Are You A First-Time Home Buyer?

Buying a home is a huge milestone – but the process can be a little difficult to navigate. Sometimes, just the thought of a down payment on a house is enough to get your heart racing a little faster. It’s understandable. As a first-time home buyer, if you’re purchasing a house or a condo, it can be intimidating. Here’s a breakdown of some useful things to know and understand before you’re ready to jump right in.

How much do you need to save for a down payment?

A down payment is the amount of money you put down on your house or condo. It’s then deducted from the purchase price of your home. The more money you can save for your down payment, the better. The required down payment can vary depending on the value of the home but generally ranges between 5 – 10%. For high value homes the minimum down payment can be as high as 20%1.

You can also use this easy TD down payment calculator to help you figure out how much you need to save.

How much can you afford to spend on a home?

A good rule of thumb, according to the Canada Mortgage and Housing Corporation, is that your monthly housing costs (for example mortgage payments, utilities, home insurance) shouldn’t be more than 30% of your gross monthly income2.

The TD mortgage affordability calculator is also a great tool to help give you an idea of how much you can afford.

How do you qualify for a mortgage?

You must apply for a mortgage. These are some of the factors that will be taken into consideration and will dictate if you get approved and the mortgage amount you qualify for:

  • Income
  • Expenses
  • Debt
  • Employment
  • Credit history
  • Amortization (length of loan term)3

What’s the best way to save for a home?

A pre-authorized transfer from your chequing account to your savings account is a great option to help you save for your big purchase– that way money is put away before you have the time to spend it.

Here are some more really useful tips to grow your savings for a down payment even faster.

What is the First-Time Home Buyer Incentive?

There is something called the First Time Home Buyer Incentive that is offered by the Government of Canada. It helps lower your mortgage payments through a shared equity mortgage. First-time home buyers get up to 10% of a new home’s purchase price to put toward their down payment. If you’re eligible for it, it helps make this really big purchase, a little more manageable4.

There is also something called the Home Buyers’ Plan which is a program that allows you to withdraw money from your Registered Retirement Savings Plan (RRSP) to help pay for your home, as long as you pay back the funds within 15 years5.

What are the different costs you need to factor in when buying a home?

There are more costs that need to be covered besides the price tag of the home you want to purchase. In fact, there are lots of little hidden costs that you should keep in mind when you establish your budget. Some of these costs that may or may not apply to you include:

  • Legal fees
  • Home insurance
  • Land registration
  • Adjustment costs
  • Appraisal
  • Home inspection
  • Moving costs6

Is there a difference between mortgage insurance and home insurance?

Mortgage insurance and home insurance are two very different things. Home insurance protects you financially if something happens to your home for which you're covered. For example, if your home is damaged or destroyed by fire or your dishwasher leaks and floods your house. Whereas mortgage insurance protects the lender in case someone can’t make their mortgage payments.

Do you need mortgage insurance and home insurance?

According to the Canada Mortgage and Housing Corporation (CMHC), mortgage insurance is mandatory if the down payment is less than 20% of the full cost of your home7. Considering the size of the investment when you are purchasing a new home, it would be advisable to always have home insurance. If your home is mortgaged, your lender will require you to carry home insurance at all times.

Exhilarated. Excited. And probably nervous. These are just some of the feelings you’ll most likely experience when you’re buying your first home. But it’s all worth it in the end. Because eventually you’ll feel confident once you’ve gone through the process. You’ve done your homework and now hopefully you’re one step closer to getting approved.

Then the real fun begins – the search for your future home.

Want to know more? Here are more really helpful and practical things to consider when you’re in the process of buying a new home.

Reference Articles:

  1. https://www.canada.ca/en/financial-consumer-agency/services/mortgages/down-payment.html#toc0
  2. https://www.canada.ca/en/financial-consumer-agency/services/buying-home.html#toc0
  3. https://www.canada.ca/en/financial-consumer-agency/services/mortgages/preapproval-qualify-mortgage.html
  4. https://www.canada.ca/en/financial-consumer-agency/services/mortgages/down-payment.html#toc2
  5. https://www.canada.ca/en/financial-consumer-agency/services/mortgages/down-payment.html#toc1
  6. https://www.canada.ca/en/financial-consumer-agency/services/buying-home.html#toc4
  7. https://www.canada.ca/en/financial-consumer-agency/services/mortgages/down-payment.html#toc3