Katrina Watycha | July 29th, 2025
How much can you afford on your first home? Should you buy or continue renting? We answer these questions and more in our guide for first-time buyers.
Buying your first home is an exciting experience, but it can also be an overwhelming one—especially if you’re not sure where to start. That’s why we’ve outlined some simple steps that anyone shopping for a home should take, from figuring out what you can actually afford to getting pre-approved for a mortgage and understanding the government programs designed to help you. If you have questions, we have the answers in our complete guide for first-time home buyers.
Many first-time buyers will have to borrow money when buying a home. There are also fees involved in the purchase process. These costs can be significant—so they are important to consider. For every known expenditure, there are often hidden or unexpected fees.
A down payment is the lump sum of money you will have to put towards the total cost of your new house. Your down payment has to be liquid funds you have access to, such as a money in a savings account, a gift from a family member or a withdrawal from your first home savings account (FHSA) or registered retirement savings plan (RRSP). The amount you’ll need for the down payment depends on the purchase price of the home, according to the rules set by the Canadian federal government.
| Purchase price | Minimum down payment required |
|---|---|
| $500,000 or less | 5% of the purchase price |
| $500,000 to $1.5 million | 5% of the first $500,000 of the purchase price + 10% of the portion of the purchase price above $500,000 |
| $1.5 million or more | 20% of the purchase price |
First-time home buyers tend to have a smaller down payment than those who’ve previously owned real estate, because they aren’t carrying over equity from a previous property, explains mortgage broker Sharon Patton, who serves the Greater Toronto Area (GTA). If you own a home and its value increases over time, you can take that equity and use it towards a larger down payment on your next house. Buyers with less than a 20% down payment must include the added cost of mortgage loan insurance—a.k.a. mortgage default insurance—to their budget.
A deposit is paid at the time of signing a purchase agreement on a property. The deposit counts toward your down payment but is often non-refundable, so if you back out of the deal before it closes, you will likely lose that money.
In Canada, there is no standard deposit amount. A guideline of 5% of the purchase price is often used (equal to $50,000 on a $1 million home). In recent years, Canada’s high housing prices have led some sellers to accept less than 5%. (When multiple offers are made on the same property, the seller may ask for more). Typically, there’s room to negotiate, but a deposit of 5% helps show the seller you’re serious and could help you secure the deal in competitive housing markets. Keep in mind that the funds should be easily accessible as the money is typically due within 24 hours of signing a real estate contract.
There are closing costs to consider. “I start every client conversation with closing costs because it often comes out of the down payment that is available,” Patton says.
These costs—which can include goods and services tax (GST) or harmonized sales tax (HST), lawyer fees, land transfer taxes and other administrative fees—typically add up to 1.5% to 4% of the purchase price. If you have saved $50,000 for a down payment, you either have to have additional savings to cover closing costs or deduct those expenses from the down payment itself.
You should also set aside money for the cost of home inspections, utility hook-ups, prepaid fees on the property you’re buying (for example, reimbursing the previous owner for property taxes or condo fees they paid in advance), plus any furniture and appliances you’ll want to purchase right away.
When you add it all up, if you expect to have a down payment of 5%, in reality, you’ll need a minimum of 6.5% of the purchase price to cover these upfront costs, notes Patton. Then, you still need to factor in extra funds for emergencies, such as fixing a leaky roof or basement, or having to replace your furnace or A/C. For a property priced in the $600,000 range, she recommends emergency savings of $5,000 to $10,000.
There are several government programs and tax rebates designed to help first-time buyers get into the housing market.
The first home savings account (FHSA) is a registered account intended to help first-time home buyers save for a down payment. Account deposits and withdrawals are tax-free, and like a tax-free savings account (TFSA) or RRSP, any income earned from interest, dividends or capital agains is tax-free. Individuals can contribute a maximum of $8,000 per year to their FHSA, up to a lifetime maximum of $40,000. Funds can be held in an FHSA for up to 15 years, at which point the money must be used to buy a home, transferred to an RRSP or a registered retirement income fund (RRIF), or withdrawn as taxable income.
The Home Buyer’s Plan allows you to withdraw up to $60,000 from your RRSP ($120,000 per couple) to make a down payment on your first home. (Prior to April 16, 2024, the withdrawal limit was $35,000 per person.) This money can be withdrawn and used without penalty or taxation as long as it’s repaid to your RRSP within 15 years.
New home owners can claim up to $10,000 on their tax returns as part of the Home Buyers’ Tax Credit. The credit applies to a home purchased within the past year and provides a non-refundable rebate of $1,500.
The provinces of Ontario, British Columbia and Prince Edward Island offer land transfer tax rebates to eligible buyers, as does the City of Toronto (the only municipality in Ontario to levy a land transfer tax of its own). Eligibility requirements vary per jurisdiction, as does the amount you may be eligible to receive.
In its simplest form, a mortgage is a loan used to buy a home or property. Like other loans, a mortgage comes with an interest rate, amortization (repayment) schedule and other terms. With a mortgage, the home itself is used to secure the loan. This means if the mortgage holder fails to make payments, the home could be repossessed by the lender.
Before applying for a mortgage, familiarize yourself with the following concepts. That will help ensure you get the mortgage that’s right for you:
When applying for a mortgage, Canadian home buyers can choose between a fixed or variable interest rate. The type of interest rate will influence the total amount of interest paid over the mortgage repayment period. It will also determine whether your interest rate stays the same (“fixed”) or has the potential to change during your mortgage term. To help you understand the differences, let’s compare five-year fixed and five-year variable mortgage rates.
Some first-time home buyers choose to go directly to their bank for a mortgage because they’re familiar with the financial institution and already do business there. There’s nothing wrong with this approach—some individuals or couples like to keep all of their financial relationships under one roof, so to speak. But you definitely have more options if you compare rates online and/or work with a broker can save you money. A mortgage broker is a professional who will tap into a network of lenders and help you find the best mortgage to meet your needs.
“Going to your bank means your only option is one lender, but going to a broker allows you to access multiple lenders,” including multiple banks and credit unions, Patton says. She adds that some financial institutions serve a niche demographic, like new Canadians or self-employed individuals, and a broker may be able to help you find the one that’s right for you.
Once you have a sizeable down payment in hand, the next step is figuring out how much you can afford on a mortgage—the amount you will pay back, with interest, to the lender. The mortgage is calculated as the total cost of your home, minus the down payment.
When you apply for a mortgage, your lender will look at your gross debt service (GDS) ratio and total debt service (TDS) ratio in order to determine how much mortgage a person with your debt and income level can reasonably carry.
Watch: What is mortgage affordability?
These numbers are essentially a test of your income in relation to your debt and anticipated housing expenses, and they will influence the mortgage amount you’re offered. TDS is equal to the expenses of your new home (i.e., your mortgage payments, heating bills, taxes, and any applicable condo fees), divided by your gross household income. GDS is the combination of these same housing expenses, plus your existing debt payments (such as car loans and revolving lines of credit), divided by your gross household income.
Canada’s national housing agency, the Canada Mortgage and Housing Corporation (CMHC), considers a home to be affordable if your GDS and TDS fall within the limits of 39% and 44%, respectively. The Financial Consumer Agency of Canada says your GDS and TDS cannot exceed 32% and 40%, respectively.
Mortgage calculators help you weigh your mortgage options. These online tools allow you visualize the impact a mortgage will have on your finances. Can you really afford a mortgage right now? How would extending your amortization or getting a better interest rate influence your mortgage payments? Use a mortgage calculator to find out:
Once you know how much you can afford, you’ll then want to get pre-approved.
“Pre-approval just means you have everything in place for approval,” Patton says. “It’s basically getting your paperwork in order—your credit report, verifying your income, making sure the price you’re looking at is affordable based on your debt-to-income ratio.” She notes that you will be asked to provide a 90-day history for the funds used for your down payment—a requirement designed to protect against money laundering.
The purpose of a mortgage pre-approval is essentially to make sure you’re shopping within your housing budget, Patton says. If you look at houses worth $900,000 and later realize the most you can afford is $750,000, you’ll be disappointed and have wasted your time, she says. “A mortgage pre-approval just means getting everything in place to make sure you’re looking at the correct properties.” It’s also a way of showing the seller you’re a serious buyer and have your financials in order; in a competitive housing market, that alone can determine whether your offer is accepted or rejected
A mortgage pre-approval will tell you what the banks and other lenders are willing to offer, but that’s different from understanding what you can actually afford.
While important, the TDS and GDS ratio guidelines are based on averages, not individuals or families. It’s best to create a detailed monthly budget to assess what you can actually afford without feeling house poor (meaning, your mortgage payments are so high that you have little money left over for other things). This should include everything from your grocery and cell phone bill to entertainment and transportation costs.
Two households with the same income may have wildly different housing budgets due to lifestyle differences—but your lender won’t know that when offering you a mortgage. “We don’t know things like your daycare costs, for example,” Patton says. So if you love to travel or spend a lot on gas for your commute, factor in those expenses before committing to a mortgage.
Watch: MoneySense – What is the mortgage stress test?
The Canadian mortgage stress test is a set of rules lenders use to determine if buyers qualify for a mortgage and, if so, for how much. It applies even for buyers with a down payment of 20%.
The stress test was created to ensure home buyers can still afford their homes if mortgage rates go up, Patton explains. Under the rules of the stress test, lenders apply a benchmark rate of 5.25% or the rate equivalent to 2% more than the rate you’re being offered—whichever is higher. These rules apply to anyone purchasing property in Canada, not just first-time home buyers.
Home ownership has many benefits: You aren’t at the mercy of a landlord who gets to make all of the decisions (including choosing to no longer rent out the property), and you may have the potential to use your home to create rental income yourself. Houses are also a fairly secure investment in Canada as they typically appreciate in value over time.
While it’s a common goal, home ownership isn’t right for everyone, says Josh Davie, a financial advisor with Desjardins Financial Security Investments Inc. “It depends on your personal situation,” he says. If your job is uncertain and/or you expect to relocate in the near future, for example, renting may be a better financial option, as it provides more flexibility.
Renting may also be a good choice for those who don’t want to deal with the responsibilities of home ownership, such as handling repairs and paying property taxes. “If you feel you aren’t financially stable enough or don’t have the financial management skills to handle homeownership, you shouldn’t feel forced to buy into real estate,” Davie advises.
Patton agrees. “People who want more hands-off living are often more suited to renting because the landlord will maintain the property,” she says. Renting is ideal if you don’t want to pay for incidentals, such as property taxes, utilities, home maintenance and unexpected repairs.
