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Buying your first home can be a bit daunting and you may not be sure of where to start. Read our step-by-step guide about buying a house in Canada, so you can close with confidence.

Across Canada, money-savvy millennials are taking the plunge into homeownership, knowing that it’s one the best long-term investments that they can make.

Whether you’re buying a house, condo, or townhome, the process can be a bit daunting and you may not be sure of where to start. Read our step-by-step guide about how to buy your first home in Canada, so you can close with confidence.

Save for a Down Payment and Other Expenses

Before you start shopping for real estate, your first step is to save up some money for a down payment. A “down payment” is the amount of money that you put towards the purchase of a home.

In general, the larger your down payment, the easier it is to obtain a mortgage.

How can you save for a down payment? Start by opening a high-interest savings account and setting up an automated savings plan. The Tangerine Savings is an excellent choice: for new customers, their high-interest savings account is currently paying an impressive 2.15%* the first 5 months and more than what most big banks offer. That’s a crazy-good rate.

EQ Bank has a great 1.50%* everyday interest rate with no minimum balance required and no monthly fees. Making it one of the best saving accounts in Canada.

*Terms and conditions apply.

As you start saving, you might ask: how much do I need to save for a down payment? The minimum amount depends on the home’s purchase price.

In Canada, people typically spend between 5% and 20% of the purchase price on a down payment.

Another reason to beef up your down payment? To avoid paying the Canada Mortgage and Housing Corporation (CMHC) mortgage default insurance.

This hefty expense, calculated based on the size of the mortgage and down payment, is designed to protect the lender, and typically can only be foregone with a down payment of 20% or more. So start saving now!

Save For Closing Costs 

While saving for a down payment should be a top priority, put aside some money (generally 1.5 to 4% of the home purchase price) to cover future closing costs.

These are legal and administrative fees paid at the closing of a real estate transaction and generally range from 1.5% to 4% of the selling price. It’s important to save for these expenses in advance to buying a home, so you’re not in the red when it’s time to close on your home.

Closing Costs May Include:

Closing CostDetails
Land transfer tax:Calculated as a percentage of the cost of your home, this tax varies by province and municipality. Note that in Ontario, British Columbia, and Prince Edward Island, and in the City of Toronto, first-time home buyers are eligible for a tax rebate for this expense (more on this later).
Legal fees:You will need a lawyer to prepare your documents. Expect to pay around $1500 in legal fees and disbursements.
Title insurance:Some lenders require this insurance to protect themselves in case of an ownership dispute. This is purchased through your lawyer and usually costs up to $300.
Mortgage default insurance:Known as “CMHC insurance,” this is a mandatory insurance policy for those who purchase a house with less than a 20% down payment.
PST on Mortgage Default Insurance: Buyers have to pay sales tax on the CMHC insurance at the time of purchase.
GST/HST on a New Home Purchase:If you’re buying or building a new home or condo, tack GST/HST onto the purchase price.
Home inspection (optional): Though not mandatory, it is highly advisable to include a home inspection as a condition of your offer. This inspection could reveal invisible problems with the property before you buy. It costs around $500 per inspection.

This is not an exhaustive list—it doesn’t include property taxes or utility bills, for example—but it gives an idea of possible closing costs.

One savvy saving strategy is to set up a Tax-Free Savings Account (TFSA) to act as your “closing cost fund.” As the name suggests, there is no tax owed on the balance, interest, dividends, or capital gains—and it can be withdrawn tax-free.

With an annual contribution limit of $6,000 in 2019, you can see how this might be a great place to stash and grow your funds. At the same time, the money is easily cashed out if is needed for your closing costs.

Tangerine is one of the best to bank with in Canada: for new clients, their TFSA savings account accrues interest at 2.15%* interest for the first 5 months on your first Savings Account. Plus, you could earn $200*.

Add in Tangerine’s absence of fees and your savings will really accumulate quickly.

Learn more about Tangerine

Prepare Your Finances 

Get your finances in order before cruising the real estate listings. This process will help you estimate how much you can afford to buy, as well as organize critical documents required to support a mortgage application.

Check Your Credit Score

A credit score is a rating (between 300 and 900) used by lenders to assess the amount of risk they face in extending credit to you. In general, the lower your score, the less likely you are to be approved for a loan. Checking your credit rating allows you to see where you fall on the scale and figure out how to improve your credit score before submitting a mortgage application.

If your score is lower than you’d like, there are actions you can take. Try Score-Up, the smart consultation software from MyMarble.ca. For a monthly subscription, Score-up will analyze your credit score and give you actionable tips on how to gain points, fast. They’ll help you see which bills to pay, when, and which services to cancel altogether, all in service of a better credit score. And unlike other credit monitoring services, they report to the credit bureaus so your good habits in paying their subscription are reflected in your rating. You can also access your credit report anytime using Score-Up.

Learn more about Score-Up

Organize Your Documentation

There are three things a lender will look at before giving you a mortgage: your current assets (what you own), your income, and your current level of debt. During the application process, here are a few items that your mortgage lender may request from you:

  • Government-issued photo identification (driver’s license, passport, etc.)
  • Proof of employment and income (pay stubs, T4s, income tax returns, bank statements, etc.)
  • Proof of a down payment and where it will come from (e.g. savings account, RRSP, the sale of another property, gift, etc.). If a family member is contributing towards your down payment, you will also need a signed letter from them acknowledging the purpose of the gift, and confirming that it is non-repayable.
  • Information about any other assets
  • Information about your debts (e.g. credit card balances, car loans or leases, lines of credit, student loans) or financial obligations (e.g. spousal/child support)

Having these documents handy is a house-hunting hack – it will ultimately prevent you from scrambling to get your act together at the last minute.

Get a Mortgage Pre-Approval

With your finances in order, the next step is to figure out how much you can afford. A mortgage calculator is a good place to start, as you can factor in the amount of your down payment, your amortization (repayment) schedule, total selling price, and so forth to come up with a budget.

If you want something more official, go to a mortgage lender and get “pre-approved.” This means that a potential mortgage lender looks at your finances and determines how much money they will lend you and at what interest rate they will charge you.

It’s a bit of work, but pre-approval lets you:

  • Know the maximum amount of a mortgage you could qualify for
  • Estimate your mortgage payments
  • Lock in an interest rate for 60 to 120 days, depending on the lender

A pre-approved is not mandatory—but it is strongly advised. A pre-approval determines the home price you can afford, which essentially sets your budget for house-hunting.

In fact, some real estate agents require it before they will work with you. Having pre-approval signals that you’re a serious and eligible buyer, as well as helps avoid the heartbreak of finding your dream home, only to realize it’s way out of your budget.

One caveat: a mortgage pre-approval does not guarantee financing, and when making an offer, it’s not necessarily “safe” to remove the financing condition.

Once your offer is accepted, you’ll need to go back to your mortgage lender to get the official stamp of approval.

Finding the Best Mortgage Rate Before Buying Your Home

Since interest rates are constantly fluctuating, it’s important to shop around and find the most competitive mortgage rates.

Types of Mortgages

There’s no one type of mortgage that fits everyone. Your best bet is to shop around and to pick something that works for your life circumstances and budget.  Here’s a broad overview to help you decide the best option for you.

TypeDescription
Open/closed:The terms “open” and “closed” refer to the level of repayment flexibility. With a closed mortgage, you can’t renegotiate, refinance, or repay except according to the terms of the mortgage. Open mortgages are more flexible, but also typically have higher interest rates.
Low ratio/high ratio:This refers to the percentage of a down payment. In a low ratio mortgage, the down payment is 20% or more.
Fixed rate/variable (adjustable) rate:If your interest rate is fixed, it is immutable for the term of the mortgage. With a variable or adjustable rate mortgage, the interest rate may be reviewed and changed at intervals throughout the term.
Home equity line of credit (HELOC): This is a way to borrow money against your current home’s equity, but it can also be used instead of a traditional mortgage.

In Canada, mortgage repayment terms usually run between 5 and 30 years, with longer terms typically commanding higher interest rates.

Research First-Time Home Buyer Incentives 

Speaking of saving money, don’t forget to take advantage of these first-time home buyer incentives in Canada. It could save you some serious dough.

IncentiveDetails
RRSP Home Buyer’s Plan: Allows first-time home buyers to withdraw up to $25,000 from their RRSP (or $50,000 for a couple) to finance a down payment. The RRSPs must be at least 90 days old, and you must sign an agreement to build or buy a home; but as long as you repay within 15 years, the withdrawal is tax-free.
First-Time Home Buyers' (FTHB) Tax Credit:Offers a $5,000 non-refundable income tax credit amount on a qualifying home acquired after January 27, 2009. For an eligible individual, the credit will provide up to $750 in federal tax relief.
GST/HST New Housing Rebate:Reimburses eligible homeowners for part of the GST/HST paid on the purchase price or cost of building a new house, on the cost of substantially renovating or building a major addition onto an existing house, or on converting a non-residential property into a house.
Mortgage default insurance:Known as “CMHC insurance,” this is a mandatory insurance policy for those who purchase a house with less than a 20% down payment.
Land Transfer Tax Rebate:First-time home buyers in British Columbia, Ontario, or Prince Edward Island can receive a rebate on a portion of the land transfer tax that they paid. Also, first-time homebuyers in the City of Toronto are also eligible to receive a rebate on the city’s land transfer tax.

Start House-Hunting!

You’ve got some money in the bank and a pre-approval in your hands. This is the exciting part of the home buying process – when you can start perusing the Canadian Multiple Listing Service (MLS) site in earnest.

Now hosted at Realtor.ca, this MLS provides a nationwide compilation of available real estate listings that you can filter any number of ways: by location, size, type, amenities, price, and more.

It’s at this stage that you’ll want to seriously consider working with a real estate agent. This is not mandatory—buyers are allowed to manage their own sale—but it’s advised, especially for first-timers.

Real estate agents have expert information on every step of the process which can help relieve stress, and they are also part of a professional network of inspectors, insurance agents, and so forth who may become part of your team.

Final Words

Buying a first home can be a daunting experience for anyone. Long before the fun part—the actual search for your dream home—you have to figure out your finances, identify and exploit saving opportunities, get pre-approved for a mortgage, and hire your real estate agent, lawyer, and other professionals.

It might seem overwhelming, but for many millennials, it’s worth it to become a homeowner. If that’s you, this guide will help you get one step closer to having the keys to your new home in hand. Good luck!

If you liked this article, you may also like:

The Best Personal Loan Interest Rates in Canada

The Best Bad Credit Loans in Canada

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Article comments

21 comments
David says:

Hi, thank you so much for this article!

Is there any advantage to having 2+ years of work experience at the same company, or it is fine to have 2+ years of full time experience at different companies (with no employment gap)?

Mary says:

Thank you for this article! My partner has a permanent well paying job that he will have worked at for close to 2 years at the time of mortgage approval and I have a well paying job that is in the health care field, but is within an agency that offers temporary full time work for the first few years until you are secured as permanent. So I will have worked for 1 year on a temporary full time posting at the time I will be looking to secure a mortgage. What obstacles do you for see for us in getting a mortgage approval and what can we do to make ourselves a better candidate? thank you!

Robb Engen says:

Hi Mary, two years of employment should be enough to get you approved for a mortgage. I think your short credit history and would be an obstacle and you can concentrate on improving that by making sure you have a strong history of paying your bills on time and also a wide variety of credit such as a phone bill, credit card bill, and possibly an installment loan that you’ve shown to pay on time.

Try out the free credit monitoring tool (Borrowell) and you can track your credit report and credit score over time.

Gurpreet S says:

Many thanks for this wonderful piece of information. I was looking for something exactly as this, to begin with. Thank you again !

sara says:

Many thanks, Keph for your informative article.
I would like to read a book and educate myself before buying a home.
I googled and found several books, but I am not sure which one is the best. Could you please give me some advice.

Mahfuz says:

Hello. Thank you for the detailed information. As a first time buyer, what are the pros and cons of buying a house in cash?

Robb Engen says:

Hi Mahfuz, it’s tough for most home buyers to pay for their house in cash. That’s why mortgages were invented. If you happen to have enough cash to buy a home outright, one of the obvious pros would be that you wouldn’t go into debt with a mortgage. The major con would be, does it make sense to pay hundreds of thousands of dollars in cash when you can take out a mortgage for around 2% these days? That’s called an opportunity cost, and perhaps there’s a better investment that you could make with your cash that would lead to a higher return.

Kaitlyn says:

Great info! Thank you. (Hopeful) first time buyer here in London, Ontario.

Paul says:

thanks for the info i have learned a lot today

Hayden V says:

Thanks for the info – very informative.

Vic says:

Hi Keph,

Thanks for this information. I will find it very useful when come time to buy a house 🙂
Given the situation, right now is the perfect time for me to buy a house.

I have a question regarding CMHC insurance and the 20% downpayment.
For me, it is doable, but most of the houses I am looking at require upgrading or new appliances.
Would you say it would be better to put less % of a downpayment (say, 10%) and spend that cash on upgrades, or put the 20% downpayment and take out a line of credit for the upgrades?

I only have enough for either or.

Thanks!!

Robb Engen says:

Hi Vic, congrats on being ready to buy a home. I wouldn’t get to hung up on putting down 20%. You’re right that you’ll need to make sure you have enough set aside for closing costs (lawyer, etc.), plus any furnishings you may need as you move in. It can be a mistake to throw every single dollar into a downpayment and then struggle to pay for these extra costs.

So, in summary, avoiding CMHC fees is a worthwhile goal – but it’s not worth putting down 20% and then not having money left over for your closing costs and other expenses. Maybe find a happy medium at a 15% downpayment?

Sabeen says:

Hi Keph,
You have written an amazing article. I have a question , do you advise to buy property in this pandemic situation. Prices are going down but I lost my job. I have been pre approved but not sure I will get approval.

Lisa Jackson says:

Hi Sabeen,

Even though it’s not impossible, there are a lot of hurdles to buying a house with COVID-19.

For starters, you may have to see the house virtually rather than in-person. Are you comfortable buying a property sight unseen?

If your income has been affected by COVID-19, you might not qualify for a mortgage. Even if you were pre-approved for a mortgage, a lay-off could derail your plans when your lender checks on your employment status two weeks before a sale’s closing date.

In that case, your mortgage could be denied, and you could lose your deposit. Even worse, the sellers could sue you for losses they incur if they end up selling to another buyer at a lower price.

If you’ve got some cash sitting in a bank account and your financial situation is stable, you may want to consider investing instead. With stocks falling sharply, now is a great time to buy and potentially profit from the market downturn. You can read more in our article: https://youngandthrifty.ca/how-investors-can-profit-during-market-downturn/

I hope this helps!

Lisa

Paula says:

Hi Keph. I recently moved here in Canada and this is a massive massive help. You have no idea how much this article made a difference to such a complicated matter. Thank you thank you thank you ever so much. All the best to you.

Marry Walker says:

Hi, I am very much impressed by your blogs. I got all the information from your blog which I was looking for buying a house in Canada. Thanks for the descriptive article.

This article is worth reading for. Buying a property is a huge investment for some who worked for it. Thanks for sharing with us.

RentWell says:

Great write up Keph! Buying a house can be a daunting task especially for those who are buying for the first time. The amount of research and paperwork involved can be a bit difficult for first time buyers. But this article would be of great help for those who are planning to buy the house in Canada.

Afia says:

Good read and info for newbies like me

This is worth reading for. Buying a house is a great investment for some who worked for it. Thanks for sharing.

Laura says:

Great article! Buying a house was a lot more work than my husband and I expected.
When you are looking for rates I would suggest getting formal quotes from at least two mortgage brokers! We got a better rate than we expected by getting two. It is a little more paperwork and meetings but well worth it!