First-Time Home Buyer Guide Canada: Path to Your 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.

This is how you make a home-buying budget

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 mortgage amount you can afford. 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.

Save cash for upfront costs

Down payment funds. The cash you pay upfront for a home is called 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).

Nerdy Tip. When saving for a down payment, a First Home Savings Account, Tax-Free Savings Account or a Home Buyers’ Plan may be better options than a regular savings account. These accounts avoid taxes, 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.

Eliminate the cost of mortgage default insurance with a bigger down payment. If your down payment is under 20% of a home’s price, 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 premiums.
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. Use a closing costs calculator to estimate what you could pay.

Plan for ongoing costs

Monthly mortgage payment. A mortgage is a loan that covers the sale price of the home minus your down payment. You’ll make monthly payments until the loan is repaid, plus interest.

Repaying a mortgage entirely usually takes at least 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.

Nerdy Tip: It’s easy to focus on a home’s asking price when scrolling through listings. But thinking about a home’s cost in terms of its potential monthly mortgage payment is a more realistic way to guide your shopping. The overall cost of the home is important, but your down payment amount, the interest rate you get and even local taxes all factor into the amount you’ll pay each month

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.

This is how lenders determine how much to lend you. 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, however, doesn’t mean you should always construct your budget around the highest possible amount you could borrow.

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.

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.

Understand how mortgage options can affect your monthly payment. Yes, a lower interest rate helps keep your monthly payments down. But that’s not the only factor in play. For example, you might opt to pay off your mortgage over a longer period of time. A longer payoff time, known as an “amortization period,” raises the amount you’ll pay over the life of the mortgage, but your monthly payments will be smaller — a tradeoff that may be worth it if you want to buy as soon as possible. The most common amortization period is 25 years. But 30-year loans are becoming increasingly available. One example: On August 1, 2024, it became possible for a first-time homeowner to buy a new build with a 30-year mortgage and a down payment under 20%.

Nerdy Tip: 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 get an outside perspective on your budget in a low-key way is to get pre-approved for a mortgage. During 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.

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.

what’s your minimum down payment?

tips to reach your first down payment

You’ll need to pass a mortgage stress test

To qualify for a mortgage in Canada, all home buyers must pass the mortgage stress test.

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%.

You may need to tweak your budget with each offer

When making an offer on your first house, you’ll need to factor in the expenses of managing a home, such as maintenance, utilities, property taxes and more. Some homes you look at may be in need of updates. An older home may require more repairs than a newer home. You’ll need to factor this into your budget.

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

Find the Best Mortgage Rates in Canada

Compare customized mortgage rates from Canada’s best lenders and brokers for free. Find and easily apply for the lowest mortgage rate for your needs.

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Checklist for first-time home buyers

Firm up your credit score.

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.
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.

Be specific about 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.

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.

View properties and make offers

Ask your agent to explain the various conditions sellers might require when accepting offers.
Factor in the taxes, insurance, upkeep and repairs you’d be paying for as a homeowner.

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.

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

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

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 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.

Ontario Home Buyer’s Guide

B.C. Home Buyer’s Guide

Alberta home buyer’s guide

How to face the challenges of a tough 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.

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.

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.

About the Authors

Kurt Woock

Kurt Woock started writing for NerdWallet in 2021. Prior to joining NerdWallet, Kurt was a writer and educator for Colorado PERA, a retirement system for public employees. Before that he…

Clay Jarvis

Clay Jarvis is NerdWallet’s mortgage and real estate expert in Canada. Thus far, his entire professional writing career has revolved around real estate. Prior to joining NerdWallet, he was the…

First-Time Home Buyer Guide: Path to Your First Property

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