How to Buy a House in Ottawa in 2024
What You Should Know
- First, start saving up for a down payment and work on improving your credit score.
- Closing costs in Ottawa can vary between 3% to 4% of the home's purchase price.
- Down payment assistance programs can help first-time home buyers with their down payment.
- Gatineau, Quebec can be a more affordable alternative to buying a home in Ottawa.
Buying a home is a significant milestone in anyone's life, and Ottawa, with its vibrant cultural landscape, history, employment opportunities and diverse neighborhoods, makes for a wonderful place to put down roots. This article will guide you through the key steps and considerations in the homebuying process in Ottawa, from understanding the local real estate market and managing your finances to securing a mortgage.
Whether you're a first-time buyer or an experienced homeowner, this step-by-step guide will equip you with the knowledge you need to make informed decisions on your journey to owning a home in Canada's capital.
Not everyone owns their home in Ottawa, and in some neighbourhoods such as Somerset, as little as 23% of people own their home! Before you start looking for a home, you’ll need to decide whether you should rent or buy a home.
When deciding whether to rent or buy, consider the length of time that you plan on living in Ottawa. If you’re here for a short-term, renting may be more economical. On the other hand, if you plan to stay long-term, then buying a home might be more advantageous. One factor to consider is home prices, and your resulting mortgage payments, compared to what you would pay in rent.
From the 2016 census, the average monthly shelter cost for a homeowner was $1,505, while it was $1,148 per month for renters. While the cost of owning a home might be higher in some areas than renting, you’ll be building home equity as you pay off your mortgage. That’s an asset that you get to keep, rather than making rent payments to a landlord.
Based on current home prices in Ottawa as of , the average home price was $. If you decide to buy a home, would you be able to afford one? Let’s take a look at what income you would need to have to buy a home in Ottawa, based on the minimum down payment allowed at that home price for .
But here's a tip: the larger your down payment, the less you'll need to earn. Why? Because a smaller mortgage is in the cards. In the first step of this guide, we’ll take a look at minimum down payments based on current Ottawa home prices.
10 Steps to Buying a Home in Ottawa
Step 1: Saving for a Down Payment
If you're looking to buy a home in Ottawa, getting a mortgage loan is usually a must. With mortgages, you'll need to make a down payment, which is typically a percentage of the home's price. In Ottawa, most homes require a down payment of less than 20%, but keep in mind that anything below 20% means you'll have to pay for mortgage default insurance.
Generally, if you're looking to buy a home that costs over $1 million, you'll typically need to put down at least 20% of the purchase price as a down payment. For example, if you're purchasing a home for $1 million, you'd need a down payment of at least $200,000.
If you opt for an insured mortgage, you can make a down payment of less than 20%. Insured mortgages require you to pay for mortgage default insurance from a mortgage insurer like CMHC or Sagen Canada, and they're only available for homes under $1 million. With this type of loan, you can get away with a down payment as low as 5%. Just keep in mind that you'll have to pay an additional one-time fee for the mortgage default insurance premium, which can range from 2.8% to 4.0% of your total mortgage amount.
With an insured mortgage, which can also be called a high-ratio mortgage, the minimum down payment is 5% for homes under $500,000. For homes between $500,000 and $1 million, the minimum down payment is 5% of the portion below $500,000 and 10% of the portion above $500,000.
If you're eyeing a single-family home in Ottawa, you'll likely need a minimum down payment of $NaN. And if a condo is more your style, get ready to save up at least $NaN. This is how much money you will need to have saved up in order to be able to buy a home in Ottawa with a mortgage.
If you’re a first-time home buyer, there are down payment assistance programs available just for you. With the First Home Savings Account (FHSA), you can save up to $8,000 per year tax-free, up to a total of $40,000. Plus, you'll get a tax deduction on your contributions, just like an RRSP. That’s almost enough to cover the minimum down payment on a home!
In addition to the FHSA, you can also take advantage of the Home Buyers' Plan. This plan allows you to withdraw up to $35,000 from your RRSP to put towards your dream home. And if that's not enough, the federal government's First-Time Home Buyers Incentive (FTHBI) can provide additional financial assistance, if you’re willing to give up some equity in your home.
First-Time Home Buyers Incentive (FTHBI) in Ottawa💡
Are you dreaming of owning a home in Ottawa? Then let's talk about the First-Time Home Buyers Incentive (FTHBI)! With the FTHBI, you can borrow 5% or 10% of the home's purchase price for your down payment. But here's the catch: your annual income must be $120,000 or less, and the mortgage amount can't exceed 4.0 times your annual income. You’ll also lose a portion of your home’s price appreciation, as the borrowed down payment takes out a slice of your equity share.
If you qualify, you could still borrow up to $480,000 as your maximum mortgage. That means the average condo in Ottawa can qualify for the FTHBI. The income and borrowing limits can make it tricky to use the FTHBI when buying a detached home in Ottawa, due to their higher prices.
Step 2: Build Up Your Credit Score and Income
Applying for a loan means that your financials will be closely looked at. That’s why you’ll want to make sure your finances are in order and in tip-top shape, so that you’ll qualify for the best Ottawa mortgage rates.
Your credit report, credit score, income, debts, and assets - these are the key components that make up your financial profile. Being creditworthy goes beyond just having a good credit score - it encompasses a high income, manageable debt, and substantial assets. Lenders seek borrowers who demonstrate creditworthiness, ensuring timely mortgage payments. Plus, an added perk: a better mortgage rate awaits those with stellar credit and income.
When it comes to getting a mortgage in Ottawa, having a credit score of at least 600 is the goal, but aiming for an excellent score of above 760 is even better. A low credit score can limit your negotiating power and even exclude you from certain lenders or mortgage types. That could mean you end up with a higher interest rate on your mortgage.
When it comes to your income, lenders carefully consider factors such as job stability and your debt-to-income ratio. To demonstrate your long-term commitment to making mortgage payments, most lenders prefer to see a solid two-year job history. If you're self-employed, this means having at least two years of self-employment income.
Your debt-to-income ratio, also known as debt service ratios, is a crucial factor that compares your gross monthly income with your mortgage payments, housing costs, and other debts. The lower the ratio, the better. Lenders usually prefer a TDS of less than 44% and a GDS of less than 39%. TDS, or total debt service, considers your overall debt and housing costs in relation to income, while GDS, or gross debt service, only focuses on housing costs.
Step 3: Check Your Mortgage Affordability
Step two gives you an idea of how to qualify for a mortgage, but one part of that is how much you can afford to borrow with a mortgage. Your mortgage affordability is also based on your gross debt service (GDS) and total debt service (TDS) ratios, which is then compared at a certain mortgage rate to determine how much you can borrow.
Since there are three main factors in your debt ratios, these factors will affect your affordability. The higher your income, the lower your debt levels, and the lower the interest rate, the more you can afford to borrow. The opposite is true as well. The lower your income, the more debt you have, and the higher the interest rate, the less that you can afford to borrow.
Knowing how much you can afford to borrow can give you an idea of the maximum purchase price that you can handle, or qualify for. Having a good idea of your limits can help you to identify and visit only homes that fit your budget.
Step 4: Locate a Neighbourhood
From bustling downtown, to more suburban neighbourhoods and even rural areas, Ottawa has something for everyone. Finding the right neighbourhood that fits your lifestyle can make a huge difference in how much you enjoy your new home. This can include proximity to stores, restaurants, schools, public transit, and your commute length. The nature of the neighbourhood can affect your decision too, such as available property types, age, and crime.
Having an experienced real estate agent can relieve a lot of the stress of moving to a new city, as they’ll know the ins-and-outs of various areas of the city, and can help you find a perfect fit for your budget and lifestyle.
Locations of interest may include:
- Westboro Village
- Wellington West
- Somerset-Chinatown
- Bank Street Promenade
- Sparks Street
- Downtown Rideau
- Byward Market
- Preston Street
- Bells Corners
- Carp Road Corridor
- Kanata Central
- Barrhaven
- Heart of Orleans
- Quarter Vanier
Often when looking to buy a house in Ottawa, buyers may look towards Gatineau as well. Depending on the area, Gatineau may offer a quieter lifestyle and more affordable housing prices. However, there are pros and cons to living in the province of Quebec compared to Ontario, and this can include things like income taxes, property tax rates, utilities, and child care costs. While the cost of living may be different, Gatineau can be a short commute away.
Comparing Ottawa Neighbourhoods (2016 Census)
Step 5: Estimate Closing Costs
Closing costs are the necessary expenses that come with buying a home. From real estate lawyer fees to title insurance and other fees, they all add up. It's a good idea to estimate these costs upfront to avoid any unwelcome surprises. After all, they can easily amount to thousands of dollars that need to be paid upfront.
A large portion of any closing costs in Ottawa is usually the land transfer tax, which is a marginal tax that ranges from 0.5% up to 2.5%, depending on the home’s purchase price. If you’re a first-time home buyer, you may qualify for a rebate on your land transfer tax.
Additionally, foreign buyers in the province of Ontario will be charged an additional 25% non-resident speculation tax (NRST).
How Much Are Closing Costs in Ottawa? 💡
Closing costs in Ottawa typically amount to 3% to 4% of your home's purchase price. This includes all associated fees, such as land transfer taxes, lawyer fees, and other miscellaneous costs. For an average home that costs $ in Ottawa as of , you might need to budget for between $NaN and $NaN to pay for closing costs.
Step 6: Get a Mortgage Pre-Approval
When you're looking to buy a home, getting a mortgage pre-approval is a smart move. It's a document from mortgage lenders that tells you how much they're willing to lend you and at what interest rate. This helps you figure out your budget and narrow down your search to homes within your price range. Plus, it shows sellers that you're serious about buying their home.
By getting a mortgage pre-approval, you can lock in a great mortgage rate for a certain period, usually up to 120 days. With this rate hold, you can search for homes with confidence, knowing that your mortgage rate won't change and you won't be rushed.
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Step 7: Find a Real Estate Agent
It’s usually a good idea to work with a real estate agent to buy a home, especially if you’re not familiar with the city. Your real estate agent won’t cost you anything as a home buyer, as the real estate agent commissions are paid for by the home seller. They’ll work on your behalf to find and show you homes, negotiate, and walk you throughout the homebuying process. Check reviews before deciding on an agent. You’ll want to make sure that they’re not only knowledgeable but also reliable and trustworthy.
Step 8: Finding Your New Home
Now that everything’s in place, it’s time to find your new home! Besides looking at listings and virtual tours, ask to view homes in person as well. Open houses are a great chance to get an up-close look at potential homes and explore the neighbourhood. You may also want your real estate agent to book home tours with the current owner to learn even more about the property.
Once you've narrowed down your list of potential dream homes, it's time to dive deeper. Take the extra step of scheduling home inspections to uncover any hidden surprises and ensure you're making a well-informed decision. Don't let hidden issues stand in the way of your perfect home!
Step 9: Making Offers
Making an offer on a home can be nerve-wracking, and things like how much to offer, how to negotiate, and whether to add conditions to your offer can make things confusing. Your real estate agent will help you structure a competitive offer, which may still include adding contingencies for things like financing and inspection results.
You might not get your first bid accepted, and it can get tempting to get wrapped up into bidding wars. Keep your budget in mind and know when to walk away from a house if the deal isn't right for you. Once a seller accepts your offer, it’s time to get the agreement of purchase and sale going and to move onto the closing date!
Step 10: Closing Date
Closing day is the day that you officially become the owner of your new home. On this date, you'll sign all the final documents and pay any remaining fees associated with purchasing the property. It's important to be prepared for closing - make sure you have a clear plan with your financing ready, what paperwork needs signing, and who will be present at the closing date. Your real estate agent will be able to answer any questions and help you with these final steps of buying your home. Once everything is in order, you'll receive the key to your new Ottawa home!
Ottawa Neighbourhood Profiles and Statistics
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