Embarking on the journey to homeownership is thrilling and complex. This concise guide is tailored for Canadian first-time homebuyers, offering insights into financial preparation, available incentives, and expert advice on navigating the process confidently.

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Key Takeaways

• Assess your financial readiness and utilize tools like mortgage calculators to budget effectively.
• Use programs like the Home Buyers’ Plan and the First Home Savings Account.
• Work with real estate agents, mortgage brokers, and legal professionals to navigate the process smoothly.

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Step 1: Assessing Your Readiness for Homeownership

Financial and Lifestyle Considerations

• Stability: Ensure a steady income and manageable debts.
• Ongoing Costs: Prepare for expenses such as property taxes, utilities, insurance, and maintenance.
• Lifestyle Impact: Consider the responsibilities of upkeep and potential renovations.

Costs of Homeownership

• Upfront Expenses: Down payment, closing costs, and inspection fees.
• Recurring Expenses: Mortgage payments, property taxes, utilities, condo fees, and property maintenance.
• Unexpected Repairs: Budget for unforeseen issues like appliance replacements or structural repairs.

Closing and Homeownership Costs for First-Time Buyers

	Description	Approximate Amount
Deposit	The amount is given to the selling agent in trust so they can consider your offer to purchase.	Ranges between $5,000 to $50,000 depending on the price of the property
Land Transfer Tax	A tax levied by provinces or municipalities upon property purchase. Rebates may be available for first-time homebuyers in certain regions.	It varies by province/municipality as a percentage of the purchase price.  In some provinces, it may also include a portion based on the mortgage amount. For example, 0.5% to 2.5% in Ontario, doubling if the property is in Toronto.
Legal Fees	These fees for legal services will handle documentation, title transfer, and mortgage registration.	$1,000 to $3,000.
Home Inspection	An evaluation of the property’s condition before purchase is optional but recommended if purchasing a home (not required for a condo unless it is a townhouse.	$1,000 to $2,000.
Appraisal Fee	Assesses the property’s market value to ensure it aligns with the mortgage amount.	$300 to $500. More for executive homes such as mansions or those on large plots.
Title Insurance	Title insurance protects against title fraud and defects.	$250 to $400.
Mortgage Insurance	Required for down payments of less than 20%.  Premium can be added to the mortgage or paid upfront.	2.8% to 4% of the mortgage amount, with an additional 0.20% to 0.30% if taking on a 30-year insured mortgage. CMHC insurance premium Sagen mortgage insurance premium Canada Guaranty mortgage insurance premium
Moving Costs	These are expenses for relocating belongings, including hiring movers or renting a truck.	$500 to $2,000.
Utility Hookups	Fees to connect services like electricity/hydro, gas, water, and internet at the new property.	$150 to $300 per service.
Mortgage Payment	The mortgage payment is calculated based on your interest rate and mortgage amount (the difference between the purchase price and down payment) over your chosen amortization.	$15 per 0.25% for each $100,000 over 25-years.
Municipal Property Taxes	Calculated based on the property’s assessed value, typically lagging the market value.  It covers police and fire services, garbage collection, sewage, road maintenance and snow removal.	This tax varies by municipality or province (rural).  For example, it is as low as 0.28% in Vancouver or 0.67% in Toronto and up to 2.65% in Winnipeg on the higher end.
Property Insurance	Insurance coverage protects the home and contents from risks like fire or theft.  This is mandatory for mortgage approval.	$100 monthly or more, depending on the property’s replacement value and personal liability and contents that are insured.
Utility Costs	Monthly costs include electricity/hydro, gas, water, and internet fees at the new property.	$500 to $1000 monthly

Step 2: Preparing Your Finances

Understanding Affordability

• Gross Debt Service (GDS) Ratio: The GDS ratio measures the percentage of your gross monthly income allocated to housing costs. It typically includes your stress-tested mortgage payment, property taxes, heating expenses, and 50% of condo fees (if applicable). It’s limited to 32% (for down payments of 20% or more) or 39% (if your downpayment is less than 20%) of your gross income. A lower GDS indicates a better ability to handle housing costs.

• Total Debt Service (TDS) Ratio: The TDS ratio assesses your overall debt obligations, including your housing costs (GDS) and other debts like car loans, credit card payments, or student loans. It measures the percentage of your gross monthly income dedicated to servicing all debts. It’s limited to 40% (for downpayments of 20% or more) or 44% (if your downpayment is less than 20%) of your gross income. A lower TDS indicates a healthier financial position and a better debt management capacity.

Tools and Resources

• Utilize the nesto Mortage Affordability Calculator to estimate your ability to qualify for a mortgage.
• Utilize the nesto Mortage Payment Calculator to estimate your carrying costs.
• Utilize the nesto Land Transfer Calculator to estimate your closing costs.

Building a Down Payment

• Minimum Requirements:
  • 5% for homes priced at $500,000 or less.
  • 10% for the portion above $500,000, up to $1,000,000.
  • 20% for homes priced above $1,000,000.
• Home Buyers’ Plan (HBP): Withdraw up to $60,000 from your RRSP tax-free for a down payment, with a 15-year repayment period.
• First Home Savings Account (FHSA): As an FTHB, you can withdraw up to $40,000 tax-free for your home purchase; repayment is not required.

Federal First-Time Home Buyer’s Incentives

	Details
Home Buyers’ Plan (HBP)	Withdraw up to $60,000 from RRSP through the HBP tax-free for a down payment; repay over 15 years.
First Home Savings Account (FHSA)	Through the FHSA, you can save up to $40,000 tax-free for a home purchase, with an annual contribution limit of $8,000.
GST/HST New Housing Rebate	Recover a portion of GST/HST paid on a new or substantially renovated home.
Home Buyers’ Tax Credit (HBTC)	Claim a non-refundable tax credit of $10,000 under the home buyer’s amount, providing up to $1,500 tax relief for eligible first-time homebuyers.
Land Transfer Tax Rebates	Provincial rebates are available (e.g., up to $4,000 in Ontario) for eligible first-time buyers.

Provincial First-Time Home Buyer’s Incentives

	Incentive	Description
Ontario	Land Transfer Tax Refund Toronto Municipal Land Transfer Tax Rebate	The province provides eligible first-time homebuyers a refund of up to $4,000 on land transfer tax.  If you purchase your first home within Toronto, you can receive an additional rebate of up to $4,475 on the municipal LTT.
British Columbia	First-Time Home Buyers’ Program	This rebate reduces or eliminates the property transfer tax for first-time homebuyers purchasing a home up to $835,000.
Quebec	Home Buyers’ Tax Credit Montréal Home Purchase Assistance Program Québec City Family Access Program	The province provides up to $1,400 in tax relief for eligible first-time homebuyers.  Montréal HPAP offers financial assistance up to $15,000 for first-time homebuyers meeting specific criteria.  Québec City FAP provides interest-free down payment loans for first-time buyers purchasing homes under $370,000.
Saskatchewan	First-Time Homebuyers’ Tax Credit	A non-refundable income tax credit of up to $1,050 is provided, calculated as 10.5% of the first $10,000 of the home’s purchase price.  Buyers can claim the credit on their Saskatchewan income tax return.
Manitoba	Rural Homeownership Program	Provides forgivable loans up to $30,000 for qualifying homes in rural or remote areas to encourage homeownership and revitalize communities.  Loan amount and eligibility vary by region and property.
Newfoundland	First-Time Homebuyers Program (FHP)	It covers up to 50% of closing costs (up to $1,500) and offers a repayable loan of up to 5% of the home’s purchase price, capped at $19,000.  Eligibility and limits depend on region and household income.
Nova Scotia	First-Time Home Buyers Rebate Program	Offers a rebate of up to $3,000 for newly constructed homes, covering 18.75% of the provincial portion of the HST or 1.31% of the purchase price, whichever is lower.  Applicants must not have owned or occupied a home in Canada in the past five years.
Nova Scotia	Down Payment Assistance Program (DPAP)	Provides an interest-free loan of up to 5% of the home’s purchase price, capped at $28,500, to assist with down payments.  Repayment is over ten years, and applicants must meet income and residency criteria.
New Brunswick	Home Ownership Program	The province offers repayable loans covering up to 40% of an existing home’s purchase price or up to 50% of construction costs for a new home, capped at $75,000.
Prince Edward Island	Real Property Transfer Tax Exemption	Exempts first-time homebuyers from the Real Property Transfer Tax for the first $200,000 of the home’s purchase price.  Applicants must meet residency and principal residence requirements.

Step 3: Exploring Financing Options

Mortgage Pre-Approval

• Benefits: A mortgage preapproval determines your budget and signals seriousness to sellers.
• Process: Lenders assess your financial health either through a mortgage prequalification or by providing a pre-approved amount with a rate lock.

Choosing a Mortgage Type

• Fixed-Rate Mortgage: Stable payments over the term, ideal for predictable budgeting, especially for your initial mortgage term as an FTHB.
• Variable-Rate Mortgage: Adjustable payments fluctuate with interest rates (ARM), or only the interest component fluctuates, but the monthly payment stays the same (VRM), offering potential savings but with more risk.

Mortgage Stress Test

• Purpose: The mortgage stress test ensures you can afford payments at higher interest rates, safeguarding against future increases. The stress test requires mortgages for home purchases to be qualified at the minimum qualifying rate (MQR).

Step 4: Finding the Right Home

Identifying Your Needs

• Location: Consider proximity to work, schools, and amenities.
• Property Type: Decide between detached homes, condos, or townhouses based on your lifestyle. Detached homes may come with additional maintenance costs and higher property taxes, while condos and townhouses will come with condo fees.

Ownership Structures

• Freehold: Own the building and the land.
• Condominium: Own your unit and share common areas.
• Co-operative (Co-op): Own shares in a corporation that owns the property, granting the right to occupy a unit. Not all lenders can lend on this ownership structure, making it difficult to secure a mortgage.

Conducting Research and Home Viewings

• Home Inspections: Hire qualified professionals to assess the property’s structure and condition.
• Market Analysis: Research comparable properties to understand market value through your realtor.

Step 5: Making an Offer and Closing

Making an Offer

• Components: Offer purchase price, conditions (e.g., financing, inspection), and closing date.
• Negotiation: Be prepared to negotiate terms with the seller.

Closing the Deal

• Legal Assistance: Engage a lawyer or notary for document review and title search.
• Closing Costs: Budget for expenses like land transfer taxes, legal fees, and adjustments for prepaid utilities or taxes.

Frequently Asked Questions (FAQ) on First-Time Home Buying

Final Thoughts

Purchasing your first home in Canada is an exciting milestone, but the many financial and logistical decisions involved can also feel overwhelming. The key to a successful experience lies in thorough preparation, understanding your finances, and leveraging the support of experienced professionals. By evaluating your budget, exploring available incentives, and aligning your goals with practical steps, you can confidently navigate the path to homeownership.

At nesto, our mortgage experts are here to simplify the process and guide you every step of the way. We provide tools and insights to help you determine what you can afford, understand programs like the Home Buyers’ Plan and the First Home Savings Account, and choose the mortgage that best suits your needs. Whether deciding between fixed or variable mortgages or understanding the impact of the mortgage stress test, we ensure you are equipped with all the knowledge to make valuable decisions.

Don’t let the complexities of homeownership stand in your way. Connect with nesto mortgage experts to streamline your journey. From pre-approval to closing, we are committed to helping you achieve your homeownership dreams confidently and stress-free. Let us take the guesswork out of buying your first home—contact us today and take the first step toward becoming a homeowner.

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