A guide to buying your first home in Canada

1. Meeting the eligibility criteria to purchase property

In Canada, both permanent residents and non-permanent residents are permitted to purchase property under certain conditions; for instance, if they hold a work permit. However, becoming a homeowner won’t give you access to permanent residency and won’t change the terms of your visa. (Good to know!)

Here are the mandatory requirements for home ownership and mortgages in Canada:

You’ll need to prove that you've sufficient funds to make a down payment. It is essential that you’ve held this amount for at least three months. If the money comes from outside Canada, you must have it in your possession and be able to prove its source.

It’s also important to have a bank account and a good credit report, with a score of at least 680. A credit card can help you build your credit history and improve your score, as long as you use it responsibly. That means paying off the balance or at least the minimum payment due each month. Even if you've already built a credit report in your home country, you'll still need to build one in Canada.

Don’t have a credit history in Canada? In that case, you will need to demonstrate that you have a good payment record and that you are creditworthy. You can do this by providing proof that you’ve paid your bills on time for public accounts, such as electricity, for the last 12 months.

Additional documentation may be required to assess your credit report and debt ratio, especially if you’ve debts outside the country. Also, be aware that some financial institutions require a temporary resident visa (with a work or study permit) before granting a mortgage. Make sure you understand the requirements before choosing a bank.

Please note that as of January 1, 2023, a new law imposes certain restrictions on the purchase of a residential property in Canada by a non-Canadian for a period of two years (external link). You can consult a lawyer or a notary if you’ve any questions. Introduced by the federal government, the law is intended to curb the purchase of residential property by foreign investors to stabilize the real estate market in Canada.

This new law doesn’t cover:

• Diplomatic or consular officers
• Temporary residents with a study permit who meet certain strict conditions
• Temporary residents with a work permit who meet strict conditions
• Temporary residents who have been granted a visa for refugees fleeing a conflict
• Asylum seekers, under certain conditions

For the conditions and details of the law, consult the Government of Canada website.

We recommend that you speak with a lawyer to confirm if you're eligible to purchase a residential property in Canada before starting your search.

2. Understanding mortgage-related terminology

The terminology associated with purchasing property can differ from one country to the next. To help you find your way around, here are commonly used terms in Canada.

Mortgage loan and down payment

A mortgage loan, or simply a mortgage, is the money you’ll need to borrow to cover the portion of the purchase price that you can't pay in cash.

The down payment is the portion of the price that you’ll have to pay in cash. In Canada, the minimum down payment for a property of $500,000 or less is 5% of the purchase price and 10% for the portion exceeding $500,000, if the mortgage is insured. The down payment must be 20% for an uninsured loan, regardless of the purchase price. For non-permanent residents authorized to work, the minimum down payment required is 10% while it could be 5% for a temporary resident.

Amortization and term

Amortization is the number of years you need to pay off the mortgage. At the end of this period, the property will be paid off in full. Amortization is generally 25 years for an insured loan and 30 years maximum for a conventional loan.

Your amortization period is divided into several terms of either three or five years. The term is the length of the mortgage contract that dictates the terms of your loan, such as your interest rate and the amount of your mortgage payments over a given period. When your term expires, you’ll need to renew or transfer your contract.

Interest rate

You can choose between a fixed and variable interest rate. The fixed rate will remain the same throughout the term and is usually higher than the variable rate. The variable rate, which is usually lower, will fluctuate according to certain economic indicators. Canadian mortgage rates vary from bank to bank and are influenced by the Bank of Canada’s key interest rate (external link).

Want to learn more?
→ Consult our complete mortgage glossary.

3. Determining your down payment and your budget for purchase costs

Buying a property isn’t a project you can simply throw together. The first thing you’ve to do is take stock of the cash you’ve on hand. It’s critical to take the time to determine the budget available to you to cover the down payment and fixed costs at the time of purchase. Remember that depending on your situation, you’ll have to pay a minimum of 5% of the price of the property as a down payment. As well, you'll have to consider additional fees such as:

• Inspection fees
• Notary or lawyer’s fees
• Real estate transfer tax (welcome tax), which is payable in some provinces, including Quebec
• Taxes (GST and QST) payable on a new home
• Adjustment of municipal and school taxes at the time of purchase, if applicable
• Moving expenses
• The purchase of furniture and appliances

To get a good idea of what these fixed costs are, excluding the down payment, you can expect to pay 2% to 3% of the property value.

4. Evaluating your borrowing capacity and getting pre-approved

To estimate the amount of mortgage you could get, you’ve two options:

• Consult a mortgage advisor.
• Use an online calculator.

Before you start shopping for a property, it’s strongly recommended that you obtain a mortgage pre-approval from your financial institution. This pre-approval is proof of your ability to borrow and protects your interest rate from increasing for a specific period, usually 60 to 90 days. Pre-approval indicates to the seller that you are a serious buyer and increases your bargaining power. It’s a simple way to improve your chances of acquiring the property you want. Get pre-approved and be prepared!

5. Finding your home and making an offer to purchase

To begin your search, learn about the real estate market and determine which neighbourhood and type of property is right for you.

Once you’ve found the home that meets your needs, it’s time to make an offer to purchase. You can ask a real estate agent to help prepare one for you. Essentially, this document sets out your terms of purchase, such as the inspection, which is a very important verification to evaluate the condition of the property. In the offer to purchase, you’ll also establish the amount you wish to offer for the property.

6. Obtaining a mortgage loan

Finally, if your offer to purchase is accepted, it’s time to officially obtain the mortgage loan. This is where you can negotiate the various terms of the loan, such as the term and payment frequency. You’ll need to provide several documents at the time of application, including the official offer to purchase and proof of employment income.

Once your mortgage is approved, you can then finalize your purchase. To do this, you’ll need to hire a notary or a real estate lawyer who will take care of the necessary legal steps.

For more information on each one of these steps:
→ Consult our complete buying guide

7. Bonus: Knowing the incentives and resources available to you

There are many incentives and resources for first-time homebuyers in Canada.

Mortgage loan insurance for newcomers

Mortgage insurance can make it easier for you to get a mortgage because it reduces the risk to the lending financial institution in the event you default on your payments. If your down payment is less than 20%, mortgage loan insurance is mandatory.

Many organizations offer specific loan insurance programs for newcomers. To have access to this type of insurance you must have made a down payment of at least 5%. To find out the conditions of each program, consult the following web pages:

• Canada Mortgage and Housing Corporation (CMHC)
• SAGEN
• Canada Guaranty’s Maple Leaf Advantage

Note: These organizations offer other programs and services to help newcomers settle in and find housing.

The HBP

The Home Buyers’ Plan, or HBP, is a program that allows you to withdraw funds from your RRSP (Registered Retirement Savings Plan), without being taxed, in order to finance the purchase or construction of a first home. In other words, the HBP can help you finance your down payment or construction costs with money that has not been taxed.

The maximum HBP amount is $35,000 and the funds must be deposited into your RRSP at least 90 days before the withdrawal. You then have 15 years to put the money back into your RRSP.

A temporary resident can contribute to an RRSP if they have earned income and filed a tax return in Canada.

The FHSA

The FHSA is a tax-free savings account for first-time homebuyers. Contributions to this account are tax-deductible and therefore reduce your taxable income. You can then use this money to purchase your first home.

To be eligible to open an FHSA, you must meet the following conditions:

• You must be between 18 and 71 years of age.
• You must be a resident of Canada.
• You and your spouse must not already own a home in Canada or anywhere else; you must be a future first-time homebuyer.

Real estate agents

The real estate agent is an expert in the purchase and sale of properties. They will help guide you in the choice of property as well as through the entire purchasing process. To make sure you choose the right person, check with the regulatory bodies in the province where you live.

Mortgage advisors

Mortgage advisors can help you find the best financing solution for your needs. They will advise you on the type of loan and terms, based on the property and your financial and personal situation. Mortgage advisors will also help you negotiate your interest rate as well as the other terms of your loan.

Find a mortgage advisor.

Would you like to discuss this with us? Contact your National Bank advisor or your wealth advisor at National Bank Financial. Don't have an advisor?