When it comes to money, one thing is true—times are tough out there. Whether it’s dealing with the highest rates of inflation in decades or trying to navigate a precarious economic landscape, there’s no shortage of struggles. There are some folks who are currently feeling the struggle more acutely than others, though. We’re talking, of course, about first-time home buyers.
Buying your first home is stressful enough. Throw record-high house prices into the mix, and you’ve got yourself what feels like mission impossible. In this article, we’ll clear up some of the most common misconceptions that exist around buying your first home and offer our favourite first time buyer tips.
12 First Time Home Buyer Tips
1. Don’t Rush
This first one isn’t a fun one, but it’s worth stating anyway. If you’ve started home shopping, the following scenario might sound familiar to you:
You see a house listing online or get one sent to you by your realtor. Before you even get a chance to visit, you fall in love with everything about the property from the layout of the kitchen to the size of the backyard. Your realtor tries to set up a viewing for you, but unfortunately, before you’re able to attend it you learn that the sellers have accepted a conditional offer.
As disappointing as this is, it’s a common occurrence (even more so in hot markets like today’s).Try your best to not get caught on the idea of the first, second, or even third house you see. And don’t get too down on yourself if your first few offers don’t go through. As hard as it is, it’ll help you in the long run if you exercise patience and trust that the right house will come along.
2. Be Realistic About What You Can Afford
When you’re gearing up to make a home purchase, there are some fun things, like deciding the style of house you’re looking for and the area you’d like to live in. And then there’s some not-so-fun-but-still-very-important things, like figuring out how much house you can afford.
When it comes to figuring out your budget, you can make it easier on yourself by being hyper-realistic about what your monthly expense look like. It’s painfully eye-opening, but necessary. Your $100 phone bill or $400 student loan payment may help you decide whether you should be looking to take on a $1000 or $1500 mortgage payment. Keep in mind that, depending on your situation, you may also have to pay closing costs.
3. Track Your Credit Score
Here’s one that should be on every first-time home buyer’s checklist but is often left out. Your credit score is one of the factors that the bank will look at when determining whether or not to lend to you. Fortunately for us, our credit scores do not remain static for our entire lives. If you have less than stellar credit, there are some things that you can do to improve your score, like improving your credit utilization rate and refraining from applying for any new credit accounts.
The catch is that these things take time, so you’ll want to start working on your credit a long while before you buy a house (preferably at least one year in advance). A free online credit monitoring tool like Borrowell or Mogo is a great place to start.
4. Save up for Down Payment and Closing Costs
The minimum down payment on a home in Canada is 5%. For example, a home that costs $400,000 has a minimum down payment of $20,000. Add to that closing costs (legal fees, appraisal fees, land tax, mortgage insurance, etc.) which account for anywhere between 2-5% of your mortgage and you have a significant challenge on your hands. It is important that you start early and put aside some cash every month towards your down payment and closing costs much before you approach a lender for a mortgage. As of April 2023, the Canadian government introduced the First Home Savings Account to help Canadians save for their first home.
5. Do Your Research
For this one, we don’t necessarily mean researching articles about how to buy a house (although that’s a good idea, too, and hey, we guess that’s why you’re here!)
The research that we’re talking about here is about your target neighbourhoods and cities. A house that lacks curb appeal might be worth the investment if it’s near a great dog park or down the road from your ideal elementary school. Similarly, a house that offers all the bells and whistles might not be worth the hour commute. If you’re able to, the best thing to do is to visit your potential neighbourhoods at least three times: during the day, at rush hour, and in the evening. This will give you an accurate idea of what it feels like to live there.
6. Make a List of “Must-Haves”
If you’ve ever watched a house hunting show on TV, you’ve likely picked up on how new homebuyers get caught up on small and easily fixable details like the colour of the walls or carpeting on the floors. Try your best to not get distracted by factors that are not dealbreakers—it could cause you to pass up on the perfect house when it’s right in front of your eyes! Focus instead of making a list of “non-negotiables” and “nice-to-haves”. You don’t have to compromise on everything that you want, or on the things that are the most important to you. But you’ll likely have to compromise a bit, so it’s important to check in with yourself and discover where your personal line is.
7. Secure a Mortgage Pre-Approval
A mortgage pre-approval doesn’t replace the actual mortgage approval, so you’ll need to be officially approved for a mortgage as well. A pre-approval is not a necessity, but it can be nice to have while you’re looking at houses. In fact, some realtors may ask that you have a pre-approval before they begin showing you houses. A mortgage pre-approval not only tells sellers and lenders that you’re a fiscally safe choice, but it also shows you are a serious buyer.
8. Consider a House Inspection
This one’s important for anyone, but especially those who are buying an older house. In many places, you are not legally entitled to a house inspection when you buy a house. While this saves you some at the time of purchase, it can end up costing you a whole lot in the long run if there’s a problem with the house that you didn’t foresee.
You can save yourself a lot of grief by paying for a home inspection. Be sure to hire your own independent home inspection who will be able to alert you to any ongoing or possible future issues with the integrity of the home.
9. Set up an Emergency Fund for Repairs
If you’re coming from the world of renting, you might be worried about the possible new expenses that can come along with owning a house. While you might get lucky and encounter no major expenses in your first year, it’s a good idea to set up an emergency fund for any house repairs. Psst: you should also be prepared to pay more in utilities (especially if you had an all-inclusive renting set-up).
10. Choose the Right Realtor
Choosing a realtor is a big decision—they can make or break your house hunting experience! When choosing the right realtor, try to not be influenced to go with somebody who is a friend or family member unless you’re sure of their ability. Try instead to shop around as much as possible, checking references and reviews and asking your prospective realtors a lot of probing questions.
11. Consider a Credit Union
If you have an unconventional career path (like a freelancer, business owner, etc), then you might find it hard to get a mortgage, even if you have great credit and a healthy down payment. This can be discouraging, but don’t give up quite yet. It’s worth trying to go through a local credit union instead. These operations are usually more understanding than big banks.
12. Shop Around for Mortgage Rates
Getting approved for a mortgage is exciting, but don’t let excitement talk you into signing the dotted line! Instead, you should do your due diligence and shop around for mortgage rates and conditions. A mortgage broker can help you with this process—otherwise you should be looking at least 3-5 mortgage offers.
Fortunately, it’s easier than ever to shop around for a mortgage online.
After all, while some may feel comfortable with a few months’ worth of savings, others may sleep better at night if they have closer to an entire year accounted for. Again, this is personal.
Job stability is also another factor, as those who feel that their career’s future is less certain or who are seeking a career change may want to ensure that they have a higher amount of living expenses than others.
There is another factor that makes it hard to save money in your twenties that is worth mentioning, and that is peer pressure. You may find that at this stage of life the amount of money that you have is quite different than your peers — and that’s okay! Everyone’s financial pace is different, and the fact that you are even thinking about the amount of money that you should have in your accounts is proof enough that you are headed in the right direction.
ThinkHomeWise is a popular choice and has the ability to search over 30 banks and lenders for mortgage rates. They also offer you the option to have a virtual Homewise Advisor—all for free!
LowestRates is another highly-regarded option and takes only three minutes to compare rates of nearly 100 brokerages and banks. They’re a Toronto-based fintech company that has been around since 2012.
Despite its funny name, the comparison tool offered by Hardbacon means serious business. They offer a user-friendly quiz that is a great first step for anyone who hasn’t even started looking at mortgage rates yet. Aside from mortgages, they also give you the chance to compare credit cards, investment options, and insurance rates.
Lastly, there’s nesto, a Montreal-based online mortgage finder that offers its customers preferential rates that are among the cheapest in the business. They also offer on-the-spot advising options to their customers from unbiased agents who don’t receive any commission.
First-Time Home Buyer Incentive in Canada
Canada Mortgage and Housing Corporation offers assistance to Canadians who are buying their first house. It enables homebuyers pay less for their monthly mortgage payments. This is possible because the government shares your investment in your home. Basically, the government offers to pay the first-time home owner between 5 to 10% of their down payment, which in turn leads to lower monthly mortgage payments. The homeowner has to repay the benefit based on whatever the house’s fair value is, either within 25 years or when the house sells, whichever comes first.
First Time Home Buyer Qualifications in Canada
In order to qualify for the First-Time Home Buyer Incentive, some conditions must be met. For one thing, the applicant or their partner must , of course, have never purchased a home before. They must also be a Canadian resident.
They also must have a combined income that is lower than $150,000. They must also be able to contribute at least 5% of a down payment, and not be looking to purchase a home that is more than 4.5 times (or 4 times, if outside of Toronto or Vancouver) of their annual income.
Other Government Benefits for Home Buyers
Home Buyers Plan
The Government of Canada’s Home Buyers Plan (HBP) allows you to use funds from your RRSP to buy a home. Your RRSP, or Registered Retirement Savings Plan, can’t usually be drawn early without penalty. However, this benefit lets you withdraw up to $35,000 without issue.
Home Buyer’s Amount
The Government of Canada offers tax breaks to new homebuyers through the Home Buyer’s Amount on line 31270 on your taxes. This line allows you to claim up to $5,000 for the purchase of a home if you’re a first-time homebuyer.
GST/HST Housing Rebate
The Government of Canada also lets you claim some of the GST (or the federal part of the HST, depending on your province) that you spend when buying a house. However, it’s only available if you buy a newly built or substantially renovated house. You must also be planning to take up residence in the home.
The Bottom Line
Buying a home is stressful, but the payoff is tremendous. And we’re not just talking literally either, although a house is often a wonderful investment. We mean the emotional sense of security that owning a house delivers, and the sense of accomplishment that you’ll feel when you make it through the process. Best of luck in your journey—and may these tips help you along the way!
Frequently Asked Questions
Eligible Canadians have a number of financial incentives available to them when buying their first home. The most popular is the First-Time Home Buyer Incentive which offers new homeowners between 5-10% of their down payment costs. There are also tax incentives and rebates offered to select first-time home buyers. These include the Home Buyer’s Amount tax credit and the GST/HST Housing Rebate, though the latter is only available for new or heavily-renovated homes.
The official minimum down payment for a new home buyer in Canada is 5%. However, there are caveats to this. If you are buying a home with a value of more than $500,000, you are required to give at least 10% as a down payment. Many financial experts state that 20% is the ideal amount to put down for a down payment, so if you are looking to buy a house it might be worthwhile to save up for a few years before you start searching.
As a general rule, you can afford a mortgage payment that is no more than 28% of your gross household income. To figure out how much house you can afford, you can multiple your monthly gross (i.e., before tax) income by 28—this will leave you with the mortgage amount that you can roughly afford. There are also a number of mortgage affordability calculators available online (Google actually offers one built-in, all you have to do is Google “how much house can I afford?”)