Canadian Home Buyer Guide

Purchasing a new home is likely the single most significant investment you'll ever make, so it is a financial decision that should be well researched and calculated. We have simplified the home buying process to 3 stages to help give a comprehensive walkthrough of the home-buying process:

There are several activities necessary for the completion of each stage; however, for simplicity’s sake, you should concentrate on the stage you are in right now. It is easy to get overwhelmed by diving into the details too quickly; however, by breaking the process into achievable steps and following the checklists and detailed information we provide, you will have a clearer understanding of what you should be doing at each stage.

At the end of this Overview, you will explore:

• How Investing in a home is unique

• Key activities in each stage

• Mortgage Sandbox’s home buying philosophy

How Owning a Home is Unique

High transaction costs if you change your mind

Moving cash between savings accounts costs next to nothing but selling one home and buying another one costs thousands of dollars in fees, commissions, and taxes, not to mention hundreds of hours of your valuable time.

If you end up regretting your purchase, or simply want to trade up in a couple of years, the costs can set you back significantly. The real estate agent commission and the cost of refinancing can easily set you back 3% or more.

On a home valued at $500 thousand, that adds up to more than fifteen thousand dollars before considering the cost of moving and reconnecting utilities.

Ongoing ownership costs

Property taxes, condo fees, utility charges, and general maintenance costs are generally predictable. In contrast, the unexpected expense of replacing a faulty roof or furnace, or upgrading electrical and plumbing, can be punitive.

You should always prepare for unexpected repairs by regularly setting aside money in a ‘rainy day fund’.

The subjectivity of home values

Like most investments, the value of a home can be affected by supply and demand, the economy, local unemployment, and interest rates. Additionally, home values can be affected by the ‘energy’ of a neighbourhood (i.e., is the neighbourhood gentrifying, is the city investing in new amenities, and attracting new families?). Of course, the quality of local schools, public transit, and building condition are a factor. Hoverver, an unpleasant neighbour, something outside of your control, can affect the value of your home.

Not all these factors readily present themselves at an open house, and sometimes inexperienced buyers can get burned by unexpected issues that arise post-purchase.

Although some people believe that homes are being commoditized, homes are not commodities because we all know that not all 900 square foot, 2-bedroom apartments are alike and interchangeable.

Furthermore, due to individual priorities and goals, a house which may look like a compromise to you could be someone else’s dream home.

It’s a significant debt commitment

Most buyers make the minimum down payment to buy a home and borrow the rest by taking out a substantial mortgage to pay off over the next 25 to 30 years. Due to the size of their home loan, any change in the mortgage rate can be a big deal. Even a 1% percent difference in the mortgage rate can translate to tens of thousands of dollars in either savings or additional costs.

For example, imagine a family with a $400 thousand-dollar mortgage at a 3.5% 5-year fixed mortgage rate will pay $2,000 per month. If they renew the mortgage in 5 years at 4.5%, their mortgage payments will have risen to $2,200 monthly. Over the 5-year timeframe, that 1% change in rate will cost the family $12,000 more in monthly payments alone!

The Key Activities In Each Stage

Home buying is complex and can differ strategically depending on whether you buy urban or rural, a condo or a detached home. As you can see in the figure below, we have compared some of the examples provided by other advisors, and they often list anywhere from 6 to 16 steps in the process.

We believe that at its heart, there are three primary stages to buying a home, but at each stage we need to look at the Property, Financing, and Risk Protection. In this section, we explore the key activities for each stage of the buying process.

1. Plan Your Purchase

It is always important to enter your first meeting with a mortgage broker or real estate agent with an established preliminary budget.

For more details and access to checklists, visit the detailed steps for ‘Plan Your Purchase’.

2. Search for a Home

Once you have finalized a realistic budget and a plan, and have been pre-approved for a mortgage, you can begin searching for a home.

Don't be surprised if you realize that your budget or expectations require adjustment. As you learn more about the market, you will be able to update your budget, taking into consideration what is available and your individual needs.

For more details and access to checklists, visit the detailed steps for “Search for a Home”.

 Looking for a pre-sale or pre-construction home?

Check out this supplementary pre-sale home buying guide.

3. Close The Deal

Once you have an accepted home offer, you can get formally approved for a mortgage. Remember to keep in mind that mortgage approvals remain dependent on your ability to satisfy lender conditions. If you fail to meet any of these conditions, you’ll have to get re-approved. Always try to satisfy lender conditions as quickly as possible to avoid this.

For more details and access to checklists, visit the detailed steps for “Close The Deal”.

Mortgage Sandbox Philosophy

At the core of our philosophy is a belief that Canadians want to work with, and give business to, people who share and understand their interests and values. Home buying can take up to 5 months from beginning to end, and it is the most significant and most complex financial transaction a Canadian will undertake. You should embark on this journey with professionals who you get along with and trust.

We developed Mortgage Sandbox, a digital financial advisor website specialised in real estate that allows home buyers to get sound real estate advice online. The tools offered assess people’s personal goals, financial situation, and values, and provide consistent guidance on real estate purchases, financing, and local real estate agents and mortgage brokers to help execute their homeownership plan.

The software provides financial advice based on mathematical rules and algorithms that rely on data provided by leading economists. These algorithms are executed by intuitive, easy-to-use software and are supported by context-sensitive help. We aim to see more home buyers leave the process feeling they have made the best purchase and built enduring relationships with their real estate professionals. To learn more about Mortgage Sandbox, click the logo below.

If there is anything unclear in the explanations above. Please let us know so we can improve our advice for the next reader.