Armed with this knowledge, you’ll be able to move forward with confidence, knowing your dream home is just around the corner.

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Deciding to Buy a Home

If you’re already renting, you probably already know there are a lot of advantages to owning your own place – you won’t need to worry about unexpected rent increases, you’ll be building your own equity instead of your landlord’s, and of course, you can do whatever you want with the space and decorate as much as you want!

However, there are also some trade-offs. As well as more responsibility (if something breaks, it’s 100% up to you to repair or replace it), you’ll also need to come up with some extra money to get started, so it’s important to make sure you can afford it before you begin.

Know What You Can Afford

Everyone wants their mortgage to be affordable without having to sacrifice their lifestyle. The key is to know what you can afford before you even start your search. An excellent resource for calculating what you can afford is an online mortgage affordability calculator. This tool can take into account all your costs, including living expenses and debt payments.

If you’re finding yourself coming up a little short, consider what you need to do to reach your new homeowner goals. This means thinking hard about what’s important. If you set a monthly budget and stick to it, it can make it much easier to save up for that down payment. Sell things you no longer use, consider a part-time gig, or even consider taking in roommates once you purchase your new home. Renting out a room or a basement suite can lower what you pay into your mortgage to the point of nearly nothing coming from your own pocket. 

Coming Up With Your Down Payment 

Your down payment is how much you’re willing to contribute upfront to the overall total of your home in agreement with your lender. If you make the minimum down payment (5%), you’ll end up paying more due to the added cost of mortgage insurance (this is mandatory for any down payment less than 20%), so try to put down as much as possible. 

Putting more down can also make you appear much more serious about paying back your loan. For example, let’s assume you have some credit card debt or a car loan. If you invest more in your down payment upfront, the lender may ignore these few shortcomings, although you should pay off as much debt as possible beforehand.

Seeking Help For First-Time Buyers

Speaking of down payments, we understand it’s not always easy to come up with cash. The good news is, as a first-time homebuyer, you have the upper hand when it comes to government resources. 

The Home Buyers’ Plan, for example, allows you to withdraw up to $25,000 out of your RRSPs to use towards your down payment. On top of that, if you’re purchasing a home with a partner, that amount doubles as they can also withdraw $25,000 for a total of $50,000. 

You can also apply for the First-Time Home Buyers Tax Credit, which will allow you to claim a tax rebate of up to $750 as long as your home meets the following criteria:

• You’ve purchased your home within the last 12 months
• The home is your principal residence and is registered under your (or your partner’s) name.
• The home is a single-family, semi-detached, townhouse, condo or mobile home and is located within Canada.

Additionally, the GST/HST New Housing Rebate allows you to reclaim some or all of the taxes you paid during the purchase of your home.

Getting Pre-Approved 

To obtain a mortgage pre-approval, your desired lender will evaluate your finances and credit score. They will then give you a certificate pre-approving you for a mortgage. In short, a pre-approval is the lender’s commitment to loaning you these funds so you can go forward in your house hunting. 

Getting a pre-approval is important for a couple of reasons:

• It locks in your mortgage rate until you close the deal on your new home. 
• You’ll be taken more seriously when it comes to putting an offer on a home. (In fact, it’s not uncommon for buyers without a pre-approval to have their offers overlooked).  
• It gives you some perspective on how much you can actually afford. 

One thing to note: any changes in your job or investments can change your pre-approval – meaning it would have to be re-evaluated in the case of any major adjustments to your finances. 

How Much Do You Want to Spend?

One of the largest mistakes new homebuyers make is taking the maximum amount they were pre-approved for. That is to say, just because you’re pre-approved for $500,000, doesn’t mean you should use the full amount. Overspending can easily result in becoming “house poor“; where you’re spending the majority of your income on your mortgage and little else.  

In fact, the government states that homeowners should pay no more than 32% of their monthly income on monthly housing costs. 

That being said, location also plays a big part in how much you can afford to spend on a home. This is because home prices vary depending on how far out of the city you are and what type of home you’re looking for. 

Originally published Mar 8, 2020, updated Feb 1, 2022