The answer to this question largely depends on where you want to build your home.
The Right Location
Canada is a vast country with a diverse geography, and its many cities have their unique quirks and advantages. From quaint towns to sleepy suburbs, towering skyscrapers to Victorian houses, life in Canada offers something for everyone.
In the World’s Best Cities annual ranking for 2021, 6 major Canadian cities find spots in the top 100. Toronto is the highest-ranking Canadian city at the 18th spot, Vancouver in 46th, Montreal in 48th, and Calgary in 49th. Ottawa at 84 and Edmonton at 86 are the other cities in the top 100.
The right place depends on many factors, including the availability of affordable homes, costs of living, safety, employment opportunities, schools and other neighbourhood amenities. Once you know where you want to live, it can be as simple as talking to a Real Estate agent, who will help you zero down on the perfect property.
To Buy or Build?
The real estate market varies from one major city to another, and home buyers can choose from a vast collection of properties across the country.
However, resale property or a pre-construction Condo may not meet their expectations or tastes. And so many real estate investors and home buyers prefer building a house, as they can have better control over the home layout, aesthetics and amenities.
Of course, it is easier said than done. Often, building a new house is more expensive than buying an existing home, though living in a place designed for you is a splendid experience.
The Average Cost of Building a House
The average size of homes has seen an upward rise in recent times. Additionally, a custom-built home is significantly more expensive than a home built by a production builder.
Considering these facts, the table below gives an average price per square foot for constructing a house, not taking the cost of land into consideration. As of 2020, Vancouver has the highest prices, though other major cities are close behind.
Building your own house is a big decision, and many factors impact your home’s cost, functionality and appearance. It pays to educate yourself on the home-building process, be aware of timelines associated with statutory compliances and the best season to start building your home.
The vacant land or construction site for your house strongly influences the cost of building a home. Other factors that drive home construction costs are Architectural design fees, charges for statutory approvals such as building permits, construction material and labour costs, etc.
Financing the construction is a significant step in the process, and you must have the funds planned well in advance.
Land – Choose, Finance and Purchase
Typically, purchasing a vacant lot for building your home is the most significant cost factor and an irreversible decision once made. Real estate in rural areas usually costs less, as the suburbs or cities have stricter regulations, resulting in higher costs.
According to WOWA, the purchase price of Land in the GTA can range from $50 to $200 per square foot and about $50 per square foot in Calgary or Edmonton.
You can readily get a short-term construction loan to purchase the ground and finance your custom home build, albeit at a higher interest rate. If you need to take a loan to finance the purchase, be warned that land loan lenders will require a larger down payment of between 30% and 50%.
Once you have finalized the location, you must decide the architectural plans and designs. Get the plans and blueprints verified by qualified professionals to ensure that your home’s design and structural elements are sound.
The design, square footage, and layout of your dream home will alter the final cost significantly. Simple floor plans are easier to develop and require less planning, effort, and execution time. You can also be inspired by existing designs to save money on house design costs.
Permits, Inspections and Regulations
The National Building Code of Canada (NBC) 2020, sets out technical requirements for the design and construction of new buildings, as well as the alteration, change of use and demolition of existing buildings in the country. Each state and province have its own building code based on the applicable model code.
You will need a building permit from your local municipality. In addition, you will need to comply with residential zoning laws, safety ratings, or other regulations. You will also pay for permits, home inspections, and additional fees to ensure full compliance throughout the building process of your new home.
If you have the experience, you can act as your own contractor and save some costs.
But more frequently, homeowners take quotations from several contractors and then choose one. The builder should know the total square footage, the type of house, amenities and any aesthetic elements that can influence the overall cost.It is a common practice to factor in an extra 10-15% of material waste into job quotes, further driving up the material costs.
Spring is the best season to start building, as bad weather is less likely to hamper the project’s timelines.
Loans and Mortgages
Though some homebuyers can afford land and construction costs, most will need to borrow money from a mortgage broker. You also need to put some of your own money into the purchase, usually towards the down payment.
Your mortgage loan will cover the remaining amount, and there are several options available to help finance the process.
Types of Mortgages
Home construction mortgages (also known as progress draw mortgage) is a short-term loan that covers the cost of building a home. Unlike a traditional mortgage, the disbursements are paid out at stages of the construction process and not in a lump sum.
Another option is a completion mortgage, which means that the funds are available when you take possession of your home.
As an incentive, first-time home buyers may be eligible for a shared equity mortgage. You can also borrow up to $35,000 from your Registered Retirement Savings Plan, tax-free, as part of the Home Buyers’ Plan. You must use this amount to buy or build a qualifying home.
Minimum Down Payment
The minimum amount you need for your down payments depends on the purchase price of the home. It is a sound decision to use the money in your savings account for the minimum down payment and finish paying any debts.
If you are self-employed or have a poor credit score, the mortgage lender will insist on a bigger down payment.This is also the case when monthly mortgage payments go beyond a homeowner’s budget – a bigger down payment will reduce the size of the mortgage and mortgage payments.
The minimum down payment for a house costing $500,000 or less is 5% of the purchase price. If the purchase price of the house is $1 million and more, the minimum down payment is 20%.
Mortgage Loan Insurance
If the down payment amount is less than 20% of the purchase price, you’ll have to factor in additional costs for mortgage loan insurance (also known as mortgage default insurance).
Mortgage loan insurance premiums depend on the down payment amounts and can range from 0.6% to 4.50% of your mortgage. The bigger the down payment, the less you are paying in mortgage loan insurance premiums.
In any case, mortgage loan insurance isn’t available if the purchase price of the home is $1 million or more.
Experts at Canada Mortgage and Housing Corporation say the country will require 3+ million additional homes by 2030 to make housing prices affordable for the growing population. With the government targeting entry of another 900,000 newcomers in 2023 and 2024 combined, CMHC says the current projections will need to be upgraded.
For example, like other Canadian cities, Toronto has long been a magnet for immigrants. However, many industry experts feel the growing population combined with a shortage of accommodation, has made Toronto real estate a high-risk housing bubble,.
As seen in the image below, the average selling price of Toronto Condos in Q2 2022 saw a 12.2 per cent increase, year-over-year, to $769,999.
Concerns persist about the declining affordability of housing in Canada over the next couple of years because of rising interest rates and soaring house prices. Nevertheless, prices in the Canadian real estate market are lower than in other countries and finding a place to live in Canada is not as difficult as it sounds.
The housing market in Canada is experiencing a decrease in home prices, partly due to higher mortgage rates. However, some regions – Alberta and British Columbia, for example – have seen increases in housing prices.
The current market may indicate signs of a housing bubble but significant factors like the growing population and an ever-increasing demand for housing bely this conclusion. Ensure that you research thoroughlyand consult a reputed Real Estate Brokerage for reliable advice.
Whether you buy a house or build your home, real estate investments offer substantial advantages such as home equity and appreciating property gains. There is never a wrong time to start building a diversified Investment Portfolio, and owning a house is an excellent option.