Key takeaways
- Minimum down payments are 5% of the first $500,000 and 10% of the rest up to $1.5 million.
- The Home Buyers’ Plan limit is now $60,000, and the FHSA adds up to $40,000.
- Budget for closing costs of 1.5% to 4% of the price.
- Toronto buyers pay two land transfer taxes.
In this chapter
Assessing Your Financial SituationUnderstanding Credit ScoresSaving for a Down PaymentBudgeting for Additional Costs
Assessing Your Financial Situation
Before you look at listings, work out what you can comfortably afford. That number may be lower than the maximum a lender will offer, and that’s fine.
Add up your monthly income, including any regular bonus or side income that you can document. Then list what you spend each month, from rent and debt payments to groceries and transit. What’s left shows how much room you have for a mortgage and the other costs of owning.
Next, look at your savings. You’ll need a down payment, money for closing costs and a cushion for surprises.
Check your credit before you apply, because it affects both your approval and your rate. A mortgage broker or lender can then show you what your numbers support. A financial advisor can help you weigh buying against your other goals.
Credit score scale in Canada
Visual guide · GTA buying guide
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Understanding Credit Scores
A credit score is a number, typically from 300 to 900, that tells lenders how you’ve handled borrowing. A higher score can mean better mortgage terms, and even a modest difference in your rate adds up over the years.
Your payment history matters most, so pay at least the minimum on time, every time. Keeping your card balances well below your limits also helps. So does a longer credit history, and avoiding a rush of new credit applications before you apply for a mortgage.
You can get your credit report free from Equifax and TransUnion. Read it for errors, and dispute anything that’s wrong. Do this months before you plan to buy, because fixes take time.
Visual guide · GTA buying guide
Minimum down payment
| Price | Minimum |
|---|---|
| $500,000 | $25,000 |
| $700,000 | $45,000 |
| $900,000 | $65,000 |
| $1,200,000 | $95,000 |
| $1,500,000 or more | 20% |
Saving for a Down Payment
In Canada, the minimum down payment depends on the price. With less than 20% down, you’ll also pay mortgage default insurance. A larger down payment lowers your monthly payment and your total interest.
Make saving automatic. Open a separate account and move money into it on payday, so it never lands in your spending money.
Two federal programs can help eligible first-time buyers, and you can use both for the same home. The First Home Savings Account (FHSA) lets you contribute up to $8,000 a year, to a lifetime limit of $40,000, and qualifying withdrawals are tax-free with no repayment. The Home Buyers’ Plan (HBP) lets you withdraw up to $60,000 from your RRSP, generally repaid over 15 years.
Set small milestones, such as your first $10,000. Look at your spending for easy wins, such as unused subscriptions, but keep some room for enjoyment. A plan you can live with is a plan you’ll keep.
Visual guide · GTA buying guide
Closing costs: 1.5% to 4% of price, on $800,000
FHSA
What it isA registered account for saving toward a first home.
Why it mattersContributions are generally deductible, and qualifying withdrawals are tax-free.
What to doCheck your eligibility, and open one early.
Budgeting for Additional Costs
The purchase price is only the start. Closing costs usually run from 1.5% to 4% of the price, and you’ll need them on closing day, on top of your down payment.
The biggest closing cost is often land transfer tax. Ontario charges it on every purchase, and homes in the City of Toronto pay a municipal tax as well. Eligible first-time buyers may receive up to $4,000 from the province and up to $4,475 from the City of Toronto. You’ll also pay legal fees and other smaller costs.
After you move in, plan for property tax, insurance, utilities and any condo fees. Property tax varies by municipality, so check the actual bill for a home you’re considering.
A common rule of thumb is to set aside about 1% of the home’s price each year for maintenance and repairs. Keep a separate emergency fund as well. Furnaces and roofs rarely fail at a convenient time.
1% maintenance rule
What it isA rule of thumb to save about 1% of the home’s price each year.
Why it mattersIt keeps repairs from becoming debt.
What to doAdjust it for your home’s age and condition.