Are you ready to buy?
Buying a home is exciting, but it's important to make sure you're financially ready. Homeownership comes with ongoing costs beyond just the mortgage payment.
Financial readiness checklist
The 5% Rule
A rough guideline: if you can't afford to lose 5% of your home's value without financial stress, you might not be ready to buy. Home values can fluctuate, and you want to be prepared.
Down payment strategies
In Canada, you need at least 5% down for homes under $500,000. Here's how down payment amounts affect your mortgage:
Down Payment Requirements
Down payment sources
The RRSP Home Buyers' Plan
You can withdraw up to $35,000 from your RRSP for your first home without tax penalties. You have 15 years to repay it, starting in the second year after withdrawal.
Pros
- • Access to retirement savings
- • No immediate tax consequences
Cons
- • Must repay or face tax consequences
- • Lose potential investment growth
Mortgage basics
Understanding mortgages helps you make better decisions and potentially save thousands over the life of your loan.
Fixed vs. variable rates
Fixed Rate
- • Rate stays same for entire term
- • Predictable payments
- • Protection if rates rise
- • Usually higher initial rate
Variable Rate
- • Rate changes with Bank of Canada
- • Usually lower initial rate
- • Payments can increase/decrease
- • Risk if rates rise significantly
Amortization vs. term
Mortgage default insurance (CMHC)
If you put down less than 20%, you'll need mortgage default insurance. This protects the lender if you can't make payments. The premium is typically 2.8-4% of the mortgage amount.
First-time buyer programs
Canada offers several programs to help first-time buyers:
First-Time Home Buyer Incentive
The government provides 5-10% of the purchase price as a shared equity loan. You don't make payments, but repay when you sell or after 25 years.
GST/HST New Housing Rebate
Rebate on the GST/HST paid on new homes under $450,000. Can save you thousands on new construction.
Provincial programs
Many provinces offer additional support like down payment assistance, tax credits, or reduced land transfer taxes for first-time buyers.
The buying process
Here's what to expect during the home buying journey:
Get pre-approved
Meet with lenders to understand how much you can borrow. This gives you a realistic budget and shows sellers you're serious.
Find a real estate agent
Look for someone who understands your area and price range. A good agent will guide you through the process and negotiate on your behalf.
Start house hunting
Make a list of must-haves vs. nice-to-haves. Consider location, commute, schools, and future resale value.
Make an offer
Include conditions like financing approval, home inspection, and review of documents. Don't waive conditions unless you're very confident.
Home inspection
Hire a qualified inspector to check for major issues. This can save you from expensive surprises later.
Finalize financing
Complete your mortgage application and arrange for home insurance before closing.
Ongoing costs of ownership
Your mortgage payment is just one part of homeownership costs. Budget for these ongoing expenses:
Regular costs
Maintenance and repairs
Budget 1-3% of your home's value annually for maintenance and repairs. A $400,000 home might need $4,000-12,000 per year for upkeep.
Success Tips
- • Don't buy at the top of your budget — leave room for life changes
- • Consider total monthly costs, not just the mortgage payment
- • Think long-term — will this home work for 5-7 years?
- • Don't skip the home inspection to save money
- • Keep some savings after buying for immediate needs and repairs
Buying your first home is a major milestone, but it shouldn't put your finances at risk. Take time to understand all the costs, get professional advice, and make sure you're truly ready for the responsibility of homeownership.
