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Published December 16, 2022

Buying a House In Canada: The First Four Steps

Before you buy a house, you'll need to assess your goals and finances and secure some professional help.

For many Canadians, buying a house is a dream scenario. Not only does owning a home allow you to build wealth, but it also gives you more control over your living circumstances compared to renting. 

But the cost, responsibility and hard work that comes with being a homeowner isn’t for everybody. Before buying a house, you’ll need to take these four steps to help you decide if you — and your finances — are ready. 

1. Decide if home ownership is right for you

In a real estate-obsessed country like Canada, it’s easy to feel pressured to buy a house. But homeownership isn’t a shortcut to a worry-free future. It’s a lot like having children: It changes your lifestyle completely, requires daily sacrifices and can keep you up late at night worrying about the future. Oh yeah, it’s also really expensive.

One way to decide if the hard work and commitment will be worth it is to first consider why you want to buy a house. Will it make you feel complete, or that you’ve accomplished one of the primary goals of adulthood? Or is your motivation more financial, and you want your house to be part of your retirement plan, or the first piece of your real estate investing portfolio? There’s no real wrong answer.

Having a “‘why’ at the heart of your homeownership pursuit can keep you motivated through the saving and stress that goes into a house purchase. But if you’re having trouble finding a reason to own a home, one that you’d be willing to make significant financial sacrifices for, it might not be the right time for you. 

2. Get your finances in shape

Because you’ll likely be paying for your home with a mortgage, you need to get your finances in good enough shape that lenders will be comfortable signing off on your home loan. 

Here are a few things you can do.

Have steady employment

Your income is one of the major factors that lenders look at, and they’ll ask you to prove it via a letter of employment for your mortgage application. If you have steady employment, lenders will use your income to determine how much they’ll lend you. They may sometimes consider where you are in your career and if your earning power is likely to increase in the future.

If you’re a freelancer or self-employed, you can still get a mortgage, but it might be difficult to prove that your income is consistent enough to handle a mortgage. Lenders will likely ask you for additional paperwork, such as your last two notices of assessment and tax returns.

If homeownership is a serious near-term goal, it’s important to drive as much income as you can. Asking for a raise, taking on a side hustle or finding a higher-paying position are all viable options.  

Save a down payment

Depending on the price of the house you want to buy, you may need to save between 5% and 20% for a minimum down payment. These examples show why so many Canadian home buyers struggle to get into their first property:

  • For a home worth $450,000, the minimum down payment is $22,500. All homes worth less than $500,000 require a minimum down payment of 5%.
  • For a home worth $800,000, the minimum down payment is $55,000. Homes worth between $500,000 and $999,999 require a 5% down payment for the first $500,000 and 10% on the amount above $500,000.
  • For a home worth $1 million, the minimum down payment is $200,000. Any home worth $1 million or more requires a 20% down payment.

And those are just the legally-required down payments. Your lender may ask you to put more money down to make the numbers work once your income, debt and today’s mortgage interest rates are taken into consideration.

Saving in today’s economy is tough, so if you’re still thousands of dollars away from even a 5% down payment on a modestly priced property, it’s time to get moving. Be on the lookout for costs you can cut, or ways to make extra money, so you can save even more. 

Consider putting your savings away in a high interest savings account, tax-free savings account or, at some point in 2023, the First Home Savings Account

Explore government programs and incentives

There are a few government programs and incentives that can help you become a homeowner.

The Home Buyers’ Plan is the most popular program since it allows you to withdraw up to $35,000 tax-free from your Registered Retirement Savings Plan (RRSP). If you’re buying with your partner, you can each use the program so you could access up to $70,000 combined. These funds will need to be paid back eventually, but you get 15 years to do so.

Alternatively, there’s the First-Time Home Buyer Incentive, where the government will pitch in up to 10% of the purchase price for first-time buyers. This is a shared equity program, so you’re giving up some equity to access additional funds from the government.

There may also be municipal programs available that can help you get into a first home. If you already have an idea of where you might like to buy your house, find out if any of these programs exist, and if you’re eligible for them.

» FIRST-TIME HOME BUYER? Check out our guide

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3. Figure out what you can afford

There isn’t much point looking at homes until you solidly understand your home buying budget. You don’t want to make an offer on a $700,000 townhouse only to find out that you can’t get approved for a mortgage over $500,000.

A simple way to gauge your mortgage budget is to look at how much you pay in rent and how much of your income you have left over at the end of each month. If you’re paying $1,500 in rent and typically save $600 every month, you have roughly $2,100 to work with. 

Once you have that number in mind, compare it to the estimated monthly mortgage payments generated by a mortgage calculator. This will still only give you a general idea of what your budget can handle, though. You’ll need to take things a step further if you want a more concrete idea of how much house you can afford. 

» MORE: How much mortgage can I afford?

Get pre-approved for a mortgage

Mortgage pre-approval will give you a clearer picture of how much funding you’ll have to work with. Lenders will check your credit score, income, debt and down payment — verifying each with documentation — and then decide how much they’ll extend you. They’ll also provide you with a mortgage rate so you can budget accordingly. With this info in hand, you can start searching for homes that you can afford.

It’s worth noting that pre-approved mortgages aren’t a 100% guarantee. Lenders do a final check on all your finances once you’ve purchased a home before they give you a formal mortgage.

4. Start your property search

Now that you have all of your finances settled, you can start looking for homes. There’s a good chance you’ve already browsed a few properties online, but you want to find a real estate agent since they’ll be able to guide you through the home buying process from start to finish.

Finding a good agent can be tricky, so ask friends and family for a recommendation. Generally speaking, you want someone you have a good connection with who is familiar with the communities you’re interested in.

Don’t be afraid to interview multiple agents before you pick one that works for you. And be sure to choose someone who does real estate full-time. Full-time agents have a lot to lose if they drop the ball, and they’ll generally have more experience and better resources at their disposal.

Once you’ve hired your real estate agent, expect to have a thorough discussion with them about what your home buying goals and desires are. They’ll look at your budget and let you know if your expectations are realistic or not. They’ll also be able to show you recently sold homes to give you an idea of what current market conditions are like.

As you start to browse homes, you’ll hopefully come across a property you want to make an offer on. You may not win the first home you bid on, but don’t get discouraged. Your finances are in order and you’ve already been pre-approved for a mortgage, so you’ve done all you can do.

Stick with it, keep viewing properties and the market just might break your way. 

About the Authors

Barry Choi

Barry Choi is a personal finance and travel expert. His website is one of Canada's most trusted sites when it comes to all things related to money and travel.

Clay Jarvis

Clay Jarvis is NerdWallet’s mortgage and real estate expert in Canada. Thus far, his entire professional writing career has revolved around real estate. Prior to joining NerdWallet, he was the editor and senior writer for four publications, including the leading website for the country’s mortgage industry, Mortgage Broker News. Clay has written 30,000-word examinations of Canada’s real estate investment market, interviewed the industry’s most powerful leaders and analysts, and has helped choose both the nation’s top realtors and mortgage brokers. He is based in Toronto, Ontario.

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