Canada Home Buying Guide: Budget, Mortgage and Closing Steps

Step 1 — Get mortgage pre-approval before you start shopping

Pre-approval does two things: it tells you the maximum amount a lender will offer, and it locks in your interest rate for 90–120 days while you search. Without a pre-approval letter, sellers may not take your offer seriously in a competitive market.

To qualify, lenders check your income documents (T4s, NOAs, pay stubs), credit score (generally 620+ for conventional, 680+ for best rates), employment history and existing debts. Self-employed buyers and newcomers without a Canadian credit history have additional options through alternative lenders and the CMHC newcomer program.

The stress test (B-20 qualifying rate)

Under Canada's B-20 guideline, every mortgage applicant must qualify at the higher of the Bank of Canada's five-year benchmark rate (currently 5.25%) or their contract rate plus 2%. So if your lender offers 4.8%, you must qualify at 6.8%. This test reduces your maximum purchase price by roughly 15–20% compared to qualifying at the contract rate alone.

Example: A household earning $130,000 annually with no other debts, 20% down, 25-year amortization and qualifying at 6.8% can typically afford up to approximately $750,000–$800,000 in purchase price. Use RealMaster's mortgage calculator to run your own numbers.

Choosing fixed vs. variable

Fixed-rate mortgages lock in your payment for the term (usually 1–5 years). Variable-rate mortgages move with the Bank of Canada's overnight rate. In 2024–2025, the Bank of Canada cut rates several times, making variable-rate products attractive again. Talk to a mortgage broker to compare both options based on your risk tolerance and timeline.

Step 3 — Closing costs: the full picture

Beyond the down payment, budget an additional 1.5%–4% of the purchase price for closing costs. In Toronto, where both provincial and municipal land transfer taxes apply, closing costs can be significantly higher.

Ontario Land Transfer Tax (LTT)

Ontario charges a graduated land transfer tax on every residential purchase:

• 0.5% on the first $55,000
• 1.0% on $55,001–$250,000
• 1.5% on $250,001–$400,000
• 2.0% on $400,001–$2,000,000
• 2.5% on amounts over $2,000,000

On a $900,000 purchase, Ontario LTT is approximately $14,475.

Toronto Municipal Land Transfer Tax (MLTT)

Toronto buyers pay a second, nearly identical land transfer tax at the same rates. On the same $900,000 purchase, Toronto MLTT adds another ~$14,475, for a combined LTT of roughly $29,000.

First-time buyer LTT rebates

First-time buyers get meaningful relief: Ontario rebates up to $4,000 of provincial LTT (eliminating it entirely on purchases up to ~$368,000), and the City of Toronto rebates up to $4,475 of the municipal LTT. These rebates apply to Canadian citizens and permanent residents purchasing a home they intend to occupy as a principal residence.

Legal fees and title insurance

A real estate lawyer handles the title search, mortgage registration and fund disbursements. Budget $1,500–$2,500 for legal fees plus disbursements. Title insurance (typically $250–$400 one-time) protects against title fraud and defects — most lenders require it.

CMHC mortgage default insurance

If your down payment is less than 20%, you must purchase CMHC (or Sagen/Canada Guaranty) mortgage insurance. The premium is added to your mortgage and amortized over the loan term:

• 5%–9.99% down: 4.00% of the mortgage amount
• 10%–14.99% down: 3.10% of the mortgage amount
• 15%–19.99% down: 2.80% of the mortgage amount

On a $700,000 purchase with 5% down ($35,000), your insured mortgage is $665,000 and the CMHC premium is $26,600 — added to the mortgage, not paid upfront. Note that insured mortgages are capped at a $1,500,000 purchase price as of 2024.

Other closing costs to budget

• Home inspection: $400–$600
• Appraisal (sometimes required by lender): $300–$500
• HST on new construction (may be partially rebated)
• Adjustments for prepaid property taxes and utilities
• Moving costs: $1,000–$3,000+

Step 4 — Government programs for first-time buyers

First Home Savings Account (FHSA)

Introduced in 2023, the FHSA combines the benefits of an RRSP and TFSA for first-time homebuyers. You can contribute up to $8,000 per year (lifetime max $40,000). Contributions are tax-deductible, investment growth is tax-free, and qualifying withdrawals for a home purchase are tax-free. If you haven't opened one yet, start today — unused annual room carries forward.

RRSP Home Buyers' Plan (HBP)

The HBP lets first-time buyers withdraw up to $35,000 from an RRSP (or $70,000 per couple) tax-free to use as a down payment. You must have held the funds in the RRSP for at least 90 days. The withdrawn amount must be repaid over 15 years — missing annual repayments adds them to your taxable income.

First-Time Home Buyer's Incentive (note: program closed)

The federal shared-equity First-Time Home Buyer's Incentive program closed to new applications in March 2024. If you were relying on this program, speak with a mortgage broker about alternative options.

GST/HST New Housing Rebate

New construction homes are subject to HST in Ontario. Buyers may qualify for the federal GST/HST New Housing Rebate (up to $6,300) and the Ontario New Housing Rebate. Conditions apply; confirm with your lawyer.