First Time Home Buyers
To qualify for a mortgage in Canada, first-time home buyers generally need:
- A credit score of at least 600 (higher for better rates).
- A steady income and employment history.
- A down payment of at least 5% for homes priced below $500,000, and 10% for the portion above $500,000 up to $1,000,000.
- A Total Debt Service (TDS) ratio below 44%.
- First-Time Home Buyer Incentive (FTHBI): A shared equity program that helps reduce monthly mortgage payments.
- Home Buyers’ Plan (HBP): Allows withdrawal of up to $35,000 from your RRSP to buy or build a qualifying home.
The minimum down payment depends on the home’s price:
- 5% for homes under $500,000.
- 10% for the portion above $500,000 up to $1,000,000.
- 20% is required for homes priced at $1,000,000 or more.
- Access to government incentives like FTHBI and HBP.
- Possible savings on land transfer taxes.
- Building equity instead of paying rent.
- Stable monthly payments with fixed-rate mortgages.
- Pre-approval: Start by getting pre-approved to understand your budget.
- Choosing a Realtor: Work with a licensed real estate agent familiar with your area.
- Closing Costs: Budget for legal fees, home inspection, appraisal, and land transfer taxes.
- Mortgage Insurance: If your down payment is less than 20%, you’ll need CMHC insurance.
Mortgage Types and Options
- Fixed-Rate: Interest rate remains constant throughout the term. Offers stability but typically higher rates.
- Variable-Rate: Interest rate fluctuates with the prime rate, offering potential savings but with more risk.
- Benefits: Lower down payment requirements (as low as 5%) and access to competitive interest rates.
- Drawbacks: Additional cost of mortgage insurance premiums, which are added to your loan balance.
A CMHC-insured mortgage protects lenders if you default and allows borrowers with less than a 20% down payment to qualify. To be eligible, the home’s purchase price must be below $1,000,000, and borrowers must meet income and debt ratio limits.
- Conventional Mortgage: Requires a down payment of at least 20%, avoiding CMHC insurance.
- Insured Mortgage: For down payments less than 20%, requiring insurance premiums.
Consider your:
- Financial stability and risk tolerance (fixed vs. variable rate).
- Down payment amount (conventional vs. insured).
- Long-term goals, like the time you plan to stay in the home.
Mortgage Glossary
Annual Percentage Rate (APR) represents the total cost of borrowing, including the interest rate and fees. A lower APR means lower overall costs.
Refinancing replaces your current mortgage with a new one, often with better terms. It’s beneficial when interest rates drop or if you want to consolidate debt.
LTV is the ratio of your mortgage loan to the home’s appraised value, expressed as a percentage. A lower LTV indicates less risk for the lender.
- Pre-qualification: An estimate of how much you can borrow based on informal data.
- Pre-approval: A formal process involving credit checks and verification of financial documents to confirm the loan amount you’re eligible for.
In Canada, PMI is referred to as CMHC insurance and is required when the down payment is less than 20%.