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Published April 12, 2024
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First-Time Home Buyer Guide: Strategies to Get You That First Property

First-time home buyers in Canada can use a combination of incentive programs, tax breaks and careful planning to afford their first property.

Canada’s real estate market can be tough for first-time home buyers. With a lack of supply, strict mortgage guidelines and elevated prices across the country, it can take a lot of work — and a little bit of luck — to become a homeowner. 

Getting a good grasp on the home-buying process early can help you shop for homes more confidently amid a tight market. Creating a realistic budget, contacting the right people and being aware of incentive programs are great ways to get started.

Determining your first home buying budget

Setting a budget is a crucial first step to buying a home. It generally has two parts: upfront costs and ongoing costs. 

Upfront costs

Cash is king. You’ll need funds for a down payment. This is money you’ve saved or, in some cases, received as a gift from a family member. Many provinces and local governments also offer down payment assistance programs for those who qualify (income often determines eligibility). The typical range for a down payment, especially among first-time buyers, is between 5% and 20% of the home’s selling price. 

Paying less costs more. If your down payment is under 20%, you’ll face an additional monthly cost — mortgage default insurance. The closer your down payment is to 20%, the less you’ll pay in insurance costs.

Don’t forget closing costs. You might be familiar with the concept of a down payment, but first-time home buyers might not be as familiar with closing costs. Closing costs pay for things like land transfer taxes, a home inspection and an appraisal fee. The exact amount can vary, but be prepared to pay 3-5% of the home’s market value.

Save strategically. When saving for a down payment, think beyond a savings or checking account. A First Home Savings Account, Tax-Free Savings Account or a Home Buyers’ Plan may be better options. Each of these accounts avoids taxes in different ways, which means you can reach your savings goals sooner. The accounts aren’t interchangeable, however, so be sure you understand the differences among all three before you start using one.


Which is best when saving for a down payment?

Ongoing costs

Mortgage 101. Unless you’re planning to make an all-cash offer, you’ll work with a lender to get a mortgage. A mortgage is a loan that covers the sale price of the home minus your down payment. If you put 10% down on a $400,000 residential property, for example, the mortgage will cover 90%, or $360,000. You’ll make monthly payments until the loan is repaid, plus interest.

Repaying a mortgage entirely usually takes 25 years, though the average mortgage contract doesn’t cover that entire period; terms of three or five years are more common. After a contract ends, you’ll need to obtain a new mortgage in a process called mortgage renewal

Ultimately, thinking about a home’s cost in terms of its potential monthly mortgage payment is a more useful method of honing in on a budget than looking only at the overall price of the house. While the overall cost of the home does matter, your down payment amount and the interest rate you can get play a huge role in determining your monthly payment.

The importance of interest rates. An interest rate is essentially the cost to borrow money. Even seemingly small differences in rates can make a huge difference over time. For example, the difference of two percentage points for a $300,000 loan means more than $100,000 in interest payments:

Loan ALoan B
Interest rate5%7%
Monthly payment$1,745$2,101
Total interest paid over 25 years$223,444$330,374

How to get the best interest rate. Lenders use many variables, including your credit score and income, when determining which rates to offer you. Increasing your annual income and improving your credit score can have a big impact on your rate, but both can take time. 

There’s another way to get better rates, one that doesn’t involve as much waiting: Get quotes from multiple lenders. Just as you would probably go to multiple car dealerships if you were car shopping, you stand to benefit from speaking to multiple mortgage lenders. You want to be sure that you find the best mortgage for your needs, so don’t assume you’ll find it on the first try. 

What’s the biggest mortgage you can qualify for? Lenders use two common formulas (called GDS and TDS ratios) to find maximum loan amounts in most cases: 

  • Your projected mortgage, property taxes and utilities can’t exceed 39% of your income.
  • Your monthly debt payments — including mortgage, car payments, student loans, credit card payments and child support — can’t exceed 40-44% of your income.

Just because a lender is willing to approve it, doesn’t mean you should always construct your budget around the highest possible amount you could borrow. Your house budget should fit into your larger household budget and accommodate other goals you may have, like taking a vacation or saving for retirement.

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Factor in taxes and insurance. A home in Toronto that sells for the same amount as a home in Vancouver may have different monthly payments, even with identical interest rates. Why? Property taxes and home insurance. These vary by location — your real estate agent should be able to help answer questions. Payments are often bundled with your monthly mortgage payment.

What if you don’t have good credit? The minimum credit score for a traditional mortgage is usually around 680. If your credit score is lower, you might qualify for a mortgage with a B lender, though you should expect to pay higher interest rates than you see at traditional lenders. If you have the option to wait, you could put buying on hold in order to build your savings and improve your credit score.

Putting it all together

The budget-making process boils down to identifying a dollar amount you’re able to pay upfront and a dollar amount you’d feel comfortable paying every month. 

The combination of those two numbers, plus the interest rate you can expect to get, can give you an overall amount you can expect to spend on buying a home. Each variable matters. Someone with a lower income but high savings and great credit could have the same budget as someone with higher income but lower savings and a lower credit score.

If you want to build an initial budget but aren’t ready to speak with lenders or real estate agents, you can use a mortgage affordability calculator that does the math for you. 

Another way to determine your budget is to get pre-approved for a mortgage. In a pre-approval, a lender will evaluate your finances and tell you how much money they are willing to loan you. Getting pre-approved doesn’t mean you’ve been approved for an actual mortgage, but it does give you — and the owners of any property you bid on — confidence that your mortgage application will be approved.

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How to get your first mortgage

Making a budget is a great first step. Eventually, you’ll need to make other decisions regarding your home loan. For example, do you want a fixed or variable rate of interest? Do you prefer a closed mortgage, where you can’t pay it off early without penalty, or an open mortgage, which can be paid off at any time? How long of a mortgage term do you feel comfortable with? 

The best answers to these questions depend entirely on your situation. Talking with lenders about your situation and your options is a good way to start honing in on the best match for you. 

Compare the qualification requirements, loan options, interest rates and fees across multiple lenders before choosing a mortgage. Comparing lenders will help you understand your options and ensure you get a mortgage that meets your needs at a competitive price. 

In addition to speaking with lenders directly, you might consider working with a mortgage broker. Brokers don’t lend their own money, like a bank. Instead, they have access to multiple lenders and work with you to find a mortgage that fits your needs.

First-time home buyers and the mortgage stress test

To qualify for a mortgage in Canada, all home buyers must pass the mortgage stress test. The test was introduced in 2018 to ensure that buyers could afford their mortgage payments if interest payments rose.

You must show that you can afford mortgage payments based on an interest rate of 2% over the rates you’re offered, or 5.25%, whichever is higher. You must pass this test even if you have a down payment of 20%.

If the bank is offering you a rate of 4%, for example, you would need to prove that you can still afford to make monthly mortgage payments if interest rates rose to 6%.

Making an offer

When making an offer on your first house, it’s not just the mortgage costs and down payment requirements that you need to consider. You’ll also have to factor in the expenses of managing a home, such as basic maintenance, utilities, property taxes and more. Some homes you look at may be in need of additional updates or repairs. You’ll need to factor that in, too.

Experts say homeowners should expect to spend anywhere from 2% to 5% of their home’s value on maintenance each year.

Checklist for first-time home buyers

Get your credit score in order. 

  • Access your credit score for free to see where you stand now.
  • Check the report for any lingering issues or mistakes.
  • Decide if there are debts that can be paid down quickly, which could improve your score.

Create an initial budget

  • Confirm the down payment savings you have available.
  • Add up your household monthly income and subtract recurring debt payments and monthly expenses.
  • Conduct an online mortgage pre-qualification.
  • Use a mortgage affordability calculator to estimate mortgage payment amounts. 

Get pre-approved for a mortgage

  • Contact your bank or a mortgage broker and assemble the list of documents required for pre-approval.
  • When pre-approval is complete, review your mortgage options.

Decide what you’re looking for

  • Based on your pre-approval amount, research homes available within your budget.
  • Make a list of “must-haves” for the home you buy, including location and neighbourhood amenities.
  • Make a list of “nice-to-haves” that you’re willing to compromise on.
  • Decide if you want a home that requires renovations. 

Find a real estate agent to work with

  • Ask friends and family if there’s a local agent they would recommend. 
  • Interview a few agents until you find one you’re comfortable with.
  • Discuss your must-haves and nice-to-haves with your agent. 

Viewing properties and making offers

  • Coordinate with your real estate agent on the days and times when you’ll be available for viewings. 
  • Ask your agent to explain the various conditions sellers might require when accepting offers.
  • Discuss whether you’ll need to provide a deposit to win a competitive bidding scenario.
  • Determine a range of closing dates that work for you. 
  • Factor in the taxes, insurance, upkeep and repairs you’d be paying for as a homeowner.

Understanding the challenges of the Canadian housing market

One of the most severe challenges facing first-time homebuyers is entering the market when housing supply is down but prices and interest rates are up. There’s a distinct possibility that the type of home you’d like to buy will not be available, or that several other buyers might challenge you for it in a hotly contested, winner-take-all bidding war

It’s better to come to terms with how tight the market is before wading into it. Don’t expect to buy the first — or second, or third — home you fall in love with. Being ready for these kinds of disappointments can take some of the sting out of them and keep you motivated. 

Consider reaching out to a real estate agent who specializes in the area, or areas, where you’d like to buy. They’ll be able to tell you how competitive the local market is — and how much higher than the asking price you may have to pay.

Incentives and assistance for first-time home buyers in Canada

The government of Canada offers a variety of national programs to people buying their first home. Generally, you’ll be considered a first-time home buyer if you or your common-law partner has never owned a home or investment property. Some programs have exceptions, such as if you have recently experienced a breakdown of a marriage or a common-law partnership. Additionally, these programs may extend to permanent residents and non-permanent residents authorized to work in addition to Canadian citizens.

The RRSP Home Buyers’ Plan

Summary: As of April 16, 2024, first-time homebuyers can withdraw up to $60,000, tax-free, from their registered retirement savings plan (RRSP) to put towards a home purchase. The previous HBP withdrawal limit was $35,000.

Important details:

  • Funds must be paid back within 15 years.
  • RRSP funds must be in your account for at least 90 days.
  • You have until October 1st of the year following your withdrawal to buy or build your home.

More information: NerdWallet’s guide to the RRSP Home Buyers’ Plan.

The Home Buyers’ Tax Credit

Summary: A non-refundable income tax credit of up to $10,000 for first-time home buyers. It results in a $1,500 tax rebate.

Important details: This won’t help you get a house any sooner — it doesn’t kick in until the first tax return after you’ve bought a house — but it will make that first year of homeownership a little more affordable.

More information: NerdWallet’s Home Buyers’ tax credit guide. 

The First Home Savings Account

Summary: Route your savings for a new home through this account and save on taxes. 

Important details: 

  • The FHSA operates a little like an RRSP and a little like a TFSA
  • Each year, you can deposit up to $8,000 in your FHSA, up to a total limit of $40,000. Deposits are tax-deductible.
  • You can invest your deposits. Any earnings are tax-free. 
  • You can tap the account for down payment funds and closing costs. 

More information: NerdWallet’s First Home Savings Account guide.

Provincial programs for first-time home buyers

Summary: You can find many local and provincial first-time home buyer programs, including programs that offer interest-free loans you can use for a down payment (interest is applied if you fall behind your mortgage payments or sell the home before a specified amount of time). Details vary from program to program, so you’ll want to explore the programs where you live.

First-time home buyer FAQs

What assistance is available for first-time home buyers in Canada?

Canadian first-time home buyers can use the Home Buyers’ Plan, the First Home Savings Account and the Home Buyers’ Tax Credit to help make home buying more affordable. They can also access several provincial and municipal programs.

Should I keep renting or buy my first house?

The long-term benefits of homeownership are hard to deny, but paying off a home at today’s prices can mean making significant lifestyle and spending sacrifices not everyone is ready for. The decision to rent or buy ultimately comes down to what you can afford and what you’re willing to give up. 


Mortgage Payment Calculator: Canada

Mortgage Payment Calculator: Canada

Use this free Canadian mortgage calculator to estimate your monthly mortgage payments, and see how rates and amortization affect total cost over time.

12 Essential Tips for First-Time Home Buyers

12 Essential Tips for First-Time Home Buyers

Saving the right down payment, preparing for the mortgage stress test and looking for assistance programs are tips first-time home buyers can use to reduce stress and save money.

How to Use First-Time Home Buyer Plans Twice in Canada

How to Use First-Time Home Buyer Plans Twice in Canada

Some federal housing programs will consider you a first-time home buyer twice — or more — if you don’t own a home for four or more years.

First-Time Home Buyer Grants and Assistance Programs

First-Time Home Buyer Grants and Assistance Programs

Various Canadian grants and assistance programs provide financial incentives that can make it easier and more affordable to buy your first house.

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