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How to buy a house in Canada (in 7 steps)

This piece was originally published on September 28, 2020, and was updated on June 4, 2024.

It’s been a tumultuous few years for housing prices. The national average hit a high of $816,720 in February 2022, as record-low mortgage rates drove buyer demand. Once the Bank of Canada started hiking interest rates in March 2022, though, price growth quickly chilled. Home prices have since started climbing upward again, but have yet to reach their pandemic peak; as of April, 2024, the average home price in Canada is $703,446.

A recent affordability report by Ratehub.ca found that despite slightly lower fixed rates, it became tougher to qualify for a mortgage that month, as rising prices pushed up the required income to afford the average home in 10 out of the 13 markets studied.

This has spelled challenges for many Canadians, for whom real estate is one of the biggest – and most important – investments they’ll make in their lifetimes. First-time home buyers in particular have been squeezed as Bank of Canada hiked its trend-setting Overnight Lending Rate a historic 10 times between March 2022 and July 2023, from 0.25% to 5% today. That’s spurred buyers to lock in rates asap over the last year, get pre-approved, and close on their home purchases as quickly as possible. While the BoC rate is now poised to lower in the coming months, the overall cost of borrowing remains quite high.

The process of buying a house in Canada

But how do you buy a house in Canada? If you’ve never done it before, you may not know where to start. The process of buying a home, whether it’s a fully-detached house, townhouse or condo, doesn’t start when you call a realtor and arrange a viewing. Instead, it starts years before, when you decide that you’re ready to buy a home.

Here’s our step-by-step guide on how to buy a house in Canada. We cover everything from deciding whether you’re ready to become a homeowner to getting your house keys.

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Are you ready to buy a house?

Before you start browsing online listings and dreaming of the perfect neighbourhood, it’s important to ask yourself: Are you truly ready to buy a house or condo?

Homeownership is a big responsibility, and it’s essential to make sure you have your finances in order before taking responsibility for an asset that could be valued at half a million dollars or more. Before you take the plunge into homeownership, ask yourself the following four questions:

Question 1: Do you have a down payment?

If you have a down payment on hand, you’re one step closer to your dream of buying a house. If you haven’t started saving yet, don’t fret. You don’t need to have a down payment before you start your homebuying journey, but you do need the financial means to save for a down payment (we’ll cover how to save for one later). That means you need to have space in your budget to put money in a savings account every month.

Don’t know what we’re talking about? Learn about down payments here.

Also read: Should you borrow for your down payment?

Question 2: Is your income steady?

Owning a house or condo means being responsible for all of the bills and unexpected expenses related to repair and maintenance. Unlike a renter, you can’t call your landlord when the roof starts leaking, so it’s vital to ensure you have a steady income that can sustain both your monthly and unexpected expenses. You can use our mortgage payment calculator to help you determine what your monthly expenses will be in various scenarios. 

Also read: How much does it cost to own a home in Toronto?

A steady income will also make it easier to qualify for a mortgage and help boost your credit score, which will also help you qualify for a mortgage. If you’re self-employed or a large portion of your earnings come in the form of commissions and/or bonuses, buying a house can be a little more complicated, so it’s a good idea to speak to a mortgage broker nice and early.

Question 3: What are your local market conditions?

While timing the market is tricky, it’s not a bad idea to assess the local real estate conditions and ensure they are favourable for a purchase. Are mortgage interest rates low? Is your local market a buyer’s market or seller’s market? Can you expect to compete against other buyers, or will you have your pick of properties?

It's no secret that house prices in Canada are still quite high as a result of historically low interest rates during the pandemic, as well as a lack of supply relative to demand. It is critical to keep in mind that interest rates today are dramatically higher than they were back in 2021 and early 2022, and you have to be sure that you can afford your regular payments should rates increase once again in the future.

Question 4: Are you ready to settle down?

Finally, are you in a phase in your life where it makes sense to settle down? Financially speaking, it’s best to purchase a home if you’re planning to stay put for at least three to five years. Take a look at your professional and personal life to make sure you don’t have any significant changes coming up that might require you to relocate.

With all that out of the way, here’s how to buy a house in Canada.

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How to buy a house in 7 steps

The steps on how to buy a house are the same whether you’re buying a house, a townhouse or condo. For simplicity, our examples will focus on how to buy a fully-detached home.

Step 1: Save for a down payment

The first step towards buying a house is to save for a down payment. In Canada, you need to put down at least 5% of the home purchase price as a down payment. For homes between $500,000 and $1 million, you’ll need 5% of the first $500,000 and 10% of the rest of the price. For homes valued at $1 million or more, the minimum down payment is 20%.

You may already have a down payment saved, but if not, you can get one by saving your money every month – this can take years, however. You could also use the Home Buyer’s Plan to withdraw up to $60,000 from your RRSP, tax-free, or you could look into other sources, such as a gift from a family member. There's also a new, tax-free savings vehicle called the First Home Savings Account that was announced as part of the 2022 federal budget, which you can read all about on our blog.

It’s usually best to save as much as possible for your down payment because a larger down payment results in the following benefits:

  • Smaller mortgage default insurance premiums
  • More equity in your home
  • A lower monthly mortgage payment
  • Less interest paid over time

Here’s a table showing just how much of a difference a large down payment makes on a $500,000 home.

*Assuming a 5-year fixed mortgage rate of 4.29%.

Keep in mind that when saving for a home down payment, you’ll also need to save 3% to 5% of the home’s purchase price for closing costs. For example, using the $500,000 home above, you’ll need to save an additional $15,000 – $25,000 to pay the closing costs when buying a house, on top of your down payment. Here’s a list of common closing costs you’ll pay:

  • Land transfer tax: $12,950
  • Lawyer fees: $1,000
  • Title insurance: $500
  • Home inspection: $500

Step 2: Get organized

While you’re saving for your home down payment, take the time to get your finances and paperwork organized. You may be looking at months of dutifully saving for your down payment, which will give you time to:

Pay down your debt

If you have any credit debt, student loan debt, car loans, or a line of credit with a balance, now is a great time to pay those off. Lowering your debt levels will have a positive impact on your credit score. It will also positively impact your debt service ratios, which are formulas your lender will use to determine how much to lend you. The less debt you have, the more you can comfortably borrow for your mortgage.

Prepare your documentation

Applying for a mortgage requires a lot of paperwork, and now is the best time to prepare it. That way, when you apply for a mortgage, everything you need is right at your fingertips. Prepping your documentation in advance is particularly useful if you find your dream house and need to move quickly through the mortgage approval process. Here’s your "Buying a House" checklist for all of the documentation you’ll need:

  • Current employment information such as a T4, pay stub or letter from employer
  • Other sources of income like investments or business income
  • Savings and investment statements for the past 90 days
  • If you are planning to use the Home Buyer’s Plan, proof of withdrawal from your RRSP
  • If you are using a financial gift from a family member, you’ll need a letter stating the gift is not a loan
  • A void cheque
  • An inventory of all other debts and assets like cars and car loans

Step 3: Check for rebates and grants

Buying a home is expensive, so make sure you aren’t making the process more costly than it needs to be. Take the time to check whether you’re eligible for any rebates or grants. Here are some common programs available to first-time homebuyers:

  • Home Buyer’s Plan: Withdraw up to $60,000 from your RRSP for a home down payment, tax-free
  • Land transfer tax rebate: In several provinces and in Toronto, first-time home buyers are eligible for a land transfer tax rebate. If you are buying a house in Ontario, for example, you may receive a partial refund of Toronto’s land transfer tax up to $4,475
  • Home Buyer’s Amount: This is a non-refundable $5,000 income tax credit
  • GST/HST New Housing Rebate: This is a partial rebate on the GST or HST you paid on the cost of your new home

Federal and provincial first-time home buyer programs

You can find detailed information on a number of great federal Canadian programs for first-time home buyers. Various provinces and municipalities also offer several helpful incentives and programs for first-time home buyers to make the process of buying a house easier. You should also visit our provincial first-time home buyer education centres to learn more about what options are available to you in your province when you're looking to buy your first home. Have a look at this video on federal first-time home buyer programs, then check out the links below for province-specific information.

Step 4: Shop around for a great rate

You wouldn’t buy car insurance without shopping around for the best price, so why should your mortgage be any different? Finding the lowest mortgage rate could save you thousands – or tens of thousands – in interest over the life of your mortgage. Fortunately, shopping around for the best mortgage rate is easy when you use a mortgage broker.

A mortgage broker will have you fill out one application, then shop it around to several different lenders, returning with only the best offer and the lowest rate for you. Still not convinced? Here’s the difference between securing the lowest mortgage rate versus the standard posted rates at big banks on a $500,000 home:

 

Even if a mortgage broker can’t find you a better rate, they’ll still be able to offer you expert, personalized advice at no cost. Find a mortgage broker near you here.

Step 5: Get a mortgage pre-approval

If you’ve saved your down payment, organized your documentation, and found a mortgage broker, now is the time to get pre-approved for a mortgage. Mortgage pre-approval is free and doesn’t commit you to a single lender, but it does give you a chance to find out the following information to inform your house hunt:

  • How much you can afford to spend on a house
  • How much your maximum monthly mortgage payment could be
  • What mortgage interest rate is available to you

A mortgage pre-approval is a low-risk way to find out these critical pieces of information, which will help you determine your maximum purchase price. If you like the mortgage rate and lender, you can lock in that rate for up to 120 days. Locking in the mortgage rate means that if rates rise, you’ll still access the lower rate. If rates drop, don’t worry, your lender will honour the lower rate.

Getting a pre-approval can be a little daunting if you’ve never done it before, so check out this list of dos and don’ts for pre-approvals before you jump.

Step 6: Find a home

Finally, the fun part – house-hunting! With your mortgage pre-approval in hand, your maximum purchase price in mind and a substantial down payment, you’re ready to contact a real estate agent and begin your house hunt. Here are our top tips:

  • Find a real estate agent that specializes in the type of house or neighbourhood you prefer (family referrals are a great place to start)
  • Avoid representing yourself if you are a first-time homebuyer. It’s better to rely on the expertise of an experienced agent
  • Make a list of “must-have” and “nice-to-have” features for your future house. It’s important to know where you can be flexible
  • Research the market in your ideal neighbourhood to make sure home prices and your maximum purchase price are in sync
  • Be prepared to move quickly in a competitive market

Step 7: Make an offer and seal the deal

When you find the house you want, things will move fast – but don’t panic! First, you’ll submit an offer to purchase. If your housing market is hot, you may not be the only buyer to submit an offer. Once your offer is accepted, you’ll pay a deposit to the buyer (which is applied against the purchase price of the home), arrange to finalize your mortgage financing through your mortgage broker, and arrange for a home inspection.

The offer might be amended based on the findings of the home inspection. Still, eventually, you’ll secure your financing and, with the help of a real estate lawyer, pay your down payment and transfer title to the home into your name. The entire process can take 30-60 days, depending on the terms of the offer to purchase.

Once everything is in place, you’ll receive the keys from your real estate agent, and you’ll officially be the owner of your new home.

The bottom line

While this article may seem exhaustive, it only scratches the surface of how to buy a home in Canada. If you're feeling unsure of what to do, you can always contact one of our mortgage brokers for advice at no cost or obligation to you. Just make sure to prepare well in advance, save a large down payment, and ensure your financial house is in order before you take the plunge.

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