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First-Time Home Buyer Mortgages in Canada
Buying your first home is exciting, but the mortgage process can feel like an entirely new language.
Down payment. Pre-approval. Amortization. Fixed versus variable. Mortgage insurance. Closing costs. Stress test.
You don't need to become a mortgage expert before buying a home. You do need to understand the decisions that can affect how much you can comfortably afford and what mortgage options may be available to you.
At Haystax Mortgage, we believe your first mortgage should begin with a plan rather than a product.
How Much Home Can You Afford?
The amount a lender is prepared to lend you and the amount you feel comfortable borrowing aren't necessarily the same number. Mortgage qualification typically considers factors including:
- your income
- existing debts
- credit history
- down payment
- property taxes
- heating costs
- condominium fees, where applicable
- the mortgage interest rate
- the required qualifying rate
Federally regulated lenders generally apply a mortgage stress test when qualifying borrowers. For uninsured mortgages, the current minimum qualifying rate is the greater of the contractual mortgage rate plus 2% or 5.25%.
Rather than simply asking, "What's the maximum mortgage I can get?", we recommend asking:
"What mortgage payment fits comfortably into the life I want to live?"
Those are two very different questions.
How Much Down Payment Do You Need?
For eligible insured homeowner mortgages, the minimum down payment currently begins at:
5% of the first $500,000 of the purchase price, plus 10% of the portion above $500,000.
Mortgage loan insurance is generally required when the down payment is less than 20%. CMHC homeowner mortgage insurance is currently available on eligible properties valued below $1.5 million.
Having a larger down payment can reduce the amount you need to borrow, but using every dollar you have for the down payment may not necessarily be the right strategy.
You'll also need to consider closing costs and the money you want available after moving into the property.
Using an FHSA to Buy Your First Home
The First Home Savings Account, or FHSA, can be a powerful planning tool for eligible first-time buyers.
Eligible Canadians can generally contribute up to $8,000 annually, subject to available participation room, toward a lifetime contribution limit of $40,000.
Qualifying contributions can be tax deductible, while qualifying withdrawals used to purchase a first home can generally be made tax-free.
The Home Buyers' Plan
The federal Home Buyers' Plan allows eligible home buyers to withdraw money from their RRSP to help purchase or build a qualifying home.
The current HBP withdrawal limit is $60,000 per eligible individual.
Eligible buyers may also be able to use the Home Buyers' Plan and an FHSA toward the same qualifying home.
Why Mortgage Pre-Approval Matters
A mortgage pre-approval can help establish:
- an approximate borrowing range
- an estimated mortgage payment
- potential mortgage options
- possible issues that should be dealt with before making an offer
But a pre-approval isn't the final mortgage approval. The property itself still matters. Your financial circumstances must also continue to satisfy lender requirements when the mortgage is finalized. That's why making major financial changes between pre-approval and closing can create problems. Taking on new vehicle financing, increasing credit balances, changing employment or co-signing another loan can potentially change your qualification.
Fixed or Variable?
There's no universal answer. A fixed-rate mortgage can provide greater payment and interest-rate certainty. A variable-rate mortgage can behave differently depending on the lender and mortgage product and exposes the borrower to changes in interest rates. The decision shouldn't simply be based on predicting where rates are going. It should consider:
- your budget
- financial flexibility
- tolerance for changing payments or interest costs
- plans for the property
- anticipated life changes
- mortgage features and penalties
Your First Mortgage Should Start With a Conversation
The objective isn't simply to get approved. It's to build a mortgage strategy that works today while giving you as much flexibility as practical for tomorrow.
Ready to understand your options?
Speak with a Haystax Mortgage professional and start building your home-buying plan. Find a Haystax Mortgage location here.
We work for you, not the banks, providing access to a wider range of mortgage options.
Banks offer only their mortgage products and rates. Unlike them, Mortgage Brokers have access to a variety of lenders, including banks, credit unions, monoline lenders, private financing, and more.
You're at HOME with Haystax!
Frequently Asked Questions
How much down payment does a first-time home buyer need in Canada?
The minimum down payment depends on the purchase price of the home. For a home priced at $500,000 or less, the minimum down payment is generally 5%. For homes above $500,000 but below $1.5 million, the minimum is 5% of the first $500,000 plus 10% of the portion above $500,000. Homes priced at $1.5 million or more generally require at least 20% down. If your down payment is less than 20%, mortgage loan insurance will typically be required.
Your actual down-payment requirement can also depend on the property, your credit profile and the mortgage program being used.
How much mortgage can a first-time buyer qualify for?
The amount a first-time home buyer can qualify for depends on income, existing debts, credit history, down payment, property taxes, heating costs, condominium fees where applicable, and the mortgage's qualifying rate.
For most uninsured mortgages at federally regulated lenders, borrowers are currently stress-tested at the greater of their contract mortgage rate plus 2% or 5.25%.
Rather than focusing only on the maximum amount a lender will approve, first-time buyers should also consider what monthly mortgage payment fits comfortably within their overall household budget.
Can I use my FHSA for a down payment?
Yes. An eligible first-time home buyer can use funds from a First Home Savings Account toward the purchase of a qualifying first home.
The FHSA combines features of an RRSP and TFSA: qualifying contributions are generally tax deductible, while qualifying withdrawals for a first home can be made tax-free. Eligible individuals can contribute up to $8,000 per year, subject to available participation room, with a lifetime contribution limit of $40,000.
An FHSA can also potentially be used together with the federal Home Buyers' Plan when purchasing the same qualifying home.
Can I use my RRSP to buy my first home?
Yes. Eligible home buyers can use the federal Home Buyers' Plan to withdraw funds from their RRSP toward buying or building a qualifying home.
The current maximum withdrawal is $60,000 per eligible individual. The withdrawn amount must generally be repaid to the RRSP over the applicable repayment period in order to avoid having required repayments included in taxable income.
Because eligibility rules apply, buyers should review their circumstances before making the withdrawal.
Should I get pre-approved before looking for a home?
Yes. Getting pre-approved before actively shopping for a home can help you understand your approximate purchasing range, estimated mortgage payment and potential financing options.
It can also identify credit, income or documentation issues before you are working under the deadline of an accepted purchase offer.
A mortgage pre-approval is not final mortgage approval, however. The lender must still approve the property and confirm that your financial circumstances satisfy its requirements before funding the mortgage.
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