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There are many considerations which go into the decision to purchase a property. The first thing most buyers consider is how much they want to spend. The second thing buyers tend to focus on is their preferred area they want to purchase in, and lastly, they think about what professionals to hire to help execute their plan. Consider the questions below when determining if you are ready to purchase a new property.
- What can you afford?
Do not speculate. Speak to a licensed mortgage broker or your financial institution to get a realistic figure to work with.
- Where do you purchase?
Having a preferred or target neighbourhood is great but be flexible and willing to look just outside that area or in similar neighbourhoods.
- Getting help from a professional?
Professionals know the industry and can help you navigate complicated situations.
- What can you afford?
There are several key factors that go into determining how much you can spend on a property. Before you start looking for a new home, consider the following.
Lending institutions will usually require you to make a down payment of at least 5% to 10% of the purchase price of the home. Lending institution policies may vary from time to time. As a general rule, you should make your cash down payment as large as possible to reduce your monthly mortgage payments. The more you put down, the less you need to finance. Your deposit for the real estate transaction forms part of your down payment.
All mortgages where the buyer has put down less than 20% must be insured against default. There are several mortgage insurance companies in Canada but the most common are CMHC and Genworth Financial. Having a down payment of over 20% means you will not be required to insure your mortgage and pay the added costs associated with the insurance. Speak to your mortgage broker or lender for more information on mortgage insurance.
While in many real estate transactions the buyer is not responsible for paying commissions to their real estate professionals directly, you should verify with your real estate professional what happens if the seller is not covering those commission fees. In some instances, you as the buyer may be responsible to cover your real estate professional’s remuneration.
Learn More about Remuneration
- Legal and/or Notary Public fees
You are responsible to cover any legal costs you incur during the transaction. Typically, lawyers and/or notary publics are used to move funds from one party to another and ensure all the paperwork needed to register the property title in your name is done on time. Each party in the transaction will have a lawyer and/or notary public working for them. Your real estate professional may be able to provide you with referrals for real estate lawyers or notaries who work in your area.
Sometimes lenders don’t inform you of their need for an appraisal until later so ensure your contract includes a subject for appraisals.
- Property Inspectors
As a buyer, it is always a good idea to have a property inspected by a licensed professional. These costs will be borne by you and can range from a few hundred dollars to over a thousand dollars depending on the size of the property. A home inspection is a visual inspection of the property. While the inspector will endeavour to identify all defects in the home, hidden defects may not be discoverable. Speak to the home inspector you hire and ask them to outline what areas they will cover during the inspection. Your real estate professional may be able to provide you with referrals for property inspectors in your area.
Learn More about Property Inspections
Homeowners will owe various taxes on the property they purchase. These can include Property Transfer Tax (“PTT”), Goods and Services Tax (“GST”), annual municipal taxes, taxes on added services provided by the municipality, and in some cases a vacant home tax (if you don’t plan on residing in the property) or a speculation tax.
Some taxes are due at the point of purchase, such as GST and PTT, while others are collected monthly or annually. Speak to your lender about the different taxes you will have to pay. Some of these taxes are owed at the time the property is purchased and are nonrecurring, while some will need to be paid monthly in addition to your mortgage payment. Yet others, such as your municipal property taxes are paid annually.
- Property Insurance
Most lenders require that you keep your property insured against damage. Speak with your lender about what their requirements are. They will advise you on what amount of insurance is required and what types you will need to maintain (i.e. fire, flood etc.).
- Strata Fees
If you plan on purchasing a strata lot in a strata complex (often referred to as a condo unit), you may be required to pay strata fees. These fees are collected monthly by the strata corporation which is made up of owners in the building. The strata fees go towards building maintenance (everything outside of the strata lots), security, building insurance, amenities, and anything else that is shared by the strata lot owners.
- Rescission Fees
As of January 1, 2023, buyers in the province of B.C. are entitled to a period of three days after their offer is accepted to rescind their offer (change their mind), to purchase the property, subject to specific exemptions. When an offer is rescinded the buyer is obligated to pay a fee of 0.25% of the offer price to the seller.
It is hard to know exactly how much a lender will loan on a property without a pre-approval. A pre-approval is one way to get a better idea of how much money a lender is willing to provide to you. Your lender will consider your income-to-debt ratio, along with several other factors to determine what they believe you can afford. Your income-to-debt ratio is an indicator of how much you currently earn vs. how much debt you are carrying.
There are two primary ways to get a preapproval. This can be done through a mortgage broker, or through a financial institution such as a credit union or a bank. There are also unregulated lenders. Make sure you understand all the terms of the loan a lender is willing to provide you, such as the interest rate being charged, and fees associated with cancelling a mortgage early, should you need to sell before the mortgage term is up.
BCFSA regulates both mortgage brokers and credit unions. The primary differences between the two are:
Mortgage brokers work with a variety of lenders and borrowers. Mortgage brokers can assist buyers in finding options that best suit their buyer clients by submitting applications to multiple lenders. Unlike banks and credit unions, mortgage brokers can look at the offerings of several institutions and find their buyer clients different options to meet their needs.
Credit unions are similar in many ways to traditional banks. They will have a variety of mortgage products to suggest that are funded directly by their institution. Where a credit union will differ from a traditional bank is that:
- they are provincially regulated, whereas a traditional bank is federally regulated;
- they are community-based as opposed to having branches located across the country;
- they are in tune with regional economics; and
- they are membership based.
You should note that preapprovals are not guaranteed approvals for a mortgage. They are based on your financial situation at the time you apply. Should your financial circumstances change during the home-buying process or should the property you wish to buy not be worth what the seller is asking, in the lender’s view, the mortgage can still be denied.
If you live in the city or town where you will be buying a property, you probably already know which neighbourhoods appeal most to you. If you live in another part of the province or country, you may need to do some research to ensure that you know the pros and cons of the areas you are considering. It is always a good idea to visit a neighbourhood on different days of the week, and at different times of day to get a true sense of what the area is like. You may find out things such as traffic being heavy at rush hour, but almost no traffic the rest of the day. You may realize that noise from nearby pubs or bars is barely noticeable in the day but can be heard loudly in the evening.
If you rely on public transportation, this is something to keep in mind when looking for a property to purchase. Where is the closes transit stop? How long will it take you to get to and from work or school? And how often does transit run?
If you are driving, then traffic patterns may be a factor for you. Is it more difficult to get to and from the property during rush hour? Is there a lot of road construction going on?
Whether it is a rural property, living downtown city center or out in the suburbs, knowing what type of community you want to buy in is important. Each community will offer different services like well water vs. municipal water and will charge varying amounts for utilities such as gas and electricity.
If you already reside in the community you are purchasing in, you may already have all these answers. But, if you are moving to a new community, doing a little research ahead of time will prepare you for how much city or municipal services will cost, and what is available.
Depending on whether or not you have children, the location and type of school (public vs. private) may play a role in determining where you want to live. Some buyers look for properties that are in specific school districts they determine are more desirable, while others put more importance on whether or not their children will be able to walk from home to school.
Other buyers may view being close to a school as a negative attribute of a property. Some people do not want the noise from the schoolyard to impact their enjoyment of a home and may seek out properties that are not close to schoolyards or playgrounds.
All of these location factors can impact the cost of a property depending on how other buyers view them. Being flexible is ideal. If you require a large 5-bedroom home, and that style of home in your preferred neighbourhood is out of your price range, perhaps moving to a neighbourhood that may be a bit further from some amenities will allow you to get a larger home for less money.
For some people, the neighbourhood is just as important as the property. They may be influenced by factors such as whether an area is comprised mostly of single-family homes vs. strata complexes (condominium towers).
But other factors such as the value of properties in the area should also be considered. You should ask your real estate professional about property values in the neighbourhood and whether they are increasing or decreasing compared to similar areas. You may also want to know whether major projects such as added shopping or dining are planned so you can be prepared for increased traffic. You may also want to ask about zoning. Are secondary or “in/law” suites allowed? Can people run businesses out of their homes in the area? These will affect traffic in the area and may reduce available street parking.
It is always important to remember, however, that city plans change. While there may be no added development slated for a neighbourhood today, there may be some in a month or two.
When buying a property to reside in, there are a number of ownership structures in the province of BC. All properties in BC have a title of ownership which can be searched at the Land Titles Office.
The strata title form of ownership is designed to provide exclusive use and ownership of a specific housing unit (the strata lot) which is contained in a larger property (the strata project), plus shared use and ownership of the common areas such as halls, grounds, garages, elevators, etc.
A freehold interest (also known as a fee simple) is the more precise term for what we ordinarily refer to as “ownership” of a home. The owner of the freehold interest has full use and control of the land and the buildings on it, subject to any rights of the Crown, local land-use bylaws, and any other restrictions in place at the time of purchase.
In some cases, you might purchase the right to use a residential property for a long, but limited, period of time. The owner of this right of use has a type of ownership called a leasehold interest.
This type of ownership is used most often for townhouses or apartments built on city-owned land. It is also used occasionally for single detached homes on farm land, on First Nation reserves, and for apartments where the owner of the freehold interest of an entire apartment block sells leasehold interests in individual apartment units to other “owners.”
Leasehold interests are frequently set for periods of 99 years, but regardless of the length of the original term, you will only be able to purchase the remaining portion. Of course, the shorter the remaining portion, the less you, or the person who eventually purchases from you, will be willing to pay for the leasehold interest.
Remember, leasehold properties are not subject to the three day rescission period provided to buyers.