Make the home buying process a success with our 10 step guide to buying a home in British Columbia. Ensure you find the perfect home you can see yourself living in, while staying on budget. Get it right with our comprehensive guide to buying a house, one of the biggest and most important purchases of your lifetime.
Determine if now is the right time to buy with our helpful resources before embarking on the home buying process in areas like Vancouver. Consider talking with a real estate agent, mortgage broker, and discussing with family and close friends. Gain an understanding of the process and make the right decision for you with our expert guidance.
Step 1. Saving For a Down Payment
When buying a home, especially in expensive housing markets like Vancouver, having a sizeable down payment is crucial. The minimum down payment required depends on the home's price; for homes over $1 million, 20% is needed, while for homes under $500,000, only 5% is required. To meet your down payment goals, consider cutting discretionary expenses, doing side work, or taking advantage of government programs like the First Time Home Buyers Incentive and Home Buyers Plan. Utilize Ratehub's Mortgage Calculator to estimate your costs and ensure a successful home buying journey.
Step 2. Secure a Stable Income and Boost Your Credit Score
Especially when buying into an expensive market like in many cities in British Columbia, having a stable source of income is crucial. This stability will allow you to make your housing payments and save, which can really add up in such an expensive province to buy.
As well, homeownership at times can be uncertain. If something is to break or go wrong in your house, having the income or savings to cover these unexpected expenses can relieve multitudes of stress. Especially if you're self-employed or a contract worker with a less stable income, it's crucial to put money aside into a savings account every paycheck to prepare for any surprises. In addition, besides just your mortgage and interest payments, expenses such as home insurance, property tax, and utilities all add up and add to your monthly housing costs. You can use our guide to get home insurance from Canada’s top 15 companies.
Your credit score is a major factor in determining your creditworthiness and is used by lenders to assess your loan eligibility. The Canadian Mortgage and Housing Corporation (CMHC) requires a credit score of 600 or higher for mortgage insurance on homes under $1,000,000 with less than 20% down payment. If your credit score falls short, there are private mortgage lenders and B-lenders available, but mortgage rates tend to be higher. Improving your credit score and increasing your down payment can lead to better loan options.Secure a Stable Income and Boost Your Credit Score
Step 3: Find a Real Estate Agent
As a buyer, you won't pay the real estate commission, making it beneficial to have a real estate agent to guide you through the home buying process. Real estate agents offer moral support, offer strategies, help find properties, provide neighbourhood advice, and draft and send paperwork.
Step 4: Determine Your Affordability
Knowing your financial situation is the next step in the home ownership journey. In addition to loan requirements such as credit score, down payment, debt service ratio, and monthly expenses, it's important to feel comfortable with the amount you're spending. Use WOWA's affordability calculator to get a better understanding of what you can afford, and set a strict budget to avoid financial stress.
Step 5: Choose the Right Location
When selecting a neighbourhood for your home, research is key. Drive by potential neighbourhoods, check schools, commute time, and safety. Location is a crucial aspect of home ownership, as it cannot be changed like a house's cosmetic features. Consider finding a location that fits your lifestyle, and make upgrades later with a home equity line of credit or refinance. Choosing the right location is a decision worth taking your time to consider.
Step 6: Understanding Closing Costs for Your Home Purchase
Closing costs make up the second largest expense in buying a home, after the purchase price. In British Columbia, Property Transfer Taxes are the largest component of closing costs. Homes priced under $500,000 may be eligible for a full rebate on Property Transfer Taxes, while homes priced between $500,000 to $525,000 may receive a partial rebate. Other closing costs to consider include legal and lawyer fees, property survey, home inspection, appraisal fees, title insurance, government registration fees, and an estoppel certificate fee. Budgeting for these costs ahead of time can help you understand the true cost of buying a home.
How is Property Transfer Tax calculated?
Suppose Sarah purchases a property in British Columbia for its fair market value of $3.5 million. The calculation for her Property Transfer Tax is as follows:
1% x the first $200,000 = $2,000
2% x $1.8 million = $36,000 ($2 million – $200,000 = $1.8 million)
3% x $1.5 million = $45,000 ($3.5 million – $2 million = $1.5 million)
2% x $500,000 = $10,000 ($3.5 million – $3 million = $500,000)
By adding the taxes from each bracket, the total amount owed is: $2,000 + $36,000 + $45,000 + $10,000 = $93,000
Thus, Sarah must pay a Property Transfer Tax of $93,000.
Step 7: Get Pre-approval & Shop for the Best Mortgage Rate
Getting pre-approval on a mortgage is crucial as it provides insight into your budget, including how much you can afford, your lender's loan amount, prospective interest rate, and monthly payments. Even after getting pre-approval, it is advisable to shop around for different mortgage rates to save on interest charges. For instance, a pre-approved $1,500,000 mortgage at 2.44% interest for 5 years in Vancouver can cost $98,863 in interest charges. However, shopping around for a better rate could result in savings of $18,513 in interest charges over the 5-year term.
Step 8: Search for Properties within Your Budget
Before starting your home search, make a list of need-to-haves, such as the number of bedrooms, bathrooms, location, and type of property, and nice-to-haves, such as type of finishings, extra rooms, landscaping, and technological enhancements. When searching for properties with your agent and online through MLS, keep an open mind and be ready to move quickly in a hot real estate market.
Step 9: Submit an Offer
If a property meets your needs and budget, submit an offer. Remember, the first property you make an offer on may not be accepted. Be resilient and positive, and rely on family, friends, and your real estate agent for support.
Step 10: Closing Date!
The closing date marks the end of your home buying journey and can be both exciting and stressful. Don't forget to pack your belongings, hire a moving company, and prepare for the transition to your new home.
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