If one of your New Year’s resolutions is to purchase a home you love, you need to ask some serious questions. How much money should you save to buy a house? What do you need to buy a house? Who can you trust to guide you through the process?
We’re here to help answer all of those questions and more. Here’s what you need to know about buying a house in 2018:
New Mortgage Rules
The Office of the Superintendent of Financial Institutions (OSFI) has introduced a new minimum qualifying rate, or “stress test”, for uninsured buyers with down payments of 20% or more.
Under the new mortgage rules, uninsured buyers will now have to qualify using a minimum qualifying rate based on either the lender contractual mortgage rate + 2.0%, or the greater of Bank of Canada’s five-year benchmark rate.
For many buyers, especially first-time buyers, this will mean a 20% decrease in affordability. These mortgage rules are in effect as of January 1, 2018.
Want to make sure you’re on top of the real estate market? Sign up for our monthly updates for free right here.
Your Down Payment
How much money should you save to buy a house? Here’s a breakdown based on purchase price:
- Homes with a purchase price of $500,000 or less: You will need a minimum down payment of at least 5%.
- Homes over $500,000 but less than $1 Mil: You will need a down payment of at least 5% of the first $500,000, plus 10% of the remaining price.
- Homes over $1 Mil: You will need a minimum down payment of at least 20%.
Essentially, a deposit says that you are serious about the purchase and shows the seller good faith. You can either pay your deposit with your offer or pay it within 24 hours after your offer is accepted. The price of your deposit will vary depending on the home and area but is typically up to 5% of the purchase price.
Your Pre-Qualification & Pre-Approval
Getting pre-qualified for a mortgage is one of the first things you will do in the home-buying process. To start, your lender will review your debt, income, and assets, and will determine the approximate size of the mortgage you qualify for. They won’t review your credit or take a deeper dive into your mortgage qualifications, so a pre-qualification does not have as much impact as a pre-approval does.
During the pre-approval process, you’ll fill out an official mortgage application, your lender will perform a more thorough financial check, and they will review your credit rating. This will determine a more specific mortgage approval amount and will provide you with a better understanding of your interest rate.
Want to get ahead? Stay on-track by requesting our Home Buyer Plan, Home Buyer Comparison, Guide to Making an Offer, and Moving Checklist for free here.
Your Tax Credits and Rebates
Luckily, buying a house isn’t just about what you have to pay but what you can get paid in return. The government has established a number of tax credits and rebates for buyers, including:
- Home Buyers’ Tax Credit: Qualified first-time buyers can receive a rebate of $750, which must be claimed within a year of their home purchase.
- Land Transfer Tax Refund: In Ontario, buyers are eligible to receive a refund on their land transfer tax. As of January 1, 2017, the maximum refund is $4,000.
- RRSP Home Buyers’ Plan: If qualified, you can draw up to $25,000 from your RRSP tax-free to help you pay for your home. Any funds withdrawn from your account must be repaid within 15 years of your purchase.
- GST/HST New Housing Rebate: This rebate only applies to newly constructed homes or extensively renovated homes less than $450K. Buyers may receive a rebate of up to $30K ($24K provincially and $6K federally). You can still apply for the provincial part of the rebate if your home is valued above $450K.
Your Neighbourhood Knowledge
Are you in-the-loop with Ottawa’s up-and-coming neighbourhoods? Have you seen the new buildings coming in 2018? Head over to our condo building guides to see which buildings match your needs and wants, see what we’ve just listed in your ideal community, or choose from one of our neighbourhood guides here to learn more:
The biggest advantage you can have when buying a house in 2018 is the right team. Want to see if that’s us?