How to buy a home the right way, according to CMHC

Canada Mortgage and Housing Corp., has updated its free guide to the process of buying a home, with an emphasis on encouraging Canadians to think long term about what kindof home they should buy or whether they would be better off renting.

The national housing agencyfirst released the guide, calledHomebuying Step by Step,in 1998, but has updated it over the years. The latest version streamlines the document, splitting offworkbook content and making it available online as a series of interactiveprintable checklists and questionnaires.

The previous iteration of the guide received almost eight million unique page views in 2016 alone, according to CMHC.

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The guide is meant for any prospectivehomebuyer, but first-time buyers could particularly benefit from reading it, saidIna Wielinga, aconsultant at CMHC who updated the guide. She said the new version puts a greater focus on calculating the true cost of owning a home over time, emphasizingcosts like taxes, utilitiesand repairs.

"This used to be peppered through the document, but we're bringing it up front because people often get focused on acquisition," said Wielinga.

The new guide also encourages readers to reflect on what kind of home suits their lifestyle, and whether or not homeownership isa better financial choice than renting.

"It's not just buying thathouse that's brick and mortar," said Wielinga. "There's a lifestyle that goes with it also."

By asking would-be homeowners to consider how a home will fit into their lives over the long term, Wielingasaid, the guide could help users feel more confident about their purchase.

Key concepts to consider

The most confusing concept in the guide is also one of the most important ideas to understand before buying a home,according to Wielinga: calculating your gross debt service ratio (also known as the gross debt-to-income ratio) and total debt service ratio (also known as the total debt-to-income ratio).

The gross debt service ratio includes total monthly housing costs, which CMHCsays should be no more than 32 per cent of average gross monthly income. The total debt service ratio covers all monthly debt payments, including housing costs. CMHC recommends that ratio not exceed 40 per cent of average gross monthly income.

"You have to understand that, even if you're the best person in the world and you know you can afford it, you have to follow that kind of guideline," said Wielinga.

Financial axioms like these are often left unexplained to potentialhomebuyers, said Wielinga.

"Honestly, it's not talked about enough," she said. "I think when we do explain it to people, then they do get it."

Tighter rules

The rules for Canadian homebuyershave been changing quickly, especially as the government tries different policies to mitigate risk in the real estate market.

For that reason, the guide avoids getting into the details of certain aspects of homebuying,like calculating mortgage loan insurance. Instead, it refers readers to the CMHCwebsite, where the details of mortgage rules can be quickly updated as the government changes them.

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Lauren Haw, CEO of online real estate brokerageZoocasa, lauded CMHC for its interactive workbook for prospective homebuyers, although she's skeptical that many people will actually take the time to sit down and read the guide in full.

"People like to have it and hold it, but most first-time homebuyers don't seem to ingest the information in this format very well," said Haw. "Becauseeven if you give them these documents, very few people are the personality type that will read it and really truly understand it."

Haw said real estate brokers often end up explaining these concepts to their clients as they go through the buying process.

"If everybody would sit down and read one of these things, I think we'd have much more informed buyers," she said.