Meera Gandhi and her husband bought their first home in 2016 and have just recently completed the process of purchasing their second home because they needed more space for their growing family.
Meera is a Scotiabank Advisor. In her role, she helps other new home buyers understand the mortgage process and prepares them to buy the home of their dreams while ensuring a seamless end-to-end experience with advice and solutions tailored to their needs.
Below, Meera walks us through her top tips on buying a home in Canada:
I usually tell my customers that the most important thing is to work with your numbers six months to a year in advance of when you want to buy a property. How long it takes to get your finances in order will depend on your situation, but it helps to start as early as possible.
Before getting started, potential home buyers need to ask:
- How much can I afford?
- How much do I make in a year?
- What are my monthly expenses?
- Where is my down payment coming from? What kind of house am I looking for—condo, semi, townhouse?
- Which area am I looking to buy a home in?
I find that customers often need to save a lot more money than they initially anticipated. When you meet with a professional, they might say, “Listen, if you're looking for a semi-detached in this particular neighbourhood, it's going to cost you $700,000.” Potential home buyers get excited and say, “Oh $700,000, great!” Then I say, “Unless you qualify for mortgage default insurance and pay the required premium, you have to at least first bring 20% down—that is $140,000.” Then I add another $20,000 on that figure for closing costs.
Sometimes people realize they haven’t saved enough yet. But then that's when we, as your financial advisor, can help you find a plan. For the next two years, let's start saving every month and get to the place where the numbers work and you are saving enough.
Scotia Total Equity Plan (STEP) is an exclusive borrowing solution that provides the ultimate flexibility and control over your borrowing needs – now and for the future.
Don't skip the pre-approval
I remember with our first house, we didn't even have a pre-approval, and we struggled with the mortgage. Honestly, there were three places we applied, and we didn't get the amount we were looking for. We couldn't get the approval and we had to let that house go.
We met with another financial advisor and they said, “You have to save an additional $15,000 at least.”
Pre-approval is a key component of the home-buying journey and buyers should qualify at least 15 days before shopping around for a house in the market. Pre-approval gives you peace of mind to know that when you are putting down an offer, you will be able to afford this house. Buying a home is the biggest asset you're going to buy, so take the extra time to get pre-approved. Imagine if you already signed an agreement and put a deposit there and now you're looking for a mortgage - this mistake can be hard to fix and you may be in jeopardy of losing the money you worked hard to save.
If you weren’t aware, Scotiabank actually provides online pre-approvals now through eHOME in just a few minutes.* It’s quick, easy and you can convert your pre-approval to a mortgage application in the click of a button, when you’re ready.
The bank considers other factors as well , but a pre-approval specifically means that we can verify your income. Based on the income provided, the bank will give you a pre-approval for four months. As long as you purchase a home that meets mortgage conditions and is appraised for your pre-approval amount, you will be set.
Work with the right professionals
The best lesson I learned through purchasing two homes in Canada is that when it comes to a mortgage, I'm going to work with professionals. I want the best real estate agent by my side to help negotiate my house pricing. I also want to work with a mortgage professional who will make sure that this is the loan amount I am going to be approved for.
Work with professionals. Always. Whether you're buying or selling a house, consider hiring professionals who fully understand the market.
Don't overspend on your dream home
If you can't get the house of your dreams with your current budget, you should consider a different option because you likely don’t want to move into a house the will stretch you too far financially. You should enjoy the home you worked hard to earn instead of overextending yourself. If you're paying your mortgage payment alone and can't afford anything else, then you don't have the flexibility to relax and do things that you enjoy with your family.
Lower your debt to service ratio
When someone wants to buy a home, one of the first things we look at is their debt to service ratio. This ratio is defined as the amount of debt a person can have as compared to their amount of income. Our customers are required to have a 40-44% debt to service ratio.
If you are going beyond this, then you will have less disposable income. It will be hard for you to support yourself because if 70-80% of your income is allocated towards your mortgage, then you haven’t considered other essential items such as property taxes, heat, utility, and groceries. How are you going to manage and how will you save for emergencies?
When I run this application for a potential home buyer, I let them know what they will get approved for. If they are looking to spend more on their mortgage, then they will have to come up with a larger down payment or reduce their debt load, if applicable. Let’s say there is a shortfall of $15,000, then we have to go back and work on an alternate plan. We might have to move out the home buying goal for another six months and figure out how and where they can save more money.
Understand the fees
When we bought our first house, we had saved the down payment in a cashable GIC. We had done our math, but we hadn't included the extra fees that come with buying a home, such as, closing costs.
Imagine if that were a larger amount and we couldn't afford it. We could have lost our deposit and the seller could have sued us for not completing the transaction.
There are many fees to consider based on your buying experience. Even putting a 10% payment, buyers will have to pay a mortgage default insurance premium for default insurance for home-buyers who put down less than 20% towards the value of their home. Some common fees to consider are:
- Closing costs
- Land-transfer tax
- Home inspection
- Appraisal fees
- Legal fees
- Title insurance
- Moving costs
- Real estate agent commissions
I had to wait for an extra six to eight months to buy a home because I didn't have enough funds. But that doesn't mean that I wasn’t able to later buy a place, and in five years’ time, was able to buy a second home too. It doesn't matter how soon you will buy your first place, it all depends on how much you will save and how well you’re able to plan to make your dream of a home come true!
“The day we finished painting, we moved in. And my son said, ‘Mama, I love this place,’ because he had a big backyard at the back. And when he was running in that backyard, I couldn't believe myself. I said, ’This is what I wanted to give my kid.”