Understanding the Homebuying Process

By Emily Southey | 10 minute read

Buying a home is exciting – especially if you’re a first-time buyer – but house hunting in Ontario can be complicated and overwhelming if you aren’t prepared. Armed with the right information, though, you can get started on finding and buying your dream home.

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Understanding the Homebuying Process

Familiarizing yourself with the homebuying process in Ontario is crucial to avoiding disappointment. The most important thing to know? It can be lengthy and complex. Between finding a real estate agent, getting pre-approved for a mortgage, making an offer (and possibly a counter-offer), and signing all the necessary paperwork, it’s no walk in the park. But when you find your dream home, it’ll all be worth it. To prepare you for what’s ahead, check out this list of steps in the homebuying process.

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Save Money

With any purchase, you’ll need to have the necessary funds to finance it (or at least for a down payment). Therefore, the first step in the homebuying process is to save money. More specifically, you should aim to save enough for a down payment on a house in your preferred neighbourhood. Depending on the price of the home, a minimum down payment will fall between 5% and 20% of the total purchase price.

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In March 2022, the federal government announced plans in the budget to create a new Tax-Free Home Savings Account to help Canadians save for the cost of a down payment, allowing them to save $8,000 a year to a maximum of $40,000 per person towards the purchase of a first home. In addition, we can also expect the First-Time Home Buyer’s Tax Credit to double to $10,000, retroactive to any homes bought after January 1, 2022, and the First-Time Home Buyer Incentive extended until March 31, 2025. The First-Time Home Buyer’s Tax Credit is a tax credit for first-time homebuyers and the First-Time Home Buyer Incentive is a shared-equity mortgage in which the government has a shared investment in the home. It’s aimed at helping first-time homeowners reduce their monthly mortgage payments.

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Gather the Necessary Documents

As you might expect, the homebuying process in Ontario requires a lot of paperwork, which begins before you ever make an offer. First, you’ll need to gather documentation to apply for a mortgage. As a lot of documentation is required, we suggest getting started early. Most real estate agents will tell you that time is of the essence when house hunting, so the more prepared you are, the more seamless the process will be. A mortgage lender will confirm exactly which documents are required, but you should expect to provide the following: employment information, such as a T4, pay stub, letter from your employer, or notice of assessment (if you are self-employed), bank statements detailing your savings and investments from the last three months, a list of all assets and debts, and a void cheque. If a family member or close friend is helping you finance your home, you will also need a signed letter stating that the money is a gift and not a loan.

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Shop for a Mortgage (and Get Pre-Approved)

Once you’ve saved up and gathered the necessary documents, the next step in the homebuying process is to shop around for and obtain a pre-approved mortgage. We recommend obtaining quotes from several banks or mortgage lenders to ensure you’re getting the best possible rate. Next, it’s time to apply for mortgage pre-approval. Please note that getting a pre-approved mortgage is free and does not tie you to the lender.

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Schedule Showings

Now’s the fun part: it’s time to start house hunting. While you can represent yourself, we recommend hiring a real estate agent to help guide you through the process (more on that below). Whether you choose to work with a REALTOR® or not, it’s time to schedule some showings and attend some open houses. The only way to enter the housing market is to dive right in! Check out listings in your preferred neighbourhoods and try to book an appointment with the REALTOR® as soon as possible. Be prepared to act fast if you find a place you think could be the one.

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Make an Offer

Do you think you’ve found your dream home? Now comes the time to make an offer. Keep in mind that Canada’s real estate market is hot, so just because you submit an offer doesn’t mean it will be accepted. You may also wish to attach conditions to your offer to protect yourself. Manage your expectations by assuming that at least a few of your offers will be rejected and that there could be a bidding war. When your offer finally gets accepted you’ll be required to pay a deposit, which is put towards your down payment.

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Sign on the Dotted Line

Last but not least, you’ll seal the deal by making the necessary down payment, securing your financing from the mortgage lender, and signing a contract that transfers the property title to you. Don’t be surprised if this process takes up to two months. Once you’ve signed on the dotted line and everything is complete, you’ll be given the keys to the house and it’s officially yours!

Considerations When Buying a House

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Renting vs. Buying

Buying a house is a major purchase, so it’s important to weigh your options before taking the plunge. We encourage all potential buyers to consider whether renting or buying is the right move. While renting does not offer the same investment, it is less of a financial commitment and comes with far fewer responsibilities. So if you don’t have the savings to buy a home, you’re not sure how long you plan to live in your current city, or you crave flexibility, renting might be a more suitable option. To determine whether buying a home is the right decision, ask yourself questions like “Can I afford to buy a house?” and “Is now the right time to buy a home?” Carefully consider which path is right for you. If buying comes out on top, then let the homebuying process begin!

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Finding a Real Estate Agent

Navigating the Canadian housing market can be overwhelming. For this reason, it’s recommended that buyers work with a REALTOR® to guide them through the homebuying process. Partnering with a REALTOR® will ensure the house-hunting process is as seamless as possible. Since REALTORS® know the ins and outs of the market, they can help you find the home of your dreams at the best possible price. When choosing a REALTOR®, check that they are registered with your province’s regulatory body (in Ontario, this would be the Real Estate Council of Ontario). Remember that you get to choose who you want to work with. Meet in person or chat over the phone to see if they’re the right fit.

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Choosing A Mortgage Lender

Most buyers in Canada will need to take out a mortgage to finance their homes. As with any major purchase, it’s crucial to shop around to obtain the best rate. After all, finding a lower mortgage rate could save you thousands, if not tens of thousands of dollars in interest. When shopping for a mortgage, you can reach out to various banks and lenders to obtain a quote directly, or you can work with a mortgage broker who will do the work for you. No matter which route you choose, this is a critical step in the homebuying process that must not be overlooked.

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House Hunting

Once you’re pre-approved for a mortgage, it’s time to start house hunting! Thanks to your mortgage lender, you’re now aware of the maximum amount you can spend on a home, which will instantly help narrow down your search. Get in touch with your REALTOR® and start setting up and keeping track of showings. Consider your preferred neighbourhood and make a list of the “must-haves” and “nice-to-haves” for your future home. A backyard with a pool? A two-car garage? Walk-in closets? An open concept living space? Whatever your heart desires, write it down so you can review your list at each house you visit.

Saving for the Down Payment

Most buyers are aware that they will have to make a down payment when buying a home. However, they may not be aware of just how much this down payment will cost. Therefore, before you start house hunting, it’s important to assess your savings and determine your overall budget, taking into account the maximum down payment you are comfortable making. Generally speaking, homeowners should prepare to make a minimum down payment of 5% of the total purchase price. This is a legal requirement in Canada for homes that are $500,000 or less. For homes between $500,000 and $1,000,000, a 10% down payment is mandatory. Finally, for homes priced over $1,000,000, you will need to put down 20%. These rules apply no matter what type of property you’re buying, whether it be a semi-detached home, detached home, condo, or townhouse. You may wish to consult with a financial planner and mortgage lender to determine a down payment amount within your budget. While a large down payment may seem intimidating, it will likely save you money in interest down the line.

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The Purchase Price of the Home

The purchase price of the home is a major factor to consider when buying a house. Saving for the down payment is crucial. The mortgage you are pre-approved for and the down payment you can afford will determine your overall budget. Once you know this, try to only see properties within your budget. Your REALTOR® can also advise you on market conditions. For example, if the market is hot, they may recommend looking at houses beneath your budget under the assumption that you will have to offer above asking. Alternatively, if it’s a buyer’s market, you may be able to look at properties at the higher end of your budget in the hopes of paying less.

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The Land Transfer Tax

Many buyers aren’t aware of the out-of-pocket expenses, or closing costs, that come with buying a home. They’re so focused on saving for the down payment that they forget about the other costs, like the home inspection, legal fees, and moving costs. Another type of expense that must be considered and budgeted for when buying a house is the land transfer tax. The Land Transfer Tax (LTT) or Property Transfer Tax (PTT) is a type of tax that most provinces and territories have in Canada (with the exceptions of Alberta, Saskatchewan, Nunavut, and Yukon). The tax rate depends on the province. However, if an LTT is required, it must be paid to the province or territory in which you reside. In addition, some municipalities, like Toronto, have a municipal land transfer tax that must be paid on top of the provincial LTT. For example, on a $500,000 home in Ontario located outside Toronto, 0.5% is paid on the first $55,000, 1% on the next $195,000, 1.5% on the next 150,000, and 2% on the final $100,000. This equals a total of $6,475 that must be paid to the province, in addition to any sales tax, deposits, or down payments. Therefore, when purchasing a home in Canada, buyers must remember to calculate and budget for any applicable provincial or municipal land transfer taxes.

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