loan faster.
Open mortgage
An open mortgage has a shorter term and generally comes with a higher interest rate compared to a closed mortgage. Its defining feature is flexibility: you can repay the loan in full or partially at any time without incurring penalties. This option is ideal for individuals anticipating a significant cash inflow soon, such as from selling a property or receiving an inheritance.
Fixed rate
A fixed-rate mortgage guarantees steady, unchanging payments over its term by locking in a set interest rate. This type of mortgage protects you from fluctuations in the mortgage market. Although fixed rates may initially be higher than variable rates, they provide stability and are especially advantageous for straightforward financial planning.
Variable rate
A variable-rate mortgage means that your mortgage payments can fluctuate based on changes in the financial market. When the prevailing interest rate decreases, you benefit from lower monthly payments. However, there is also the potential risk of your interest rate increases if market conditions deteriorate.
Frequency of payments
The frequency of mortgage payments may not seem like a significant commitment, but it can lead to substantial interest savings over time. You have the option to choose from different payment schedules, such as monthly, biweekly, or weekly. These choices can be explored further in our dedicated article on mortgages.
Amortization period
The amortization period refers to the total duration needed to completely repay your loan. Typically, the longer the amortization period, the more interest you will ultimately pay. In Quebec, many homeowners commonly choose mortgage terms ranging from 20 to 25 years.
Mortgage loan term
The mortgage loan term requires you to make fixed payments over a defined period, typically ranging from 6 months to 10 years. At the term's conclusion, renegotiating the loan terms may be necessary, especially if there is an outstanding balance remaining.
STEP 3 - Determining your down payment
In Quebec, obtaining a mortgage loan requires a down payment. To purchase a property, you must provide a minimum down payment of 5% of the purchase price. For example, for a home priced at $300,000, this equates to at least $15,000. There are various options available to accumulate the required down payment.
- Municipal programs
Major cities such as Quebec City, Montreal, and Laval offer homeownership programs designed to help individuals purchase homes. These programs often feature credits, interest-free loans, reductions in transfer taxes, or discounts on property taxes
- Home buyer’s plan (using RRSP)
The Home Buyers' Plan (HBP) is a federal government program that allows individuals to withdraw a portion of the funds from their Registered Retirement Savings Plan (RRSP) to use towards purchasing a home.
- Personal loan or credit line
Both a personal loan and a personal line of credit are viable options for securing a down payment for your home buying project.
The main difference between the two is that a personal loan typically requires regular payments over a fixed period. In contrast, a personal line of credit offers more flexibility in repayment terms.
Mortgage loan insurance
To avoid mortgage insurance, you must make a down payment of at least 20% of the purchase price, which totals $60,000 for a $300,000 house.
In Quebec, the Canada Mortgage and Housing Corporation (CMHC) and Sagen (formerly Genworth Canada) are the prominent providers in the mortgage insurance market. If your loan exceeds 80% of the property's purchase price, you are required to obtain mortgage insurance. This insurance protects your lender in case you default on your loan and lose the property.
The premium for CMHC mortgage insurance is calculated as a percentage of the loan amount, based on the size of your down payment. You can estimate your mortgage and insurance premium using the CMHC calculator.
It's important to understand that mortgage loan insurance serves a different purpose from mortgage life insurance.
STEP 4 - Securing a mortgage pre-approval
Obtaining a mortgage pre-approval involves identifying banks willing to finance your home purchase and determining the mortgage amount they are prepared to offer. It provides clarity on the maximum price range for your potential future home investment.
Documents required for obtaining a mortgage pre-approval typically include:
- Identification documents.
- Proof of income such as tax slips, employment letters, and pay stubs.
- Credit report including your credit score.
- Proof of down payment such as donation letter with proof of deposit, statements from investment accounts, savings, or RRSPs.
- Any other financial documents reflecting your current financial situation like statements or assets, personal loans, lines of credit and debts.
A mortgage pre-approval offers several advantages, including security regarding the proposed mortgage rate, which is locked in for a specified period (usually 30 to 120 days). Following this, you have the option to proceed (or not) with a mortgage application to the respective bank.
Good to know: Seeking mortgage pre-approval independently carries the risk of negatively impacting your credit score if your application is declined, as Canadian regulations mandate that each rejection be reported by banks.
A viable solution is to work with a mortgage broker. Brokers can secure pre-approval on your behalf using your financial information without having to disclose your identity to multiple lenders.
STEP 5 - Property visits and selection
Armed with a clear understanding of your borrowing capacity, it's time to begin visiting properties to find your perfect home. By clearly defining your criteria and enlisting the help of a real estate agent, you enhance your chances of finding a property that meets your needs. Your agent will prove invaluable in negotiating both the terms and the purchase price of the home.
To ensure thorough preparation for each property visit, we recommend focusing on key questions:
- House features: Ask about the number of rooms, total square footage, year of construction, and details regarding insulation and soundproofing.
- Property conditions: Assess for cracks, signs of dampness or mould, and inquire about any history of water damage.
- Related expenses: Understand the costs associated with municipal and school taxes, home insurance premiums, and typical energy consumption.
- Renovations: Ask about recent renovations and identify any rooms or areas needing upgrades.
- Neighbourhood: Discuss any neighbourhood concerns, recent incidents like burglary, and upcoming development plans.
- Condominium specifics: For condominiums clarify the monthly fees and what services or amenities they cover precisely.
To help you prepare for each visit, here's a list of 25 questions to ask, so you leave nothing to chance.
Before moving forward with your purchase project, it's essential to ensure that the property's location aligns with your specific needs. Consider proximity to daycare, schools, work, leisure activities, and family and friends. Additionally, carefully evaluate the size of the house, especially if you anticipate expanding your family in the future.
STEP 6 - Assessing the home value
Before making an offer to the seller, it's essential to enlist a home appraiser to determine the market value of the property. Typically, your lender will arrange for a certified appraiser, although you will be responsible for the associated costs.
The purpose of the appraisal is to ensure that the property's value aligns with the mortgage amount you are seeking. This verification safeguards both the lender and borrowers from potential financial risks associated with inadequate property valuations. The role of the certified appraiser is to:
- Performing a comprehensive property inspection to evaluate its features like room count, total area, and overall condition.
- Compiling a list of recently sold homes in the area for comparison.
- Analyzing the local real estate market to understand current supply and demand dynamics.
- Producing a detailed report to determine if the intended purchase is a wise investment relative to the mortgage requested.
Good to know: Appraisers are impartial professionals who are not incentivized by property sales (they do not earn commissions). Their role is to deliver an unbiased assessment based on accredited professional standards. You can rely on receiving a reliable appraisal report that accurately reflects the true value of your property.
STEP 7 - Making an offer
Submitting an offer to purchase is a formal document that legally binds a buyer to a seller for acquiring a property. Upon receiving the offer, the seller has the option to accept, reject, or propose a counteroffer. Once your offer is accepted by the seller, it typically becomes binding, making it challenging to withdraw.
Signing an offer to purchase confirms your commitment as the buyer, solidifying your intention to purchase the property over other potential buyers.
The document includes:
- Buyer's identity
- Property description (address, number of rooms, size)
- Proposed purchase price
- Sales conditions (such as obtaining a mortgage, a satisfactory pre-purchase inspection, and signing before a notary)
- Seller's obligations (selling the home in its current condition, with or without furniture)
- Buyer's obligations (securing a mortgage loan)
- Transfer date (typically 30 to 60 days from the offer date)
- Deadline for acceptance (usually 24 to 72 hours for the seller to respond)
- Buyer's signature
Good to know: If you are working with a real estate agent, they usually handle the preparation of the purchase offer on your behalf. However, if you are navigating the home-buying process independently, it's essential to engage a notary when drafting this document to avoid potential legal pitfalls.
STEP 8- Presale inspection
A building inspector's role is to evaluate visible components and accessible elements of a home's systems, such as plumbing, heating, roof, and insulation. Their role is crucial in identifying potential issues and hidden defects. This expert's findings can significantly impact renegotiations of purchase offer terms and, in more severe cases, may lead to the cancellation of the transaction altogether.
When choosing a good home inspector, it's best to:
- Avoid using an inspector recommended by your real estate broker to prevent conflicts of interest.
- Ensure the inspector holds valid insurance that covers errors and omissions in building inspections.
- Reach out to previous clients to verify references.
- Confirm the inspector has no history of lawsuits or convictions.
- Assess the inspector's relevant experience and training in building inspections.
- Inquire about the expected timeframe for receiving the inspection report, typically within 48 hours.
Good to know: While building inspectors are generally not regulated under the Professional Code like real estate agents and mortgage brokers, those who practide another profession, such as engineering or architecture, fall under the governance of their respective professional orders.
The Association des inspecteurs en bâtiments du Québec (AIBQ) and the Association internationale des inspecteurs certifiés du Québec (InterNACHI-Québec) have established rules of practice and a code of ethics to ensure rigorous oversight of their members. These guidelines are specifically designed to uphold professional standards and ethical conduct among building inspectors in Quebec.
STEP 9 - Securing a mortgage loan
Contrary to common belief, each financial institution applies its own criteria when evaluating loan applications. Applicants must provide various documents, including a thorough review of their credit history. Debt ratio is a crucial factor that different mortgage lenders meticulously consider during the process.
If you did not obtain a mortgage pre-approval, it's essential to promptly initiate the approval process after the seller accepts your offer to purchase. It's advisable to enlist the services of a reputable mortgage broker who can compare available loans at no cost to you.
STEP 10 - Signing the transaction with a notary
A notary serves as a state-recognized public officer with in-depth knowledge of real estate laws. Documents prepared by a notary carry legal authenticity and are admissible in court. Notaries offer valuable guidance and advice throughout your real estate transaction, ensuring informed decisions are made.
The notary's role includes:
- Preventing unexpected issues in the home purchase process, such as assuming debts from contractors who renovated the property or inheriting the seller's mortgage debt.
- Verifying the accuracy and completeness of documents provided by both parties.
- Safeguarding the investment funds associated with the real estate transaction.
- Ensuring the validity of documents signed by both the buyer and seller.
Good to know: In the purchasing process, it is the buyer who selects the notary to oversee the sale transaction. Additionally, the buyer is responsible for covering the notary's fees, not the seller.
Summary of costs involved in buying a home
1. Down payment
You must have a minimum down payment of 5% of the sales price. To avoid mortgage insurance, aim to save at least 20% of the purchase price as your down payment.
2. Mortgage insurance
Mortgage insurance is required if your loan exceeds 80% of the property's value. This insurance protects your lender in case you default on your loan.
3. Notary fees
Notary fees for a real estate transaction generally range from $800 to $1600. Additional fees associated with file processing can amount to approximately $400 to $500.
4. Pre-purchase inspection
You can anticipate spending anywhere from $250 to $400 for a condominium and from $450 to $550 for a single-family home. Prices might rise to approximately $625 for a duplex, $700 for a triplex, and up to $1000 for larger properties.
5. Evaluation fees
The cost of evaluating your property can range from $300 to $500, depending on the experience level of your home appraiser. Typically, the evaluation report remains valid for 6 months.
6.GST/GQT (for new homes)
If you are purchasing a new home or one that has undergone significant renovations, you will be required to pay Goods and Services Tax (GST) and Quebec Sales Tax (QST). These taxes amount to approximately 15% of the purchase price.
7. The transfer tax
The transfer tax, also known as the ‘’welcome tax’’, is a percentage of the purchase price imposed by the municipality where you are purchasing your home. Depending on the city and the home's value, this tax typically ranges between 1% and 3% of the purchase price.
8. Municipal and school adjustment
Municipal and school taxes are annual obligations that homeowners must cover. When purchasing a property, the current owner usually has already paid these taxes for the year, requiring an adjustment during the sale process.
The reimbursement for these taxes will be calculated by the notary and included in the overall fees you will need to pay when buying the property. As a guideline, municipal and school taxes are approximately $400 for a property valued between $200,001 and $300,000, and around $530 for a property valued between $300,001 and $400,000.
9. Moving fees
Moving costs can fluctuate based on the service provider and the details of your relocation. For instance, rates for moving trucks (without movers) typically range from $20 to $40 per hour. If you choose a professional moving company that includes a truck and two movers, expect costs to be approximately $85 to $110 per hour.
Moving companies often offer packages tailored to factors such as the number of rooms, the required number of movers, and the distance of the move. These variables significantly influence the total cost of your move.
10. Home Insurance, Energy Consumption, Renovations, Condominium Fees, and Other Expenses
Before making an offer to purchase a property, it's wise to gather essential information from the seller. This includes details on home insurance costs, estimates of energy consumption, recent renovations undertaken, condominium fees (if applicable), and any other related expenses. This information is crucial for accurately assessing the total cost of owning the property and making an informed decision during the purchasing process.
Buying a home in need of renovations
Buying a home that needs renovations can potentially save costs initially, but it's vital to approach it with careful consideration of renovation expenses relative to the property's overall value.
Before making an offer, it's advisable to thoroughly research and obtain estimates for the renovations you intend to undertake. By doing so, you can ensure you're getting competitive prices and evaluating the best price-to-quality ratio for your renovation project.
Decide whether you'll undertake partial renovations over time or complete the entire project before moving in. This decision will impact your budget, especially if you are paying rent alongside your mortgage.
Effectively managing your budget during renovations requires careful consideration of various factors and proactive planning. Remember to allocate funds for unexpected expenses and potential delays, which are common during renovations, to avoid financial strains.
Traps to avoid when buying a home
1. Ensure your real estate broker is licensed by the Organisme d'autoréglementation du courtage immobilier du Québec (OACIQ) to be protected under the Real Estate Brokerage Act.
2. Compare mortgages and insurance options to minimize monthly payments.
3. Verify your real estate broker has expertise in the residential sector you're interested in, with a proven track record of successful transactions.
4. Confirm the real estate appraiser is a member of the Ordre des évaluateurs agréés du Québec (OEAQ).
5. Avoid signing any document without your broker or notary present.
6. Inquire about additional costs such as home insurance, utility bills, and condominium fees before making an offer.
7. Take sufficient time to consider before submitting an offer, as acceptance legally binds you and reversing it can be challenging.
8. Ensure your building inspector has substantial experience and check their professional references.
9. Confirm the inspector holds professional insurance covering errors and omissions in building inspections.
10. Carefully plan your budget and allocate funds for unexpected expenses during the buying process.
Are you ready to start your home-buying journey?
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