October 28, 2022
10 mins

First-Time Homeowner’s Guide in Canada 2023

First Time Homeowners

Welcome to your one-stop shop for becoming a first-time homeowner in Canada. Or, maybe you are looking for a new home and want to refresh on financing and purchasing a home.

Since the beginning of the pandemic, home ownership has looked a bit different than in years past. Low-interest rates combined with our recovering economy make homes less affordable in 2022 than before COVID-19. Even so, nearly two-thirds of Canadians own their home (though the exact number has declined since the pandemic’s beginning).

Our current economy has caused many people to resort to renting until home ownership has become more affordable. However, that doesn’t mean you shouldn’t buy a home. If you decide to buy a home in the post-pandemic real estate market, it is vital to know what homeownership looks like as a first-time homeowner in Canada.

If you’re interested in learning the basics of buying your first home, you’ve come to the right place! Stick around to learn about the process of purchasing a home, what kinds of loans are available to you, and how to figure out how much you can afford to pay.

Homeowners vs. Non-Homeowners

So, You Want to Buy a Home?

A home is one of the most significant investments an individual can make. Whether you are looking for a skyline condo in the heart of a big city or a quaint cottage on a bit of land, there’s nothing like owning your own home. If you want to purchase your first home, we are here to help guide you along the process so you can confidently close on your first home.


How Much Can You Afford to Pay?

Owning a home is not a cheap endeavour, but it is rewarding.

According to Canada Mortgage and Housing Corporation (CMHC), your monthly mortgage payment shouldn’t be more than 35% of your gross monthly income. That means if you’re making $5,000 every month, it is recommended that you stay under $1,750 on your monthly housing expenses. When you pay more than 35%, you can be susceptible to a high debt ratio, and you may find that paying your mortgage each month is difficult.

Owning a home is not a cheap endeavour, but it is rewarding. For example, if you keep your house for a few years and decide to sell it, you can end up making money back. Whereas, if you were renting the same home and decided to move, you would never make back the money you paid in rent.


What is a Mortgage?

Most first-time homeowners in Canada need to borrow money for their homes, so they take out a mortgage. A mortgage is a loan you get to buy a home. Depending on your credit history and current financial standing, lenders will offer mortgages of various terms and conditions based on how much of a default risk you hold as a borrower.

Though some people only work with one lender, it is important to “shop” for the best rates and conditions for your specific mortgage needs. Since mortgages consist of both the principal amount (the price you are borrowing) and interest (the fee your lender charges you to borrow money), not all lenders offer the same rates.

Once you decide on a lender, you can get a mortgage pre-approval. A pre-approval defines how much the lender will lend you for your mortgage and at what interest rates. Many sellers consider pre-approved buyers less risky when selling their homes. This can be a great way to show sellers and lenders that you mean business.

See mortgage terms and amortization from the Financial Consumer Agency of Canada for more information on mortgages.


What is a Fixed Interest Rate?

A fixed interest rate is a rate that does not change for the entirety of the loan. For example, if you have a fixed interest rate on your mortgage of 4%, your interest rate will be 4% at the beginning, middle, and end of your loan. Fixed interest rates are beneficial when low-interest rates are available.


What is a Variable Interest Rate?

A variable interest rate is an interest rate that varies over time based on market interest rates. This can be a good option for first-time homeowners in Canada who plan to pay back their mortgage quickly and are financially stable enough to take the risk of increased interest rates. Be sure to talk to a lender and professional financial advisor to determine which interest rate is best for you.


What is a Down Payment?

Depending on your lender’s terms, you can expect to be paying between 5% to 20% of the price of your home upfront. This is the down payment. The more you pay upfront in your down payment, the less you will owe on your mortgage. If you pay greater than 20% of the home price in your down payment, you will likely be exempt from paying for mortgage default insurance. The more you pay upfront, the less risk you look to lenders (and the less they must lend). As a result, you will get a better deal on your mortgage.


What is Mortgage Insurance?

CMHC provides mortgage insurance to protect lenders from first-time homeowners in Canada who default on a payment or multiple payments. This price is charged to lenders directly, but the cost gets passed onto the homebuyer in many scenarios. For example, if you pay a greater down payment, you may be exempt from paying the mortgage insurance cost.

For example, you decide to purchase a $300,000 home. However, if you have only saved up for 5% of the purchase price, you will have a down payment of $15,000 and will most likely have to pay for mortgage default insurance. Therefore, your mortgage rate will not be as enticing as if you had paid a larger down payment amount.

Consider if you saved up 20% of the purchase price on the same home. In this case, your down payment would be $60,000, and your rates would be much better. Not to mention you likely would not have to pay for mortgage default insurance.


What is the Best Way to Save for Your First Home?

Consider opening a TFSA where you can save and invest money tax-free. Alternatively, you can withdraw up to $35,000 from your RRSP without paying taxes.

First and foremost, as a first-time homeowner in Canada, you must have a good idea of your current finances. Start by checking your credit score, assessing your liquid savings, and considering any big purchases you will have to make aside from home in the next 12 months.

Even though a mortgage will help you pay for most of your home, you will need to pay for upfront costs and down payment. You may also need to pay for closing costs if the seller does not pay for that in the contract of your home. Check out the Government of Canada’s Financial Goal Calculator to help determine how much money you will need to save for your home.

To help kickstart your savings, consider opening a Tax-Free Savings Account (TFSA) where you can save and invest money tax-free. You can also save for your home through a Registered Retirement Savings Plan (RRSP) and withdraw up to $35,000 from your RRSP without paying taxes. Consult your financial advisor about the best ways to invest and save money as a first-time homeowner in Canada.


What Tax Credits and First-time Home Buyer Incentives are Available to Canadians?

There are two different types of tax credits for first-time homeowners in Canada. You may also be eligible for tax credits within your province or territory.


GST/HST Housing Rebates

When you buy a new home, you may be eligible for a rebate on some of the tax you paid to purchase the home.


The Home Buyer’s Amount

The home buyer’s amount allows homebuyers to offset some of the upfront cost (up to $750) when they buy a home and submit their tax return. You can find out more about this tax incentive on the Government of Canada’s website.


Should I use a Real Estate Agent?

Working with a real estate agent is not mandatory in buying your first home or any home. However, having an expert on your side can be highly beneficial and save you thousands of dollars through negotiations. In addition, they professionally handle every step of the home-buying process so that you don’t have to stress about what happens next.

Remember, buying a home is more complex than getting pre-approved for a mortgage and submitting offers. Once you get an offer accepted, you will need to be in direct contact with insurance agents, closing attorneys, inspectors, pest control, and other professionals along the way. When you hire a real estate agent, they handle these communications. They will also know which professionals are the best and most cost-effective.

The biggest reason first-time homeowners in Canada choose not to use a real estate agent is commission fees. Real estate agents make money by charging commission fees based on the home you buy. However, knowing that you likely won’t be paying this fee is essential. So instead, your realtor is paid from the property’s final sale. In Canada, real estate agents typically have commissions from 3% to 7% of the purchase price.

Even though the commission fee is built into the transaction, you still pay this from your pocket in the long run. So be sure to consider how the cost of a real estate agent would affect your finances long term. For more information on how realtors are involved in the home-buying process, check out Canadian Real Estate Association’s (CREA) website.


When Should I Start Looking at Homes?

Once you establish your budget, save for your down payment and associated costs, and get pre-approved for a mortgage, you are ready to start looking. If you are currently leasing your home, you should consider starting the process of finding a mortgage and establishing your budget about six months before the end of your lease.


How do I Make an Offer on a Home in Canada?

As a first-time homeowner in Canada, you may want to work with a Real Estate Agent. An agent will handle most of the offer-making for you. They will draft an offer, have you sign to confirm the details, and send it to the seller or their agent.

If you do not have a real estate agent, it is essential to know what your offer needs to include. According to CMHC-SCHL, your submission must include the following:

  • Your legal name and the seller’s legal name

  • The property address and the price you are willing to purchase the property for

  • The amount of money you will pay as the deposit

  • The closing date

  • Any requests for land surveys, inspections, etc.

  • Items you want to include or have left in the home

  • Any other conditions that must be met before closing

  • The date your offer expires

Even though you set your offer terms, prepare for the seller to negotiate.


Should I Rent a Home or Buy a Home in Canada?

You should now have a good idea about becoming a first-time homeowner in Canada. Depending on your current finances, you should be able to determine if you can afford to buy your own home. We even have more information about mortgages on our site.


Before You Move in

If you found this article helpful, we can guarantee you’ll enjoy the rest of our Canadian personal finance content! So if you’re looking to kickstart your personal finance and grow wealth, you’ve come to the right place. Subscribe to our newsletter today for monthly financial guidance and inspiration delivered straight to your inbox!

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