Kurt Woock
Hannah Logan
Beth Buczynski
Buying your first home is equal parts exciting and daunting. After all, it’s probably going to be the largest purchase you’ve ever made, and you’ll have lots of choices to make. There are plenty of steps to buying a house in Canada and it might feel hard to know where to start.
Here are 12 first-time home buyer tips to keep in mind as you plan your purchase and move through the process.
1. Save your down payment strategically
Putting a down payment on your home is required when you’re financing the purchase with a mortgage. So, how much does that down payment need to be? The minimum requirements for a down payment in Canada are based on the price of the home.
| Purchase price | Minimum down payment required |
|---|---|
| Less than $500,000 | 5% of the purchase price |
| $500,000 to $1 million (upper limit changing to $1,499,999 on December 15, 2024). | 5% of the purchase price for the first $500,000; 10% for the portion above $500,000 |
| $1 million or more (changing to $1.5 million or more on December 15, 2024). | 20% of the purchase price |
Here are a couple of examples to put these requirements into context:
If you were to buy a house that costs $450,000, your minimum required down payment would be 5%, or $22,500.
If you were to buy a home priced at $713,375 — the 2025 national average price as forecast by the Canadian Real Estate Association[1] — you’d pay 5% on the first $500,000, or $25,000, plus 10% on the remaining $213,375 or $21,337.50. The minimum down payment would be $46,337.50.
As a first-time home buyer, saving the minimum required down payment amount is a great place to start. But there are pros and cons to putting down only the minimum.
If your down payment is less than 20%, you’ll have to pay mortgage insurance, and you’ll begin homeownership without much home equity. On the other hand, it won’t take as much time to save 5% as it would to save 20%, especially in high-cost housing markets, meaning you can become a homeowner sooner. And a smaller down payment may mean you can reserve some cash for moving costs or unexpected repairs.
Ultimately, deciding how much of a down payment you want to make will help you determine how much you can afford to spend on your first home.
2. Determine what you can afford to borrow
As a first-time home buyer, you might be surprised to learn that what you can afford and what a lender might approve you to borrow aren’t always the same number.
Banks and other mortgage lenders look at several factors to determine how much money they’re willing to lend you for a home purchase, including:
- Your income.
- Your credit score.
- Your credit history.
- Your debt service ratios.
- Your loan-to-value ratio.
- The mortgage stress test.
When deciding how much mortgage you can afford, you’ll want to consider all of the above. But you’ll also want to budget for closing costs, expenses not included in your debt service ratios, the cost of potential home repairs and improvements, moving costs, and more.
Considering these expenses upfront can help you to figure out a monthly mortgage payment that you can afford, which will help you determine the total loan amount.
3. Work on your credit score
To get approved for the mortgage amount and interest rate you want, you’ll need a good credit score. Depending on your financial history, this might take a bit of work, so start paying attention to your score as early as you can. It’s a good idea to check your credit report every six months to make sure there aren’t any errors and track your progress.
A few tips and tricks to build your credit score include:
- Finding and eliminating any errors on your credit report.
- Reducing or paying off any existing debt.
- Lowering your credit utilization ratio.
- Paying your bills in full and on time.
- Having different types of credit and keeping your oldest accounts in good standing.
4. Calculate your debt service ratios
Lenders use your gross debt service (GDS) ratio and total debt service (TDS) ratio to see if your income is high enough for you to afford mortgage payments on top of your current debts and housing costs.
You typically need a GDS of 39% or less and a TDS of 44% or less to qualify for a mortgage. Knowing your GDS and TDS before applying for a mortgage will give you a good idea of how you’ll fare in the mortgage stress test — another hurdle to getting approved for a mortgage in Canada.
» MORE: Understanding debt service ratios
5. Account for the mortgage stress test
Canadian lenders use the mortgage stress test to determine if you qualify for a loan, and at what amount. Don’t worry though, there is no studying involved.
When considering your eligibility for a mortgage, lenders check to see whether you’d be able to afford the mortgage at either 5.25% or the interest rate you’ve negotiated plus 2%, whichever is higher. For example, if you’ve negotiated an interest rate of 5.14%, your lender would assess your ability to afford the mortgage if the rate were 7.14%.
If you “pass” the mortgage stress test, it means you will likely be able to continue making your mortgage payments, even if interest rates were to increase. You can simulate the mortgage stress test to know where you stand before applying for a mortgage.
» MORE: How to pass the mortgage stress test
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6. Compare your mortgage options
In Canada, you have the choice of applying for a mortgage directly with a mortgage lender or working with a mortgage broker.
Mortgage lenders are institutions that lend money directly to you, like banks, credit unions, and mortgage companies. Within these categories, you’ll have the option to work with prime lenders, B lenders, alternative lenders, and private lenders.
When you apply for a mortgage with a lender, you’ll likely deal with a mortgage specialist who works with only that lender. It’s a good idea to apply with multiple lenders because shopping around can help you find the best mortgage rates and loan options.
Mortgage brokers don’t lend money to you. Instead, they help connect you with lenders who might be the best fit for you and negotiate on your behalf. Brokers work with multiple lenders, so they can help you compare your options from several lenders at once.
You’ll also have to decide what type of mortgage you want. Open or closed mortgage? Fixed-rate or variable-rate mortgage? Monthly or bi-weekly payments? A five-year term and 25-year amortization is common, but there are many other options available.
7. Get pre-approved before house-hunting
Getting pre-approved for a mortgage lets you know the maximum amount you’re qualified to borrow, which can help you avoid shopping outside your budget.
Depending on the lender, you may be able to lock in the pre-approved interest rates while you shop — 120 days is common. Note that pre-approval is not a guarantee that you will get a mortgage for that rate. A lender can still deny your mortgage application even if you were pre-approved, particularly if your financial situation changes.
8. Investigate assistance programs
The government of Canada has several assistance programs to help first-timers reduce the costs of buying a home. It’s worth browsing through these to see if you qualify for tax credits and other assistance that can make homeownership more attainable. Some common programs include:
- First Home Savings Account.
- Home Buyers’ Plan.
- Home Buyers’ tax credit.
- GST/HST new housing rebate.
B.C. First-Time Home Buyers Guide
Alberta First-Time Home Buyers Guide
9. Zero-in on the right home type and location
Prices can vary widely depending on the neighbourhood and type of home. Research your options and carefully weigh the pros and cons of each area and home type you’re considering.
Condominium (or strata) housing might be cheaper than a freehold house, but it also includes monthly fees that must be taken into consideration, for example.
If you’re having trouble finding a home that meets your needs in your desired location, consider adjusting your “wants” by compromising on space or cosmetic issues, or think about trading a slightly longer commute for a different location where property values might be closer to your budget.
10. Use a real estate agent
Finding the right real estate agent can reduce your stress by guiding you through the home-buying process, but don’t just hire the first person you come across.
Take the time to read reviews online and ask friends and family members for real estate agent recommendations. When you do find someone who might be a good fit for you, interview them. Find out how much they know about your desired neighbourhood or the home type you are hoping to buy. You can even ask for references from former clients to get a sense of what it’s like to work with a particular agent.
11. Arrange a home inspection
It’s not required, but before you buy your home, it’s wise to have a home inspection.
This is a professional evaluation to verify the safety and condition of the home. If any major issues exist or repairs are needed, a home inspection gives you a better chance of knowing ahead of time and can adjust your offer price accordingly.
12. Don’t forget about home insurance
Many lenders require that you show proof of home insurance before you can close on a mortgage.
Home insurance covers certain types of loss, theft, and damage both indoors and outdoors, as well as damage or injury to anyone who is visiting your property. Insurance premiums and policy terms vary widely between providers, so be sure to shop around for a price and coverage that meets your needs.
Article Sources
-
Canadian Real Estate Association, “CREA Forecasts Rebound in Residential Property Sales,” accessed November 8, 2024.
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