First-time home buyer guide (Toronto): everything you need to feel ready

There is no perfect moment, but there are clear signs. Being ready is less about a magic number in your bank account and more about four things lining up: a budget you understand, savings that cover more than the down payment, healthy credit and income a lender can count on.

Budget

Know what you spend in a normal month, not what you hope you spend. Look at three months of bank and card statements. The difference between what comes in and what goes out is the real room you have for a mortgage, property tax, insurance, utilities and (for a condo) maintenance fees.

Savings

You need more than the down payment. You also need closing costs (land transfer tax, legal fees and a few smaller items) and a cushion for the first surprise, like a new water heater or a fridge that quits. A home with zero dollars left over is a stressful home.

Credit

Your credit score affects which lenders will say yes and on what terms. Pay every bill on time, keep credit card balances well below their limits and pull your free credit reports from Equifax and TransUnion to fix any mistakes before you apply.

Job stability

Lenders like steady, provable income. If you just started a new job, they may want you past your probation period. If you are self-employed or earn commission, expect to show a couple of years of tax returns and notices of assessment.

There are two numbers here, and first-time buyers often mix them up. One is how much a lender will approve. The other is the payment you can comfortably live with. Your real budget is the smaller of the two.

The stress test, in plain words

Before a lender approves you, they check that you could still afford your payments if interest rates went up. So they qualify you at a higher rate than the one you will actually pay. That is why many first-time buyers are approved for a little less than they expected. It is a safety check, not a judgment, and it is much better to learn your number now than on offer night.

Debt ratios, without the jargon

Lenders also compare your housing costs and your other debts (car loan, student loans, lines of credit, card minimums) to your income. The more you owe elsewhere, the less room there is for a mortgage. Paying off a car loan before you apply can raise your approval more than you might expect.

Want to see your own numbers? Try our mortgage qualification calculator, then talk to a trusted mortgage broker for a real pre-approval.

The down payment is your share of the purchase price. The mortgage covers the rest. In this guide we assume a 20% down payment, because with 20% or more you avoid mortgage default insurance, which keeps your mortgage smaller.

When your offer is accepted, you usually send a deposit within about 24 hours. In Toronto it is commonly around 5% of the price. That deposit is not extra money. It is the first part of your down payment, and the rest is paid on closing day.

Putting down less than 20%?

You have options. Many first-time buyers put down less and pay for mortgage default insurance, which is added to the mortgage. The minimum down payment depends on the price of the home, and more expensive homes need more down. The rules change from time to time, so a trusted mortgage broker is the best person to tell you what applies today.

First-time buyer programs worth asking about

• First Home Savings Account (FHSA): a registered account designed to help first-time buyers save for a home with tax advantages.
• RRSP Home Buyers' Plan: lets eligible first-time buyers borrow from their own RRSP for a down payment and repay it over time.
• Land transfer tax rebates: Ontario and the City of Toronto both offer first-time buyer rebates (more on these in the next section).
• Federal first-time buyer tax credit and new home rebates: there are tax credits for first-time buyers, and rebates that can apply when you buy a newly built home.

Contribution limits, eligibility and amounts change, so check the current rules with your mortgage broker or accountant before you count on any of them.

Closing costs are the cheques you write on top of the down payment. Plan for them from day one so they do not surprise you.

• Ontario land transfer tax: a provincial tax on every home purchase, based on the price.
• Toronto land transfer tax: buying inside the City of Toronto means a second, municipal land transfer tax on top.
• Legal fees and title insurance: your real estate lawyer handles the title search, paperwork and funds.
• Adjustments: you repay the seller for anything they prepaid past closing, like property tax or condo fees.
• Home inspection and moving: smaller, but they add up.

First-time buyer rebates, explained simply

If you qualify as a first-time buyer, Ontario and Toronto each give you a rebate that reduces (and on lower prices can wipe out) their land transfer tax. Generally, you must never have owned a home anywhere in the world, you must live in the home, and if you have a spouse, they cannot have owned a home while you were together. Each rebate has a maximum, and the details are set by the government and can change, so your lawyer will confirm exactly what you qualify for.

Run your own price through our closing costs calculator to see the full cash you need to close.

Each type of home suits a different stage of life. Here is the high-level picture. None is "better", only better for you.

In Toronto's west end, many first-time buyers start with a condo or a condo townhouse near Corso Italia or Trinity Bellwoods and move into a semi a few years later. Others stretch for a freehold with a basement apartment that helps carry the mortgage. If you are leaning toward a condo, read our downtown Toronto condos page for what to look for in a building.

You do not need to know everything. You need the right people who do, and who talk to each other.

When you work with a buyer's agent in Ontario, you will sign a buyer representation agreement that sets out the services you will get and how your agent is paid. Read it, ask questions and make sure you are comfortable before you sign. A good agent will happily walk you through it line by line.

You will also need home insurance arranged before closing (your lender will ask for proof), so add an insurance broker to your contacts early.

One more: deciding your price in the heat of the moment. Choose your walk-away number before offer night, with a clear head, and stick to it. There will be other homes. There will not be another chance to undo a payment you cannot afford.