Buying Real Estate 

The Importance of Your Credit Rating

Before approving you for a mortgage, lenders will want to see how well you have paid your debts and bills in the past. To do this, they simply get a copy of your credit history (credit report) from a credit bureau. This provides them with information on your financial past and use of credit. Before your lender sees your credit history, you should get a copy for yourself to make sure the information is complete and accurate. Simply contact one of the two main credit-reporting agencies (Equifax Canada Inc. or TransUnion of Canada) to get a copy of your credit report. There is often a fee for this service

Lack of Credit History

If you have no credit history, it is important to start building one by, for example, applying for a standard credit card with good interest rates and terms, making small purchases and paying them as soon as the bill comes in.

Fixing a Credit Record

If you have bad credit, lenders might not want to give you a mortgage loan until you can re-establish a good credit history by making debt payments regularly and on time. Most unfavourable credit information, including bankruptcy, is dropped from your credit file after seven years. If you have bad credit, you may want to consider credit counseling. 

Despite your poor credit history, you might still be able to get a mortgage loan if you have a relative such as a family member willing to be a guarantor or co-signer on the loan. This person must meet the lender’s borrowing criteria, including good credit history, and is legally obligated to make the mortgage payments if you do not.

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Get a Mortgage Pre-Approval

Once you’ve made the necessary calculations and feel that you are ready to obtain a mortgage, it’s a good idea to select a lender to get pre-approved. This means that the lender will look at your finances to establish the amount of mortgage you can afford. At that time, the lender will give you a written confirmation or certificate for a fixed interest rate good for a specific period of time.
Some buyers may not wish to pursue a mortgage pre-approval until they have found the home they want to buy. However, the idea of having a pre-approved mortgage amount makes the search for your new home much easier and less time0consuming because you have a good price range in mind.

Some of the things you will need to have with you the first time you meet with a lender are:

  • Your personal information, including identification such as your driver’s license.

  • Details on your job, including confirmation of salary in the form of a letter from your employer.

  • Your sources of income.

  • Information and details on all bank accounts, loans and other debts.

  • Proof of financial assets.

  • Source and amount of down payment and deposit.

  • Proof of source of funds for the closing costs (these are usually between 1.5% and 4% of the purchase price).

Will You Have Trouble Qualifying for a Mortgage?

Your calculations may show that you will have trouble meeting monthly debt payment and that you will likely have trouble getting approved for a mortgage.

Here are some things you can do:

  • Pay off some loans first.

  • Save for a larger down payment.

  • Revise your target house price.

Other Helpful Strategies

  • Meet with a credit counselor who can help you minimize your debts.

  • Buy your home through a rent-to-own program provided by the builder, a non-profit sponsor or a government sponsor.

  • Find out about programs through which you can help build your own home.

  • Ask the housing department of your municipality about any special programs available.

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New Home, Previously Owned or Build Your Own?

When thinking about the kind of home you want, the first thing you should consider is whether you want a previously owned home (often called a resale) or a new home.

Here are some characteristics that may help you decide:

New Home

  • Personalized choices. You may be able to upgrade or choose certain items such as a siding, flooring, cabinets, plumbing and electrical fixtures.
     

  • Up-to-date with the latest codes/standards. The latest building codes, electrical and energy-efficiency standards will be applied.
     

  • Maintenance costs. Lower maintenance costs because everything is new and many items are covered by a warranty.
     

  • Builder Warranty. A homebuilder’s warranty is usually available in all provinces (except Nunavut and the Northwest Terriotories). This can be important if a major system such as plumbing or heating breakds down. This warranty does not apply if you build the home yourself.
     

  • Neighbourhood amenities like schools, shopping malls and other services may not be complete for years.
     

  • Taxes such as the Goods and Services Tax (GST) (or, in certain provinces, the Harmonized Sales Tax (HST) will apply. However, you may qualify for a rebate of part of the GST or HST on homes that cost less than $450,000. For more information about the GST New Housing Rebate program, visit the Canada Revenue Agency website at www.cra-arc.gc.ca
    ?

  • Extra Costs. You may have to pay extra if you want to add a fireplace, plant trees and sod, or pave your driveway. Make sure you know exactly what’s included in the price of your home.

Resale Home

  • Easy access to services. Probably established in a neighbourhood with schools, shopping malls and other services.
     

  • Landscaping is usually done and fencing installed. Previously owned homes may have extras like fireplaces or finished basements or swimming pools. May have extras like fireplaces or finished basements or swimming pools.
     

  • No GST/HST. You don’t have to pay the GST/HST unless the house has been renovated substantially, and then the taxes are applied as if it were a new house.
     

  • Possible redecorating and renovations. You may need to redecorate, renovate or do major repairs such as replacing the roof, windows and doors.

Building Your Own Home

Some people prefer the challenge and flexibility of building their own home. On one hand you can get exactly what you want in terms of size, design, location, quality of material, level of energy-efficiency, etc. However, you should expect to invest lots of time and energy.

To find a lender or mortgage broker, you can:

  • Get a referral from your real estate agent, family members. Friends or other professionals.

  • Look in the Yellow Pages under Banks, Credit Unions or Trust Companies for a lender and under Mortgage Brokers for a broker.

  • Contact the Canadian Institute of Mortgage Brokers and Lenders at 1-888-442-4625 or visit their website at www.cimbl.ca

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The Lawyer/Notary

You need a lawyer (or a notary in Quebec) to protect your legal interests such as ensuring the property you are thinking of buying does not have any building or statutory liens or charges or work or clean-up orders associated with it. He or she will review all contracts before you sign them, especially the Offer (or Agreement) to Purchase. Having a lawyer/notary involved in the process will give you peace of mind and ensure that things go as smoothly as possible. Law associations can refer lawyers/notaries who specialize in real estate law (in Quebec, contact the Chambre des notaries du Quebec). 

Lawyer/notary’s fees range widely and depend on the complexity of the transaction. Shop around for rates, and when choosing your lawyer/notary, use the Checklist for Selecting a Lawyer/Notary at the end of this step to guide you.

Remember that a lawyer/notary:

  • Should be a licensed full-time lawyer/notary.

  • Should be local and understand real estate laws, regulations and restrictions.

  • Should have realistic and acceptable fees.

  • Can explain things in plain language.

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The Home Inspector

You should consider having any home you are thinking of buying inspected by a knowledgeable and professional inspector.
The home inspector’s role to inform you on the property’s condition. He will tell you if something is not functioning properly, needs to be changed or is unsafe. You will also be informed of repairs that need to be done and he/she may even be able to tell you where there may have been problems in the past.

Every inspection should include an evaluation of at least the following:

  • Foundation

  • Doors and windows

  • Roof and exterior walls

  • Attics

  • Plumbing and electrical systems

  • Heating and air conditioning systems

  • Ceilings, walls and floors

  • Insulation

  • Ventilation

  • Septic tanks, wells or sewer lines

  • Any other buildings such as a detached garage

  • The lot, including drainage away from buildings, slopes and natural vegetation

  • Overall opinion of structural integrity of the buildings

  • Common areas (in the case of a condominium/strata or co-operative)

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