Buying a House in Canada: 7-Step to Your First Home

Last Updated on January 30, 2025

Buying a home for the first time is an exciting milestone, but it can also be a daunting process filled with many questions and uncertainties. This comprehensive guide aims to simplify the journey for first-time home buyers in Canada. From assessing your readiness to buy a home to navigating the complexities of the real estate market, we’ve got you covered with essential steps and helpful tips to make the process smoother and more manageable.

QUICK LINKS
Are You Ready to Buy a House in Canada?	Step 4: Shop Around for a Great Rate
How to Buy a House in Canada: 7 Important Steps	Step 5: Get a Mortgage Pre-approval
Step 1: Save for a Down Payment	Step 6: Find a Home
Step 2: Get Organized	Step 7: Make an Offer and Seal the Deal
Step 3: Check for Rebates and Grants	Additional Considerations

Are You Ready to Buy a House in Canada?

Before buying a home you need to ask yourself the hard question: Are you ready to buy a house?

Homeownership is a big responsibility, and it’s crucial to ensure that you have your financial affairs in order before taking charge of an asset that could be worth half a million dollars or more. Prior to embarking on the journey of homeownership, consider the following questions:

Do You Have a Down Payment?

The first crucial step in buying a home is ensuring you have a sufficient down payment. In Canada, the minimum down payment required varies depending on the purchase price of the home:

• For homes priced at $500,000 or less, a minimum down payment of 5% is required.
• For homes priced between $500,000 and $999,999, a down payment of 5% on the first $500,000 and 10% on the portion of the price above $500,000 is required.
• For homes priced at $1,000,000 or more, a minimum down payment of 20% is required.

Saving for a down payment can be challenging, but it’s an essential step in the home-buying process. Here are some additional tips to help you save effectively:

Create a Budget: Track your income and expenses to identify areas where you can cut back and save more. Budgeting apps can be helpful tools for keeping your finances organized.

Open a Separate Savings Account: Keep your down payment funds in a separate account to avoid the temptation to spend them. Look for accounts with higher interest rates to maximize your savings.

Automate Savings: Set up automatic transfers from your main account to your savings account to ensure consistent savings. Treat these transfers like any other bill that you must pay regularly.

Take Advantage of Government Programs: Look into programs like the First-Time Home Buyer Incentive (FTHBI) and the Home Buyers’ Plan (HBP) to boost your savings. These programs can provide financial assistance and make it easier to save for a down payment.

Don’t know what we’re talking about? Learn about down payments here.

Is Your Income Steady?

Lenders need assurance that you have a stable and reliable income to cover mortgage payments. Ensure your income is steady and sufficient to meet the lender’s requirements. You can use online mortgage calculators to estimate how much you can afford based on your income and expenses.

When evaluating your income, consider the following factors:

Employment Stability: Lenders prefer borrowers with stable employment history. If you’ve recently changed jobs, it might be beneficial to wait until you have a few months of consistent income before applying for a mortgage.

Additional Income Sources: Include any additional sources of income, such as freelance work, rental income, or investments. Documenting these sources can strengthen your mortgage application.

Debt-to-Income Ratio: Lenders will assess your debt-to-income ratio (DTI) to determine your ability to manage monthly payments. Aim for a DTI of 43% or lower, although some lenders may have different requirements.

What Are Your Local Market Conditions?

Real estate markets can vary significantly across Canada. Research local market conditions in the area where you plan to buy. Are home prices rising or falling? Is there a high demand for homes? Understanding the market can help you make informed decisions and potentially negotiate better deals.

To assess local market conditions, consider the following steps:

Monitor Market Trends: Keep an eye on local real estate market trends. Are home prices increasing, stabilizing, or decreasing? This information can help you time your purchase and make strategic decisions.

Consult with Real Estate Professionals: Real estate agents, appraisers, and market analysts can provide valuable insights into local market conditions. They can help you understand current trends and identify opportunities.

Explore Neighborhoods: Visit different neighborhoods to get a feel for the area. Look for factors like proximity to amenities, schools, public transportation, and overall safety. Consider the long-term potential of the neighborhood, as it can impact the value of your investment.

Are You Ready to Settle Down?

Buying a home is a long-term commitment. Consider your personal and professional circumstances to ensure you’re ready to settle down in a specific location. Think about factors like job stability, family needs, and lifestyle preferences.

Ask yourself the following questions:

Job Stability: Are you confident in your current job or career? If there’s a possibility of relocation or job change in the near future, renting might be a more flexible option.

Family Planning: If you have or plan to have a family, consider factors like school districts, proximity to parks, and family-friendly neighborhoods. Your home should accommodate your family’s needs and future growth.

Lifestyle Preferences: Reflect on your lifestyle and how it aligns with homeownership. Do you prefer urban living with access to cultural activities, or do you value a quieter suburban or rural setting? Ensure the location and type of home match your lifestyle preferences.

Long-Term Goals: Consider your long-term goals and how homeownership fits into them. Are you looking to build equity, have a stable living environment, or invest in property? Make sure your decision aligns with your future plans.

How to Buy a House in Canada?

The steps on how to buy a house are the same whether you’re buying a house, a townhouse, or condo. For simplicity, our examples will focus on how to buy a fully detached home.

Step 1: Save for a Down Payment

Saving for a down payment is the initial stage in buying a house. In Canada, you must provide a down payment of at least 5% of the home’s purchase price. For homes priced between $500,000 and $1 million, you’ll need to put down 5% of the first $500,000 and 10% of the remaining amount. A minimum down payment of 20% is required for homes worth $1 million or more.

If you haven’t saved for a down payment yet, you can start by setting aside money each month, but it may take several years to accumulate enough funds. Alternatively, you can consider utilizing the Home Buyer’s Plan, which allows you to withdraw up to $35,000 from your RRSP without incurring taxes. Another option is to explore other sources of funding, such as a monetary gift from a family member.

Accumulating a substantial down payment is typically advisable because it offers several advantages, including:

• Paying smaller mortgage default insurance premiums
• Building more equity in your home
• Having a lower monthly mortgage payment
• Paying less interest over the life of the mortgage

It’s important to note that aside from the down payment, you’ll also need to save 3% to 5% of the home’s purchase price to cover the closing costs. For instance, based on the $500,000 home cited earlier, you’ll need to save another $15,000 to $25,000 to cover the closing costs when purchasing a house, on top of your down payment. The following is a list of common closing costs you should expect to pay:

• Land transfer tax: $12,950
• Lawyer fees: $1,000
• Title insurance: $500
• Home inspection: $500

Step 2: Get Organized

While saving for your home down payment, it’s a good idea to organize your finances and paperwork. This can be especially helpful as you may spend several months saving for your down payment. During this time, you can focus on the following tasks:

Pay down your debt: If you have any credit card debt, student loan debt, car loans, or a line of credit with a balance, it’s a good idea to pay them off. Lowering your debt levels will have a positive impact on your credit score and debt service ratios, which are calculations that lenders use to determine how much you can comfortably borrow for your mortgage.

Prepare your documentation: When applying for a mortgage, you’ll need to provide a lot of paperwork. Preparing your documentation ahead of time will make the process smoother and faster. This can be particularly helpful if you find your dream home and need to move quickly through the mortgage approval process. Here’s a checklist of the documentation you’ll need when buying a house:

• Proof of current employment, such as a T4, pay stub, or a letter from your employer
• Documentation of any other sources of income you have, such as investments or business income
• Savings and investment statements for the past 90 days
• If you plan to use the Home Buyer’s Plan, proof of withdrawal from your RRSP
• If you’re receiving a financial gift from a family member, you’ll need a letter confirming that the gift is not a loan
• A void cheque
• An inventory of all other debts and assets like cars and car loans

Step 3: Check for Rebates and Grants

To ensure that you don’t make the home buying process more expensive than necessary, check if you qualify for any rebates or grants. Several programs are available for first-time homebuyers, including:

• First-Time Home Buyer Incentive (FTHBI): This program offers a shared equity mortgage with the Government of Canada, reducing your monthly mortgage payments.
• Home Buyer’s Plan (HBP): Withdraw up to $35,000 from your RRSP for a home down payment, tax-free
• Toronto’s land transfer tax rebate: If you are buying a house in Ontario you may receive a partial refund of Toronto’s land transfer tax up to $4,475
• Home Buyer’s Amount: a non-refundable $5,000 income tax credit
• GST/HST New Housing Rebate: a partial rebate on the GST or HST you paid on the cost of your new home

Step 4: Shop Around for a Great Rate

When you’re looking to buy a home, it’s important to shop around for the best mortgage rate. Just as you wouldn’t settle for the first car insurance quote you receive, you shouldn’t settle for the first mortgage offer you’re given. Finding the lowest mortgage rate can save you thousands or even tens of thousands of dollars in interest over the life of your mortgage. Luckily, a mortgage broker can help make the process easy.

By filling out just one application, a mortgage broker will shop around to multiple lenders on your behalf and return with the best offer and lowest rate available. Still unsure of the benefits of using a mortgage broker? Consider the difference between securing the lowest mortgage rate available today versus the standard posted rates at major banks for a $500,000 home.

Even if a mortgage broker can’t find you a better rate, they’ll still be able to offer you expert, personalized advice at no cost.

Step 5: Get a Mortgage Pre-approval

Once you have saved your down payment, prepared your documentation, and found a mortgage broker, the next step is to obtain pre-approval for a mortgage. Mortgage pre-approval does not cost anything and does not require you to commit to a specific lender. However, it does provide you with valuable information that can guide your home search, such as:

• How much you can afford to spend on a house
• How much your maximum monthly mortgage payment could be
• What mortgage interest rate is available to you

Obtaining a mortgage pre-approval is a safe way to acquire these vital details, which can assist you in determining the maximum purchase price. If you are satisfied with the mortgage rate and lender, you may secure that rate for a maximum of 160 days. Locking in your mortgage rate guarantees that you will have access to the lower rate even if it rises in the future. Conversely, if the rates decrease, your lender will honour the lower rate.

Getting a pre-approval can be a little daunting if you’ve never done it before, so check out this list of dos and don’ts for pre-approvals before you jump.

Step 6: Find a Home

Finally, the fun part – house hunting! With your mortgage pre-approval in hand, your maximum purchase price in mind, and a substantial down payment, you’re ready to contact a real estate agent and begin your house hunt. Here are our top tips:

• Find a real estate agent that specializes in the type of house or neighbourhood you prefer (family referrals are a great place to start)
• Avoid representing yourself if you are a first-time homebuyer. It’s better to rely on the expertise of an experienced agent
• Make a list of “must-have” and “nice-to-have” features for your future house. It’s important to know where you can be flexible
• Research the market in your ideal neighbourhood to make sure home prices and your maximum purchase price are in sync
• Be prepared to move quickly in a competitive market

You can use a site like Zoocasa to do a lot of this research without having to leave the house.

Step 7: Make an Offer and Seal the Deal

Once you have found the house you want, the process will move quickly, but don’t worry. Firstly, you’ll need to submit an offer to purchase. If the housing market is competitive, you may not be the only buyer submitting an offer. If your offer is accepted, you’ll then pay a deposit to the seller, which will be applied to the purchase price of the home. You’ll also need to finalize your mortgage financing through your mortgage broker and arrange for a home inspection.

The offer may be amended based on the findings of the home inspection. Eventually, you’ll secure your financing and, with the help of a real estate lawyer, pay your down payment and transfer the title of the home into your name. The entire process typically takes 30-60 days, depending on the terms of the offer to purchase.

Finally, you’ll receive the keys from your real estate agent, and you’ll officially become the owner of your new home.

Additional Considerations

Beyond the essential steps, there are additional considerations to keep in mind as you navigate the home-buying process:

Moving and Settling In

Moving into your new home is an exciting milestone, but it requires careful planning and organization. Here are some tips to ensure a smooth transition:

• Plan Ahead: Create a moving checklist and timeline to stay organized. Arrange for moving services, pack your belongings, and update your address with important institutions.
• Utilities and Services: Set up utilities (e.g., electricity, water, internet) and schedule service installations in advance to avoid disruptions.
• Home Insurance: Obtain home insurance to protect your investment and belongings. Compare different policies to find the best coverage for your needs.
• Furnishing and Decorating: Take your time to furnish and decorate your new home. Prioritize essential items and gradually add personal touches to create a comfortable and inviting space.

Maintaining Your Home

Homeownership comes with responsibilities for maintaining and preserving your property. Regular maintenance can prevent costly repairs and ensure your home remains in good condition:

• Seasonal Maintenance: Perform seasonal maintenance tasks such as cleaning gutters, checking the roof, servicing heating and cooling systems, and winterizing your home.
• Repairs and Upgrades: Address repairs promptly to prevent minor issues from becoming major problems. Consider upgrades that enhance the value and functionality of your home.
• Budget for Maintenance: Set aside funds for ongoing maintenance and unexpected repairs. A general rule of thumb is to budget 1-3% of your home’s value annually for maintenance expenses.

Financial Planning

Owning a home impacts your financial situation, so it’s important to plan and manage your finances effectively:

• Mortgage Payments: Ensure you make timely mortgage payments to avoid penalties and maintain a good credit score.
• Property Taxes: Understand your property tax obligations and budget for these expenses. Property taxes vary by municipality and can impact your overall housing costs.
• Home Equity: Over time, your home may appreciate in value, building equity. Consider how you can leverage home equity for future financial goals, such as renovations or investments.
• Emergency Fund: Maintain an emergency fund to cover unexpected expenses, such as major repairs or job loss. Having a financial cushion provides peace of mind and financial stability.

Conclusion

Buying a home in Canada is a significant and rewarding milestone. By following these seven steps and staying organized throughout the process, you can navigate the complexities of the real estate market with confidence. Remember to take advantage of available programs and incentives, and don’t hesitate to seek professional advice when needed. Happy house hunting!

By planning ahead, conducting thorough research, and being prepared for each step, you’ll be well-equipped to make informed decisions and achieve your goal of homeownership. The journey to buying your first home may have its challenges, but the sense of accomplishment and stability that comes with owning a home makes it all worthwhile. Good luck, and may your new home bring you happiness and prosperity for years to come!