Whether you are new to owning a home or it’s your second, third, or fourth home, buying a home is an exciting time. Yet, it can take a lot of effort and a lot of time. It can leave some people feeling overwhelmed.

Don’t panic. We’ve got you covered! These 10 steps can help you navigate the sometimes chaotic road of buying a home in Canada.

You can get free reports from Equifax and TransUnion, at least once each year. If you find any errors in your report, dispute them immediately so they can be resolved before you apply for financing. 

The higher your credit score, the lower the interest rate you’ll receive. Generally speaking, a credit score of 720 or higher will get you a good interest rate on a conventional loan, but qualification criteria depends on the specific lender.

If you’re trying to improve your credit score before applying, you should understand factors that can impact your score:

• Payment history
• Total debt
• Length of credit history
• New credit
• Type of credit 

According to the Canada Mortgage and Housing Corporation (CMHC), your monthly housing costs should not exceed more than 32% of your average before-tax monthly income. This is called your gross debt service (GDS) ratio. Housing costs include things like mortgage payments, heating, and property taxes.

Furthermore, the CMHC advises that a person’s entire monthly debt load should not exceed more than 40% of their gross monthly income. This percentage is known as your total debt service (TDS) ratio. The CMHC Affordability Calculator can help guide you to the right price range, taking into consideration your annual income, monthly debts and projected down payment amount, among other criteria.

Prioritize your wish list to fit your budget

Once you have a rough budget in mind, make a list of must-have home features. Your price point will likely dictate the size, location and amenities of your future home. Here are a few examples of wish list items to consider:

• Number of bedrooms and bathrooms
• Square footage
• Outdoor space
• Preferred location
• Type of home
• Layout, features and finishes
• School district
• Pet-friendliness
• Work commute

Step 3: Find a Real Estate Agent

Most buyers find it helpful to have a professional real estate agent on their side to guide them through the process. Since sellers fund the buyer’s agent commission, it makes using an agent a cost-effective option for buyers. 

Here are some areas where a buyer’s agent can help: 

• Market insights: identifies home value trends, new developments, buyer demand and overall state of the market
• Offer price: determines what a home is worth and recommends a competitive initial offer amount
• Negotiating: knows when to argue for a lower price and how to negotiate contingencies and repairs
• Local familiarity: has insider tips about the neighborhood and area schools 
• Professional recommendations: provides referrals for a trusted lender, attorney, contractor or other vendors
• Experience: simplifies the process by handling hiccups, staying on top of due dates and overseeing paperwork  

If you don’t have a 20% down payment, it isn’t the end of the world. Some people go with as little as 5%. If you do go with less than 20%, you will likely have to get mortgage insurance, so keep this in mind!

And shop around for your mortgage options. Find the best pre-approved mortgage for you and your life.

Applying for a mortgage requires a written application and supporting documentation; it can be a slightly intimidating process and there are a few things you should be ready for when meeting with your mortgage lender:

1. Employment history: Lenders ask for a list of your past employers, how long you’ve been with your current employer, and what your annual salary or take-home pay is. They want to make sure you consistently earn money, with no major gaps in income, and can make regular mortgage payments.
2. Assets and Debts: Be prepared to show your past tax records, recent bank statements, and current debt amounts, including credit card debt, car loan, or student loan. Lenders want to know your debt-to-income ratio to know if you can make each loan payment with the income you earn.
3. Records of bankruptcies and foreclosures

Keep in mind that your debt-to-income ratio will be examined again before closing. Taking on new debt can limit the total loan amount available to you during financing.

In other words – you’ve got options. But what’s most important is that you choose a home that complements your lifestyle and your income. To narrow down your choices:

• Determine a desired location.
• Consider how many bedrooms, bathrooms and square feet you need.
• Decide which amenities are must-haves versus like-to-haves.
• Consider your needs for outdoor space, like a yard or balcony.
• Water pressure (turn on faucets and shower heads)
• Electrical issues (try the light switches)

Once you’ve identified your must-haves, your real estate agent will send you listings that meet your criteria via email, text message or social media. I can then coordinate showings for properties you’d like to see in person.

What to look for when touring homes

Once you start visiting homes in person, be sure to consider the home’s “health” so you’ll have an idea of any major challenges that might be coming your way if you decide to make an offer. Ultimately, the inspection will give you an official report on the home’s quality and condition, but while you’re touring, keep an eye out for the following:

• Structural defects and cracking
• Water pressure (turn on faucets and shower heads)
• Electrical issues (try the light switches)
• Functionality and heat retention of doors and windows
• Roof and exterior quality
• Noise from neighbors or traffic

Here are some other things to take into consideration when making an offer:

Closing date: When you’re buying a home with a mortgage, it will take 30-45 days after the contract is executed to close on the home. When you submit an offer, you can request a later closing date to fit your moving timeline, but the seller may push back on this request.

Contingencies: A contingency is an agreement between the seller and the buyer or the lender and the buyer regarding conditions that need to occur for the sale to move forward. Some contingencies are necessary, like the appraisal contingency your lender will require to ensure they’re not overpaying on your loan. An inspection contingency is up to you, but it’s highly recommended. 

Earnest money: An earnest money deposit is a sum of money you’re willing to put down when you make your offer to show that you’re serious about buying the home. If you close on the home, the earnest money simply becomes part of your down payment. If you back out of the purchase (outside of a contingency), you’ll lose the deposit.

It’s important to note that not every offer works out. It can be disappointing, but try not to feel discouraged if you don’t get the first home you put an offer on. In fact, more than half of buyers who submitted an offer ultimately made multiple offers before successfully closing on a home.

And once accepted…

Usually, the inspection is scheduled within a week of the contract being signed. It’s recommended that you attend the inspection, as it’s a good way to get a better understanding of the inner workings of the home. Usually, your agent will attend as well. After you receive the official inspection report, you’ll have time to discuss the findings with your agent and decide how you want to respond to the seller.

If major, non-cosmetic issues are found, you can reopen negotiations, requesting that the seller pay to fix the issue prior to closing or provide you a credit so you can fix it on your own after closing.

Loan application

If you decide to officially apply for your loan with the same lender that did your pre-approval, they already have some of the documents you’ll need for your application. Likely, you’ll need to provide updated financial statements. The most important thing you can do during this process is to respond to requests quickly. For example, if the lender asks for your W2, send it promptly to avoid a delay in your closing. If you decide to move forward with a different lender, they will tell you the list of documents they need in order to complete your application.

Appraisal

Your lender will hire the appraiser, so there’s not much for you to do here. Your real estate agent should work with the seller’s agent and the appraiser to schedule the appraisal. After the appraisal is complete, you and your agent will receive copies of the appraisal report, so you can see the appraised fair market value and check out the comps that were used in the calculations.

If the appraisal matches your offer price: You should be clear to close.

If the appraisal comes in above your offer price: Even better! This means not only are you clear to close, but you’re purchasing the home for a price below market value, giving you instant equity.

If the appraisal comes in low: Your lender won’t approve the full loan amount, as in their eyes, you’re overpaying for the property. You’ll need to either make up the difference between the appraised value and the offer price in cash or try to re-negotiate the offer price with the seller. If you believe the appraisal was incorrect, you can try to request a new appraisal from your lender.

Step 9: Purchase a homeowners insurance policy

You are required to purchase homeowners insurance if you have a mortgage. Make sure you purchase enough to fully cover your home, and your belongings, in case of a total loss.

Congratulations! It’s time for you to move into your new home.

Many buyers choose to have a final walkthrough a day before or the morning of closing. Its purpose is to be sure that the property looks the same as when you made your offer and that the seller completed agreed-upon repairs (if applicable).

On closing day, expect to spend at least a few hours at the title company signing paperwork. You should also be prepared to bring funds to cover your closing costs, which typically range between 3-5% of the sale price.

Once the signing is complete and the sale is recorded, you’ll receive your keys. The house is yours!

You can now set up utilities for the new home — things like electric, cable and internet. If you’re buying a condo with an HOA that covers some utility costs, double check contract responsibilities with your real estate agent.

Finally, get ready to move and settle into your new home.