Home Buying #Guides #Mortgage Basics
Home Buying #Guides #Mortgage Basics
First-Time Home Buyer Mortgage Guide
Table of contents
Many Canadians are looking to own their first home. It is quite a complex and lengthy process; many need help knowing where to start. As a first-time homebuyer, there are multiple factors to consider and many more ideas to understand before shopping for your first home. In this simple guide, we seek to help you achieve your homeownership goal by understanding the critical steps in homebuying.
We’ll also cover the different incentives available to first-time buyers and how you’ll benefit from each. This guide by no means guarantees that we have covered all that you’ll have to deal with on your journey – or that it’s detailed enough for you to consider it thoroughly. However, we hope you’ll see this as a starting point and seek other valuable advice from your mortgage professional.
Key Takeaways
- Knowledge is vital for first-time homebuyers traversing the homeownership journey.
- Qualifying mortgage payment is much higher than the actual mortgage payment.
- Multiple first-time homebuyer programs exist to lower the cost of purchasing your home.
What Are The Criteria For First-time Homebuyers In Canada?
To be qualified as a first-time homebuyer (FTHB), you must not have owned or lived in a home owned by your current spouse/common-law partner for the previous 4 years before January of this year. You can still be an FTHB if you rent for 4 years or your relationship ends.
The federal government will consider you an FTHB again for mortgage default insurance, withdrawing from your RRSP through the Homebuyers Plan (HBP) for your primary property, or spousal buyout with an insured mortgage during a relationship breakup. However, you should expect a different definition of FTHB from the provincial government regarding the land transfer tax rebate you receive, primarily if you or your spouse have owned a property before.
Important: The definitions for various incentives and programmes vary between the provinces, so you must seek professional legal advice if there is any opacity in confirming if you qualify as an FTHB.
Everything First-Time Buyers Need To Know About Mortgages
In this section, we’ll cover mortgage and financing fundamentals. It goes without saying that when making inquiries about perhaps the most significant investment you’ll ever make, there is no such thing as a stupid question.
A question that seems silly to you may help you make a crucial decision or avoid unseen risks. By understanding each piece of the puzzle, you’ll leave no stone unturned and get the understanding you need to make educated decisions.
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What Is A Mortgage?
A mortgage is a loan that can be used to purchase property, which acts as security for the loan. The definition of a mortgage translated directly from its origin in French is “death pledge.” However, mortgage rates are much more affordable than back in the day when this definition was hatched – this large sum of money can now be paid off within 25 or 30 years instead of a lifetime.
There are two main types of residential mortgage charges in Canada, regardless of the property or industry name. Their names rest on how they are registered against the property’s title. These two are aptly named – standard charge mortgage and collateral charge mortgage.
Your lender registers a standard charge on the mortgaged property, creating a legal claim, with details registered at the land registry office as contract rate and specific terms/conditions – this is also known as conventional or conventional charge mortgage. “Conventional mortgage” refers specifically to a mortgage without high-ratio insurance.
Your lender registers a collateral charge mortgage against the property for an amount exceeding the mortgage balance, securing all indebtedness, including mortgage and other debts.
What You Should Know About First-Time Buyer Downpayments
What Is A Downpayment?
The downpayment is the amount of money you put towards purchasing your home, net of closing costs and any debts you won’t pay off before your mortgage is funded. The lender will check your savings after considering loan or credit card balances.
A positive net worth reduces the risk for both you and the lender when you apply for your mortgage and helps when making budget and cash flow changes. The loan-to-value (LTV) ratio and whether you need mortgage default insurance depends on your down payment size, and it’s a critical factor in mortgage rate pricing for insured or insurable lending criteria.
How Much Downpayment Do You Need To Make On A House?
You qualify for the best mortgage rate with 5% down (on the first $500,000 purchase price and 10% beyond). A 20% or more downpayment won’t give you the best rate. You need to put down 35% or more to get a slightly better rate than with 20%, but still not as good as with less than 20%. A lower mortgage rate means you can qualify for more with a lower stress-tested mortgage payment than a higher rate.
Is The 20% Rule Always Needed?
A 20% downpayment is only required if you’re purchasing a property valued over $1 million or want to start with a 30-year mortgage amortization. Otherwise, a 20% downpayment is not a requirement unless your credit is bruised or you’re purchasing an investment property.
Struggle to save a 20% downpayment to avoid delaying your homeownership goals. Inflation and investment returns are unpredictable, and delaying can make it harder to qualify for a mortgage. Canada’s housing market expects surging long-term growth as the housing supply remains limited.
The government has discouraged demand by tightening qualifications, which puts demand pressure, and prices will continue to surge. 20% down on today’s average property may not even be 15% on the same property next year.
Pre-Approval Process
Supply is diminishing literally as you read, so let’s prepare to make your move – and start your homebuying journey on the right foot. It’s best to assess your financial situation and determine your ability to qualify. When looking at qualifying, you’re looking at what mortgage amount you can carry, considering your downpayment and the rates available to you.
One of the biggest reasons for thoroughly reviewing your financial situation during your homebuying journey is to make sure you only make offers on properties that your income can debt service. If you make an offer on a property and it’s accepted but can’t get approved for a mortgage, you could lose your deposit—or, worse, get sued by the seller.
Step 1: Application
Complete an application as a pre-approval.
A pre-approval is not the same as an approval; a pre-approval is done before you find a prospective property. This means that property details are not required when completing a pre-approval application. At this stage, you’re just looking to see how much mortgage you can qualify for.
You notice I did not use the word approval – as there is no approval. For now, everything is tentative, including that once you find your property, it may not meet your lender’s guidelines, which the lender will cover in disclosure during this process.
Step 2: Get Advice
This step is straightforward – your mortgage expert will pre-emptively review your application and have questions to understand your financial situation thoroughly.
Remember that the expert doesn’t know you or your financial situation, so if you speak frankly and truthfully, they’ll be able to impart advice that will help you – or, worst case, could save you from financial duress. Be truthful and ask questions if they use mortgage industry jargon you don’t understand. Don’t be a rate shopper. It doesn’t matter what the lowest rate is, what your neighbour got from their bank, or that you’ve saved over $1 million in your bank account.
Mortgage rates are personalized to factors related to your purchase and creditworthiness.
Step 3: Verify and Confirm
In this stage, you’ll simply need to validate your information (address, identity, income) with documentation (IDs, paystubs, letter of employment). The documents you’ll be asked to provide may vary depending on what you disclose about your financial circumstances to your mortgage expert or lender’s representative.
If you are separated, you may need to provide a separation agreement, but this is not a requirement for someone who may be single. It’s important to be forthcoming about your financial details so your mortgage expert can set your expectations and gather the correct information.
You wouldn’t want to say you don’t have any obligations outside your credit bureau but have a large amount of money coming out from your account every month. At some point, the lender will question and investigate this debit on your bank account. Thus, your mortgage approval could be in jeopardy at the last minute.
Step 4: Underwriting
Underwriting is when a credit analyst validates and reviews your credit file.
- They first review to ensure your information is valid as presented. Then, they will update the details to ensure you qualify on the correct qualifying criteria based on your request.
- Then, they will confirm one of three things on your file: that you’re pre-approved for the amount you request, pre-approved for a different amount (most possible), or both if you requested a lesser amount than what you requested could be qualified for.
- The underwriting department is required to address anything that has not been addressed on your documents, credit bureau or income by your mortgage expert’s file submission notes.
- They will look for fraud and inconsistencies, but mainly, they act as the lender’s gatekeeper —a second pair of eyes to ensure nothing is missed.
Step 5: Pre-approval Letter
Once the lender is satisfied and you’ve qualified for a potential mortgage amount, you’ll be provided with a pre-approval (with a rate hold) or pre-qualification (without a rate hold) letter that your mortgage expert will review with you so that you understand the limitations.
This letter will indicate the qualifying amount and some disclosures to protect the client in case you purchase a non-conforming property.
Fixed Versus Variable Rates
Fixed Rate Mortgages
A fixed-rate mortgage is one in which a borrower’s interest rate remains unchanged over the entire mortgage term. Lenders’ fixed mortgage rates are closely tied to the price of five-year government bonds.
As bond yields rise, the value of the bonds decreases, and banks compensate for this loss by increasing the rates on their fixed-rate mortgages. Conversely, banks’ fixed mortgage rates tend to fall when bond yields drop.
Updates to fixed-rate pricing apply on newly funded mortgages, but once your mortgage closes, you won’t have to worry about changes until you come up for renewal at the end of your mortgage term.
Variable Rate Mortgages
A variable mortgage is one in which the rate can fluctuate with changes in the lender’s prime rate. When you commit to your mortgage, your variable rate is based on a static discount from your lender’s prime rate. Lenders’ prime rates are based on the Bank of Canada’s target for the overnight policy rate, also known as the benchmark rate. When the Bank of Canada (BoC) updates its policy rate – lenders’ prime rates move in the same direction.
Choosing a fixed rate for your first mortgage is an excellent idea so you can get used to the significant monthly obligations of owning a home. Having a fixed mortgage allows you to budget confidently, knowing what your cash flow looks like from month to month – at least over your term. Although not at the moment, choosing a variable rate comes with advantages, too; if rates fall, you will benefit immediately from the savings. However, if rates increase, then your mortgage payment could be adjusted, or your amortization could increase if it is not.
Mortgage Term
Your mortgage term is the length of time your mortgage agreement and rate are valid. Mortgage terms can range from 6 months to 10 years, with 5 years being the most popular in Canada. The correct term for you depends on your borrowing needs.
Your mortgage is divided into principal and interest components, with interest calculated based on amortization and payments determined by dividing both components over the payment period.
Shorter-term interest rates are gaining popularity, benefiting borrowers as they remain priced lower. Longer terms are generally preferred as they provide FTHBs more time to adjust to a new budget. The lowest rate may only sometimes be the best option for your financial plans. Consider more than just the lowest rate when choosing your mortgage term.
Amortization
As an FTHB, your choice of amortization period is the easiest you’ll make on your homebuying journey. On the prime lending side, the amortization period cannot exceed 30 years. The maximum allowable amortization is 25 years on mortgages with less than a 20% downpayment. You can exceed 25-year amortization with a downpayment of 20% or more.
The longer the amortization, the lower your mortgage payment. The shorter your amortization period, the more money you save on interest over the term or life of the loan. The difference between two identical mortgages with different amortizations is the higher interest-carrying cost for the extended time the money is lent out.
Open Versus Closed Mortgages
If your financial situation allows you to become mortgage-free faster, the type of loan you choose can provide big savings in your interest-carrying costs. An open mortgage allows unlimited prepayments without penalty but usually has a much higher interest rate. Most mortgages are closed, restricting prepayment privileges. HELOCs (home equity line of credit) also allow unlimited prepayment but with the ability to re-advance once paid down.
What’s a prepayment? Prepayments are lump sum payments on your mortgage principal after your mortgage is funded. They both directly reduce the principal mortgage amount you owe at any given time. Being able to prepay your mortgage may not be considered if you’ve used your savings towards your downpayment.
However, if you expect a windfall and want to pay down your mortgage, an open mortgage may be a good fit, but it’s always best to consult a mortgage expert. A collateral charge mortgage can also be helpful, allowing for a smaller open mortgage (or HELOC) with a higher interest rate and a larger closed mortgage with a lower rate.
Benefits Of Mortgage Default Insurance For FTHBs
Mortgage default insurance, also known as high ratio insurance or CMHC insurance, is a mortgage that protects the lender in the event of default. Default means that the borrower has stopped and can no longer continue making payments on their loan or mortgage. This takes a default risk off the table for the lender.
Either the government takes on this risk by having its crown corporation, Canada Mortgage and Housing Corporation (CMHC), or one of Canada’s private mortgage default insurers, Canada Guaranty or Sagen (formerly Genworth), ensure the borrowers against defaulting on their mortgage.
Default insurance is available only when purchasing a primary residence valued under $1 million and bought through prime lending mortgage financing (following government rules and guidelines). When the downpayment exceeds 20% of the purchase price, the borrower is charged between 2.8% and 4% of the mortgage amount. Default insurance can be added to the mortgage balance upon qualification.
The cost of default insurance affects mortgage interest rates, with the lowest rates offered when the mortgage is default-insured and the next best rate with a downpayment of 35% or greater. When the downpayment exceeds 20%, the lender will cover the cost of the default insurance, and the premium will not be added to the borrower’s mortgage amount.
Mortgage default insurance has benefits. It helps many Canadians qualify for homeownership and build their equity sooner by accessing the lowest rates. Eligibility requirements, such as the minimum credit score needed to qualify, are lower when your mortgage is default-insured, making qualifying easier. The insurance will stay intact until the mortgage is paid out or refinanced. You should review options and do a cost analysis with multiple options that work for your financial situation. Applying for a 19% downpayment and paying the premium in cash could save you thousands of dollars in interest-carrying costs over the life of your mortgage.
The Stress Test Rate Is Not Your Actual Mortgage Rate
A mortgage stress test assesses whether you can afford mortgage payments during interest rate increases, which can fluctuate over your mortgage term. The stress test is a government requirement for lenders to assess borrowers’ risk. All mortgages must be stress tested using a benchmark rate (federal qualifying rate) or the contract rate plus 2%.
The test calculates a mortgage payment at a rate 2% higher than the borrower’s contract rate and limits gross income to 39% of the borrower’s gross household income.
The easiest way to calculate your mortgage stress test is to add 2% to your rate and compare it with the benchmark rate.
You can check out nesto’s best 5-year variable rate or best 5-year fixed rate, then add 2% to your rate choice to get your higher stress test rate.
- The Bank of Canada Benchmark Rate, currently 5.25% or
- Your mortgage interest rate + 2%
For example, if you’re choosing nesto’s fixed rate, which today (as of May 3, 2023) is 4.39%, and you match the LTV limitations for this rate, then calculate your mortgage qualifying (stress test) rate as: 4.39% + 2% = 6.39%.
Now, simply input the rate into our mortgage calculator to calculate your stress test monthly payment for your desired mortgage amount. You’ll be qualified if your gross debt-to-income ratio (GDS) is below 39% with less than 20% downpayment or below 35% with 20% or more downpayment.
Working With Lenders Directly Or Mortgage Brokers
Mortgage lenders have different channels, some with branches and brokers that offer their services and others that are direct to customers to avoid commission payments. Knowing which channel you’re working with is essential, as mortgage rate pricing varies due to sales compensation. It’s also crucial that a banking officer is a generalist and they do not specialize in mortgages.
A qualified mortgage professional specializing in mortgages can provide knowledge through the application process. They can be called various names depending on the province in which they are registered, but the exact educational requirements apply and are provincially regulated. For simplicity, we’ll continue to refer to them as mortgage experts – not to be confused with a bank branch representative who is a generalist. Some provinces, such as Quebec, have more rigorous education and regulations to protect consumer interests.
Shopping for the best lender or mortgage expert you wish to work with will be the best. You should ask about their level of knowledge and experience with mortgages. If your mortgage expert comes with these two values, you can expect more support and fewer delays throughout your homebuying journey.
Understanding Mortgage Rates As A First-Time Homebuyer
One of the biggest mistakes you can make is only looking at the mortgage interest rate when getting a mortgage. Sometimes, the lowest rate isn’t always your best choice, especially if you plan to move in a few years. If you end up locking into a low rate that doesn’t enable you to break the mortgage without paying a hefty penalty, then the low rate you selected upfront can cost you much more.
If possible, you’ll want to have the ability to change your payment frequency from a monthly mortgage payment, increase your mortgage payments or make lump-sum payments to help you pay off your mortgage faster. Even if you don’t think you’ll be making extra payments, remember that every bit helps, so it’s best to have this prepayment option just in case. Be sure to find out the amount you can prepay annually without facing penalties.
Predicting the future and knowing exactly how long you’ll remain in your home is tough. What happens if you decide to move from your current home to a new one before your mortgage term ends? In this case, you’ll want to ‘take your mortgage. In other words, transfer it to your new home. This is known as a portable mortgage.
Important: Sometimes, the lowest interest rate isn’t always your best choice, especially if you plan to move in a few years. If you lock into a low rate that doesn’t enable you to break the mortgage without paying a significant penalty, then the low rate you selected upfront can cost you much more.
Closing Costs And Other Critical Costs For First-Time Buyers To Consider
Although you’ll have to set aside money towards your downpayment, it’s also best to consider your closing costs. These costs related to your home’s purchase are in excess of your downpayment. Closing costs cannot be gifted and are a factor in your approval, so be sure to review and consider them as a much-needed part of preparing for your homebuying journey. You must typically allocate between 1.5% to 4% of the home’s price.
| Consideration | Approximate Value | Details |
|---|---|---|
| Deposit | $5,000 to $50,000 (depending on the purchase price) |
The deposit is the portion of your downpayment which you give to the selling realtor’s brokerage account in trust when your purchase offer is accepted. When you close with your solicitor, this money will count towards your downpayment amount. Keep a copy and the receipt from the seller’s realtor. |
| Appraisal | $300 to $500 | An appraisal may not be required—if it is, the lender or insurer will cover it, depending on your downpayment. This requirement may also depend on the property’s location, age, and purchase price. If you ask the lender to cover it, it may affect your mortgage rate, so be sure to check. Newly built properties typically require an on-site appraisal to be completed. |
| Land Transfer Tax | % of purchase price |
Your solicitor will complete the legal due diligence to get the property’s title in your name. They represent both you and the lender. Once the mortgage instructions are sent, the lender will communicate with your lawyer. Your fees should be around $1,500 on average but can range higher if extra due diligence is needed. |
| Legal fees | $1,000 to $3,000 | Your solicitor will complete the legal due diligence to get the property’s title in your name. They represent both you and the lender. Once the mortgage instructions are sent, the lender will communicate with your lawyer. Your fees should be around $1,500 on average but can range higher if extra due diligence is needed. |
| Title Insurance | $300 | This is the provincial sales tax (only applicable in some provinces) on mortgage default insurance. Although the premium can be added to your mortgage, the PST on your default insurance premium must be paid in cash to your solicitor. |
| Default Insurance | 2.8% to 4% of the mortgage |
This mandatory insurance on high-ratio mortgages protects your lender in case of default. When mortgages are insured, they have access to better rates as the risk to lenders is reduced. The premium you pay is a percentage of your mortgage amount based on your loan-to-value ratio. Some may refer to this as CMHC insurance, which can be added to your mortgage. |
| PST | ON – 8% QC – 9% SK – 6% |
A condo status certificate is a long, detailed report showing a condominium unit’s financial and legal situation. It provides an overview of the condominium corporation’s overall health and well-being. In some provinces, the status certificate is also known as an estoppel certificate, information certificate, or simply a certificate. It’s an excellent way for prospective buyers to review important information about your unit, building, bylaws, rules, regulations and legal matters. It also helps protect you from any surprises, issues or problems arising after the purchase. If the condo has a special assessment or other significant legal, maintenance or financial issues, you could be on the hook for any future remediation, ensuring a smooth and informed transaction. In some cases, problems with the condo may prevent you from qualifying for a mortgage, rebate or program. You must know what you’re signing up for. Unless the seller is preemptively prepared, it could take you up to 10 days to request a status certificate from the condo or its property manager. According to Ontario’s Condominium Act, the prescribed fee for a status certificate is up to $100, including HST. You should consult with an experienced real estate legal professional to help you understand the information on the certificate and determine if any issues need to be addressed before completing your real estate transaction. |
| GST/HST | 6% to 13 | GST/HST may apply if you buy or build a new home or condo. The GST or HST tax rate will depend on the province where the property is located and is based on the purchase price. If your home purchase is exempt from GST/HST, your solicitor will confirm and apply for the tax credit. |
| Realtor Fees | 2% to 5% of the selling price |
The seller pays Realtor fees, and the selling agent usually splits it with the buying agent. As someone who is purchasing a property, this is not a fee that you’ll have to consider; however, if you’re also selling and buying, you’ll need to consider this deduction on the selling price of your property. |
| Property Taxes | $$$ | This could be a cost or a credit on your statement of adjustment. Property taxes are sometimes prorated. Your solicitor will request the final bill from the seller or municipality to adjust for any unpaid portion for the time you take ownership. |
| Utility Charges | $$$ | This could be a cost or a credit on your statement of adjustment. Utilities such as gas or hydro are sometimes prorated. Your solicitor will request the final bill from the seller or utility company to adjust for any unpaid portion from the time you take ownership. |
| Home Inspection | $500 to $1,500 | You should include a home inspection if you’re purchasing a house. It’s not a requirement and even has less need if you’re purchasing a condo. The inspection could reveal structural or other costly issues with the property and help you negotiate a lower price. It’s also a great way to understand any repair costs before purchasing. The cost of this service will depend on the location and availability of the inspectors who service the location, as well as the thoroughness of the report. |
| Condo Status Certificate | Up to $100 | A land or property survey is an inspection of your property’s boundaries designed to help the landowner understand the geographical limits of their property. By understanding these limits, homeowners can protect their ownership rights if a claim is made on their property. The average cost of surveys in Ontario varies greatly depending on the size of your property and what type of survey is needed, ranging from $1,500 to $6000. In Quebec, a land surveyor is better known as a certificate of localization for the lender to finance or refinance your home. It can cost up to $1500 but varies between regions; however, only sellers must concern themselves as Section 1719 under CCQ 1991 requires the seller to give the buyer a copy. |
| Property Survey | $1,500 to $6,000 | A land or property survey is an inspection of your property’s boundaries designed to help the landowner understand the geographical limits of the property. By understanding these limits, homeowners can protect their ownership rights if a claim is made on their property. The average cost of surveys in Ontario varies greatly depending on the size of your property and what type of survey is needed, ranging from $1,500 to $6000. In Quebec, a land surveyor is better known as a certificate of localization for the lender to finance or refinance your home. It can cost up to $1500 but varies between regions; however, only sellers must concern themselves as Section 1719 under CCQ 1991 requires the seller to give the buyer a copy. |
| Government Registration Fees | Up to $200 | Government (or land titles) registration fees are charges associated with provincial government offices’ performance of duties related to land titles and their registered legal description. These fees can include costs for title searches, registering or depositing an instrument or plan, correcting errors, defects, and omissions in a registered document or deposited plan, and other services related to land registration. The specific fees and their amounts can vary by province (up to $200) and are often adjusted annually. Your real estate lawyer will collect and pay these to complete the required procedures and obtain the correct certificates to complete your mortgage transaction. Your lawyer or notary will provide you with an itemized bill of services, including the payments for any required services on your behalf. |
Rebates & Incentives For First-Time Home Buyers
As a first-time home buyer, you must know the various programs available to offset homebuying costs and help fund your down payment, which is often one of the most challenging hurdles to home buying.
Following are details about critical first-time home buyer programs that could save you money:
| Name | Savings / Benefits | Details |
|---|---|---|
| First-Time Home Buyers Tax Credit (HTBC) | Up to $1,500 | The HBTC offers a non-refundable income tax credit of up to $10,000 on a qualifying home acquired during the year. The credit could provide you with up to $1,500 in federal tax relief for an eligible individual. |
| GST/HST New Housing Rebate (NHR) | $$$ | The NHR provides a refund for the federal part of the GST or HST that you paid on the purchase price or cost of building your new house, on the cost of substantially renovating or building a significant addition to your existing property, or on the cost of converting your non-residential property into a house. |
| Home Buyers’ Plan (HBP) | $60,000 | The HBP programme allows you to withdraw up to $60,000 in a calendar year from your registered retirement savings plans (RRSPs) to buy or build a qualifying home. |
| Tax-Free First Home Savings Account (FHSA) | $40,000 | The FHSA is a registered plan allowing prospective first-time homebuyers to save for their first home tax-free. You can save up to $8,000 annually to a maximum of $40,000 over 15 years. If you do not purchase a home within 15 years, the money is transferrable tax-free into your eligible RRSP. Contributions will reduce your taxable income in the year they are deposited into the FHSA. If the money is withdrawn for any reason other than to purchase your first home, then you’ll be taxed at your marginal income tax rate for the year it is withdrawn. |
| Land Transfer Tax Rebate | ON – up to $4,000 BC – up to $8,000 PE – up to $2,000 TO – up to $4,475 ML – up to $15,000 |
First-time buyers in Ontario, British Columbia, Prince Edward Island, and the City of Toronto can benefit from a tax rebate. The City of Montreal also has a similar programme, but it has many limitations and caveats. |
Examples Of Income Needed To Secure Mortgages In Various Provinces
These examples show the average prices of homes in Canada, Quebec, Ontario, British Columbia, and Alberta, as well as the income needed to qualify for a mortgage with a 20% and less than 20% downpayment.
Frequently Asked Questions
Welcome to our Frequently-Asked Questions (FAQ) section, where we answer the most popular questions designed and crafted by our in-house mortgage experts to help you make informed mortgage financing decisions.
What is my price range for purchasing a home?
You should start by completing a pre-qualification or pre-approval to assess your financial situation and gather the knowledge and advice you need to feel comfortable with house hunting.
How do I select the right real estate agent?
When buying a home, selecting the right real estate agent is essential. Look for an agent knowledgeable about the local market and who has experience working with buyers. Ask for referrals from friends and family to find an agent who can best serve your needs. Meet with several agents to find one who fits your needs, budget, and personality.
How can I determine my monthly budget for homeownership?
Working backwards to determine a budget that works for you, A manageable budget will give you room to breathe and enjoy life while enjoying homeownership. If you don’t want to be “house poor,” seek advice from a financial planner for budgeting and planning. Once you’re comfortable with your budget, you can seek advice from a mortgage expert to see what mortgage amount your budget and income will qualify you for.
In a best-case scenario, your monthly obligations don’t go beyond 30% of your after-tax income, and you have enough cash savings to manage your budget for 6 months or more in case you lose your job.
Should I complete a pre-approval or a pre-qualification?
Pre-approvals and pre-qualifications are both analyses of your borrowing capacity concerning your income, credit, conditions, down payment, savings, and net worth minus the down payment and closing costs. They do not consider the collateral (or property) as they are assessed before finding a subject property. Pre-qualifications do not have a rate or discount attached to your qualification, such as in the case of a variable rate.
A rate hold will give you peace of mind while shopping for a property in the case of a pre-approval. Pre-approvals with rate holds will cost the lender to hold the money for you at a specific rate/discount. Some lenders that offer the best rates do not offer pre-approvals with rate holds; conversely, they offer pre-qualifications without rate holds to keep the cost to buy money down for live mortgages where clients have an accepted offer on a property.
Most lenders that offer a pre-approval with a rate hold will attach a premium to this rate, meaning that if you return to that lender, you will be locked into that higher rate even if rates stay down. Therefore, lenders with the best rates offer only live rates, which can only be locked in once you have an accepted offer on a specific property. Please speak to our commission-free nesto expert to find the most suitable solution for your financial situation.
What is a mortgage rate hold?
Depending on the rate offered, lenders will hold your rate for a set time – say 60 to 180 days. Most lenders will add a premium to the rate to hold it longer.
Sometimes, lenders advertise or offer a quick close rate for a mortgage that can be funded within 45 or 60 days. The quick close rate is a special offer with a limited supply of money at that rate.
A mortgage rate hold allows clients to lock in a rate at either the pre-approval or renewal / refinance stage. Once you’re qualified and your mortgage is approved, the lender will issue you a mortgage commitment to hold a fixed mortgage rate or hold a discount from their prime rate on a variable or adjustable mortgage.
Final Thoughts
Buying a home is one of the most important decisions anyone can make. Making the right decision takes careful consideration, research, and confidence. With the proper knowledge, you should ensure that you find your perfect home quickly and with minimal stress.
Our first-time homebuyer’s guide has provided you with insight and knowledge to embark on your journey stress-free. Understanding mortgages, benefits and savings programs will take you closer to achieving your goals.
If you need additional guidance, consider seeking advice from nesto’s mortgage experts. Our mortgage experts are here to help guide you through this milestone in becoming a homeowner. At nesto, we wish to support each step of this rewarding journey!
Why Choose nesto
At nesto, our commission-free mortgage experts, certified in multiple provinces, provide exceptional advice and service that exceeds industry standards. Our mortgage experts are non-commissioned, salaried employees who provide impartial guidance on mortgage options tailored to your needs and are evaluated based on client satisfaction and advice quality. nesto aims to transform the mortgage industry by providing honest advice and competitive rates using a 100% fully digital, transparent, seamless process.
nesto is on a mission to offer a positive, empowering and transparent property financing experience – simplified from start to finish.
Contact our licensed and knowledgeable mortgage experts to find your best mortgage rate in Canada.
EXPLANATIONS
Interest Rates
Property Values
Home Price Index
Property Types
Property Ownership Classes
Strata Insurance
Rental Values
Qualifying Criteria
Professional Titles
Mortgage Experts
Interest Rates
Qualified using nesto’s fixed 5-year insured and uninsured rates as advertised on our website. For today, Monday, May 12, 2025, our example calculations are qualified on our lowest rates, which may or may not apply to your unique financing situation or long-term goals. Insured fixed-rate mortgages will be qualified at
The average rates are calculated based on the advertised rates of the six biggest lenders in Canada. The six biggest lenders are the chartered banks Toronto-Dominion Bank (TD), Royal Bank of Canada (RBC), Bank of Montréal (BMO), Bank of Nova Scotia (BNS), Canadian Imperial Bank of Commerce (CIBC), and National Bank of Canada (NBC). We may also display a similar average with the inclusion of Desjardins, Tangerine, First National Financial (FN) and nesto to round out Canada’s 10 biggest mortgage lenders. The averages shown may be further broken down between insured and conventional rates.
We appreciate your patience and understanding and encourage you to email us at website@nesto.ca with information that needs correction, along with your sources.
Property Values
Home values collected from CREA or QPAREB are those presented as the composite benchmark or average prices for each city/province/region unless specified. They may be interchangeably called average home prices, though an average price may not be available for many regions outside Quebec.
MLS® Home Price Index (HPI)
The MLS® Home Price Index (HPI) is a real estate price index compiled by the Canadian Real Estate Association (CREA) that tracks the price of homes in your neighbourhood. It’s a quick way for Canadians to compare home prices in different parts of Canada and between different periods without having to factor in the unique characteristics of a particular property.
While market prices can vary from one month to the next based on seasonal factors, the Home Price Index (HPI) provides a more consistent view and tracks price trends over an extended period. The Home Price Index (HPI) is updated annually in May to reflect changes in real estate markets.
MLS® HPI is the most comprehensive and precise way to track a neighbourhood’s home price level and trends. MLS HPI uses over 15 years of data from the MLS® System and advanced statistical models to create a “typical” home based on the characteristics of homes purchased and sold. This benchmark home is tracked across all Canadian neighbourhoods and various types of homes.
Property Types
Detached homes, also known as single-family homes, are residential properties that stand alone and are not connected to other buildings. They are legal single residential units on their own parcel of land and have a separate title.
Semi-detached homes are characterized by their unique architectural design. Two houses are built side by side and share a common wall. Although sharing a building, semi-detached homes have their own parcel of land and separate legal titles.
Townhouses are residential dwellings typically characterized by narrow, tall structures, often sharing walls with neighbouring units. Although they may share yards or common elements with their neighbours, townhouses will have separate legal titles from any adjoining building. Townhouses can be purchased as freehold or leasehold within a condo or strata and may come with their own land parcel. Townhouses can be part of a low-rise or high-rise building.
Condo apartments, also known as condominiums, are residential properties that combine elements of apartments and individual homes. It is a unit within a larger building or complex owned by an individual who also shares ownership of common areas and amenities with other residents. Condo apartment owners have legal ownership of their units and can modify them within the guidelines set by the condominium association. Unlike a townhouse, condos do not offer exclusive use of outdoor space unless they come with a balcony or terrace. Condos can be part of a low-rise or high-rise building.
Plexes or multiplexes are unique residential buildings constructed into 2 to 6 units within a single structure. Traditionally, they have been designed as low-rise residential buildings where any unit is accessible via an external entrance with higher floors connected by staircases. Each unit will have a separate registration and title but may share common elements and co-ownership fees with the other multiplex owners. Plexes are common in Québec and older parts of Toronto.
Property Ownership Classes
A freehold is a type of property ownership where an individual or entity has complete and indefinite ownership rights over a property and its parcel of land. Common freehold property types include detached houses, semi-detached houses, farms, and townhouses, which are not part of condominium corporations.
A condominium or condo is a distinct type of property class that combines apartment living and individual homeownership elements. In a condominium, individual units are owned by the residents, while the common areas and amenities are shared among all the unit owners. This type of ownership gives you rights to your specific unit and some rights and responsibilities to the common areas, such as the hallways, elevators, garage, pool and rooftop patios.
A leasehold is a legal arrangement where a person or entity holds the right to use and occupy a property for a specific period, typically through a lease agreement. In some cases, the leaseholder may own the building or unit and rent the land from the landowner (landlord).
Strata insurance
Strata insurance is insurance that a strata or condominium uses to cover damages to common areas, assets and liabilities to the strata. It can also include fixtures built or installed as part of the original construction of each unit, even though these may not be common structures. Strata insurance can cover the following:
- Buildings and structures on the strata’s property, including common areas such as the garage, roof, lobby, pool, etc.,
- Liabilities for any property damage or bodily harm due to an injury suffered on a strata property,
- Which also includes fixtures in the standard unit or part of the original make of each unit.
Strata insurance generally does not cover personal belongings and appliances in a condo unit. Damage caused by individual unit owners (e.g., water damage due to a unit owner’s negligence) is typically covered under personal condo insurance.
Rental Values
Our monthly or year-over-year rental averages are sourced from Urbanation’s monthly Rentals.ca National Rental Report.
Mortgage Qualifying Criteria
Insured qualifying criteria are limited to a 39% gross debt service (GDS) ratio and up to 25 years of amortization. For insured mortgage transaction calculations, we have used a 20% downpayment, unless otherwise indicated, in our examples and excluded any mortgage default insurance (CMHC) premium. Uninsured qualifying criteria are limited to a 35% gross debt service (GDS) ratio and up to 30 years of amortization. Our examples use a 20% downpayment for uninsured mortgage transaction calculations. Unless otherwise indicated, a $100 monthly heating cost is attributed to the total monthly stress-tested payment. Municipal tax rates are the most recently shown on the applicable municipality’s website (1% used as default when unavailable or for a region with an unspecified mill rate). Mortgage default insurance is not permitted on purchases that have valuations of $1 million or more, amortizations exceeding 25 years, or on refinance transactions.
Regulatory Titles
In Ontario (FSRA), mortgage brokers and agents serve as the middle person between borrowers and lenders, helping clients find the most suitable mortgage options for their financing situation. A Mortgage Agent works under the supervision of a Mortgage Broker and assists in the mortgage application process. A Mortgage Broker may also be responsible for compliance requirements for their brokerage or a team.
The provinces of Quebec (AMF) and Newfoundland (Digital & Government Service NL) both exclusively utilize the designation of Mortgage Broker as a licensing designation.
British Columbia (BCFSA) has two distinct roles within the mortgage industry: the Submortgage Broker and the Mortgage Broker. These positions have specific responsibilities and functions that contribute to the overall process of securing mortgages for clients. The Submortgage Broker works under the supervision of a licensed Mortgage Broker and assists in various tasks, such as gathering client information, completing paperwork, and liaising with lenders. The Mortgage Broker oversees the entire mortgage application process, including assessing client needs, finding suitable mortgage options, negotiating terms, and ensuring compliance with regulations.
In Alberta (RECA) and New Brunswick (FCNB), the distinction between a Mortgage Associate and a Mortgage Broker lies in their roles and responsibilities within the mortgage industry. A Mortgage Associate typically works under the supervision of a Mortgage Broker and assists in the mortgage application process gathering necessary documentation, and providing support to clients. A Mortgage Broker is licensed to independently negotiate and arrange mortgage loans on behalf of clients, offering a more comprehensive range of mortgage options and expertise in the field.
In Saskatchewan (FCAA) and Nova Scotia (Government of Nova Scotia, Business Licensing), there are distinct roles for both Associate Mortgage Brokers and Mortgage Brokers. The critical difference lies in their level of experience and licensing requirements. Associate Mortgage Brokers work under the supervision of a licensed Mortgage Broker and are in the early stages of their career. They may assist with gathering client information and preparing mortgage applications. Mortgage Brokers have obtained the necessary qualifications and licences to operate independently and provide mortgage services directly to clients. They have the authority to negotiate mortgage terms, advise clients, and facilitate the mortgage process from start to finish.
In Manitoba (MSC), a Salesperson is primarily responsible for promoting and selling products or services, while an Authorised Official holds the authority to make legally binding decisions on behalf of the organization. These roles have different levels of authority and expertise, with the Salesperson focusing on sales and the Authorised Official having broader decision-making powers and acting as the liaison between the brokerage and the regulator.
For a complete list of licensing terms in Canada, please see the Mortgage Broker Regulators’ Council of Canada (MBRCC) published list.
nesto Mortgage Experts
Titles such as mortgage broker, mortgage agent, submortgage broker, mortgage salesperson, or principal broker are provincially regulated licensing terms with educational requirements specific to each province. Although they may all commonly be referred to as mortgage brokers, in Ontario, where mortgage agents are used as a designation, mortgage brokers or principal brokers have additional responsibility for compliance and training mortgage agents.
Licensed mortgage professionals often use the industry norm of “mortgage broker,” “broker,” or “advisor” to refer to themselves. However, disclosure requirements for licensed mortgage professionals’ titles vary across each province in Canada. These disclosures require mortgage brokers to adhere to specific rules when using titles to represent their qualifications and expertise. The provinces have regulations and guidelines that govern the use of titles by mortgage brokers. These regulations aim to ensure transparency and protect consumers in the mortgage industry.
Other articles in this guide: “First-Time Home Buyer Mortgage Guide”
- What is the First-Time Home Buyers’ Tax Credit?
- What is the RRSP Home Buyers’ Plan (HBP)?
- First-Time Home Buyer Land Transfer Tax Rebates Across Canada
- First-Time Home Buyer Programs in Canada
- First-Time Home Buyer Grants in Canada
- First-Time Home Buyer Loans in Canada
- Who Can Benefit From the Home Buyers’ Tax Credit (HBTC)?
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