Looking to purchase a home in 2023? Here’s what you need to know

As we enter 2023, there’s a lot to look back on in the housing market. From fluctuating interest rates to declining home prices, it’s safe to say that buyers and sellers alike are eager to see where the housing market will stand in the new year.

What potential buyers need to know about the current market

Housing prices are dropping and making way for buyers – especially first-timers – to finally make a purchase. Variable rates are still increasing, but with a possible recession and bond yields looking to drop, this can lead to lower fixed rates and increased affordability for buyers. There are also many sellers who have been sitting on the sidelines in the volatile back half of 2022, which could lead to more homes on the market in spring 2023. This creates an interesting opening for Canadians looking to buy a home.

If buying a home is a goal for the new year, you’ll want to start preparing now. Here’s a simple outline of everything you need to hit the ground running and purchase a home in the new year:

Come up with a down payment, but don’t spread yourself thin

Most of your savings are likely going toward your down payment. Fortunately, in Canada, the minimum down payment is five per cent for a home of less than $1 million. With home prices dropping, active buyers now need less money to make a down payment. This relieves some of the stress for buyers currently because saving for a down payment is a little easier. Given the volatility we are seeing in today’s market, it is not advisable to put all your eggs in your down payment basket. You’ll want to ensure you have access to funds for carrying costs, closing costs if applicable and any household expenses down the line.

Organize and prepare all your paperwork

There are a number of key documents that you must have prepared and available to successfully move forward with your mortgage application and home purchase. These documents include government ID, proof of employment, income tax forms and bank statement.

• Government ID: This identification must include a photo, along with your name and primary home address. This can be a valid Driver's Licence, Passport or Health Card.
• Job Letter: This is a document provided by your employer that outlines your job position, length of employment and income.
• Income Tax Forms: These documents are required to verify whether or not you can afford to pay monthly mortgage payments.
  • T4 for salaried or hourly income employees.
  • T4A for income not captured on a T4 (self-employment commission, scholarships).
  • T1 for commission based income.

• Notice of Assessment (NOA): This is a document issued by the federal government upon the completion and filing of an individual’s personal tax return. The NOA shows a breakdown of the income from the past year as well as the balance owing or the refund.
• Pay Stub: This is a document provided by your employer each time you are paid and is used to validate and ensure the job letter and application accurately reflect each other.

• Bank Statement: This is a snapshot of your recent banking information. It shows a record of the balance in your bank account for your salary and expenses.
• Gift Letter: If you are receiving monetary support from a parent or family member, this letter outlines your relationship and the amount they’re giving you, along with an explanation that the money is being used for your home purchase.

Be clear on the type of mortgage you need

Throughout the mortgage application process, you’ll be expected to know the answers to a number of questions that your lender will ask you. Or, if you work with a company like ours at Homewise, we can help to guide you through what may be the best options for you. Some of the key decisions you’ll need to make include:

Do you want a fixed or variable interest rate?

A fixed rate is when the rate and amount of the mortgage paid off stays the same throughout the term of the loan. A variable rate is a loan where the rate may change over the term of the mortgage based on market conditions. With rates rising, this is essential to keep in mind.

How many years will it take you to pay off your mortgage?

The length of time it will take you to pay off your mortgage is called an amortization period. Knowing this will help you determine the amount you’ll be required to pay for your monthly mortgage payments and interest over time. In Canada, amortization periods are typically 25 to 30 years.

What do you want the length of your mortgage term to be?

A mortgage term is the length of time you are locked into a particular lender, interest rate, mortgage features and their terms and conditions. In Canada, mortgage terms are typically five years or less. In the current market we are in, while most people usually choose five-year terms, more and more Canadians are taking two to three-year terms as rates have the potential to drop over that period.

Shop around for a mortgage with features that align with your needs

You don’t want to make the mistake of going straight to your bank for a mortgage without shopping around. It will minimize your chances of potentially saving thousands of dollars and you will lose the opportunity to see what other mortgage products and features are available. Outside of the big banks, there are other lenders like credit unions and monoline lenders who may provide mortgage options more suitable to your financial needs. Companies like ours at Homewise help clients search through many lender options, and it is incredible how much money people are able to save by shopping around.

Aside from your interest rate, you may also want to consider the key features of your mortgage. Keep an eye out for details such as prepayment privileges, portability and low penalties when applying for your mortgage. If you need a hand reading the small print, get in touch with a professional mortgage advisor like those on our team at Homewise. We’ll walk you through the process of understanding these features and how they can benefit you in the long run.

Get pre-approved and lock in a rate

A pre-approved mortgage is beneficial for a number of reasons. It helps home buyers understand what they can afford from the start, simplifies their home search and boosts their credibility as a buyer in the market. Getting pre-approvedfor a mortgage means that your lender agrees to hold the rate and mortgage product they’ve offered for up to 120 days. This is a helpful tool because it can shield you from unexpected rate increases over a four-month period. If your mortgage conditions are met within this timeframe, your pre-approval can be converted to a final mortgage approval.

A quick bonus addition is to find a realtor that fits your unique needs. At Homewise, we opened a real estate brokerage in late 2021 – Homewise Real Estate – to connect our mortgage clients directly into a real estate process that simplified the experience. We have seen how different each realtor is and how tailored their approach can be to each client. That’s why finding a realtor that you feel comfortable with is a great way to start your home search off successfully.

If buying a home is something you’re eager to accomplish in 2023, the best thing you can do is educate yourself on the process, be prepared with all your documents and speak to a mortgage professional who can guide you in the right direction. This is a milestone investment and likely one of the largest purchases you’ll ever make, so it’s important to get started with confidence.