When purchasing a home in Canada, you have to consider more than just the cost of the home itself. There are many other costs associated with purchasing a home. Also, when it comes to your mortgage payments, you want to be sure you aren’t spending too much of your monthly income.
Before you put an offer in on a home, it’s important to verify that the cost is something that you can afford. Putting more than you can reasonably afford into purchasing a home can result in becoming house poor or cash poor. This can have a negative impact on your financial future.
Closing Costs When Purchasing a Home
Closing costs are costs that occur when finalizing the purchase of real estate. These costs will change based on the province that you live in, but they normally range between 1.5% and 4% of the purchase price. That said, the general fees include:
- Legal fees
- Land Transfer tax’s
- Title insurance
- Home inspection fees
- Overlapping property tax fees
- Property Appraisal fees
Including these fees, it could be possible you also need to pay mortgage default insurance, real estate agent commission fees and other bills associated with the property.
When you consider these fees, it’s important to note that they need to be paid at the same time as the down payment. These need to be paid in case, and likely aren’t going to be added to your mortgage. For this reason, it’s important that you don’t use all of the money that you have saved for the down payment.
Other Costs to Consider
When purchasing a home, it’s not just your mortgage amounts and initial costs to consider. There are lots of other costs to consider. Some of these include:
- Mortgage insurance
- Mortgage Life Insurance
- Title Insurance
- Home Insurance or Property Insurance (through an insurance company)
- Condo fees
- HVAC Maintenance
- Snow removal and other fees
When considering home ownership, you also need to consider your entire monthly debt load before getting a mortgage loan. When determining the purchase price of the property that you can afford, you should base it on your net monthly income, not your gross monthly income. Ideally, your mortgage payment shouldn’t be more than 30% so you still have money for utility bills, unexpected surprises, credit card payments, and other monthly expenses.
You should also consider any moving costs that you might incur. That said, many of these are one-time fees. You should heavily consider mortgage rates and interest rates. This is because the rate you get approved for isn’t the rate you have for the entirety of the mortgage. It will change every time you renew your mortgage term. These vary depending on the Bank of Canada’s prime rates.
Home Purchase Agent Fees
When it comes to purchasing a home in Canada, the buyer isn’t the one who pays the real estate fees, it’s actually the seller. The seller will be responsible to pay both their real estate fees as well as the buyer. While this amount isn’t paid from the seller directly, it’s actually calculated as part of the selling price and into the overall cost of the home.
These rates paid to agents are part of a commission system. How much the agents will receive is based on the selling price of the home. They’re priced in graduated rates and are often commonly split between the buying and the selling agents. It’s important to remember that, while many agents have a set commission rate, it can be negotiated.
Home Purchase Inspection Fees
While inspection rates vary from province to province, the typical cost usually ranges from $300 to $800. Often, this cost depends on the square footage of the home as well as the age of the home. Older homes can cause the cost to increase as well, since the older homes can be more difficult to inspect which can take more time.
The idea behind a home inspection is to verify that the house is up to code and the buyer won’t incur a lot of unexpected expenses. The home inspector will look at the functionality as well as the structure of the home. This includes things like the roof, foundation, electrical, and even the plumbing. They even look at the HVAC and the functionality of all of the appliances.
No matter which province you live in, it’s important to get a trained home inspector when purchasing your home. While it isn’t a stipulation for all mortgages, it can save you money on your home purchase or even in the future.
Property Taxes in Canada
Property taxes are charged to any home that is owned in the country. However, property taxes aren’t determined by the federal government. These municipal taxes are monitored and controlled by municipal governments. They are charged at a set rate based on the assessed value of the property. These taxes also have to be paid annually.
New Rules for Buying a Home in Canada
While the rules for the actual purchase of a home haven’t really changed, the rules for mortgages have changed recently. This mostly affects amortization times and down payments for first-time home buyers. You used to only be able to purchase a home with a down payment of less than 20% for homes less than $1 million; now it applies to homes up to $1.5 million. Plus, those who purchase a new build can get an amortization of 30 years instead of only 25 years.
When it comes to how much is required for down payments, these amounts have changed as well. These are the current amounts.
- 5% down for homes $500,000 or less
- 5% for the first $500,000 and 10% for the rest for homes between $500,000 and $1 million
- 5% for the first $500,000, 10% for the next $500,000 and 20% for the rest for homes between $1 1Million and $1.5 1.5Million
These changes can make home ownership more attainable for those who have previously been unable to purchase. However, you do have to qualify for this with mortgage default insurance, also referred to as mortgage loan insurance, from the CMHC (Canada Mortgage and Housing Corporation).
First Time Home Buying Incentives from the Government of Canada
The Government of Canada was offering a first time home buyers incentive, but this actually ended in March of 2025. That said, they do still offer some options that are there to help make home ownership more attainable. These options include the Home Buyers Tax Credit (Home Buyers Amount), Home Buyers Plan, and the First Home Savings Account.
Home Buyers Tax Credit
The Home Buyers Amount, also referred to as the Home Buyers Tax Credit, allows you to claim up to $10,000 for the purchase of a qualifying home. However, in order to qualify for this tax credit, you need to meet two criteria. This includes you and or your spouse purchasing a home, and you didn’t live in another home that you or your spouse owned in the last 5 years.
Home Buyers Plan
The Home Buyers Plan is a program where you can use part of your RRSP, penalty free, as a down payment for your home. You can do this to build or purchase a qualifying home for you or a specific disabled person. With this plan you can currently take out up to $60,000.
Once you’ve taken the funds from your RRSP under this plan, you have up to 15 years to pay back the funds. This will be paid back when you file your annual tax return with a set amount.
First Home Savings Account
The First Home Savings Account is a new registered account created by the federal government for those who wish to purchase their first home. All of the funds put into this account are tax-free. You only need to be 18 years old to open one of these accounts. Due to the fact that it’s tax-free, or even capital gains tax, you can save more money than you can with a traditional savings account or bank account.
Once you’ve opened an FHSA, you can put up to $8,000 per year into this account, with a lifetime amount of $40,000. Any unused contribution room can be forwarded to future years. Any of the funds you withdraw to purchase your first home are tax-free. If you use it for other reasons, then you will have to be taxed on the funds. If the funds aren’t used within 15 years of opening, or before age 71, then you can withdraw them with a penalty, or you can transfer the funds to an RRSP or other investment options.
Steps to Buying a Home for the First Time in Canada
When it comes to purchasing a home in Canada, the steps for purchasing your first home are almost the same as purchasing a home at any time. That said, the steps are important to ensure that you purchase within your budget and don’t end up in over your head.
- The first thing that you want to do is determine your budget as well as your down payment amount. The best way to do this is to assess your budget and speak to a mortgage lender. They can help you get a mortgage preapproval and determine how much of a down payment you need.
- Once you’ve assessed your budget and gotten the preapproval, it’s time to find a real estate agent. They can guide you through the purchase process and find you the right home for your budget.
- The next step is finding the right home. Once you find that, you’ll put in an offer and work with your agent to do so. Once an offer is accepted, a deposit is required to hold the sale. Then you’ll also need to fulfill any subjects.
- Getting a home inspection is usually considered a normal subject when purchasing a home. This and any other subjects will need to be completed by the subject removal date.
- Once everything is done, it’s time for you to complete the sale. You’ll meet with both your real estate lawyer and the lender and finalize the paperwork and legal documents. Then the purchase is completed, and you will get the keys to your home. The mortgage will start coming out on the specified date on your paperwork. Most lenders allow for automatic transfers, so you don’t have to deal with the cash specifically either.
How Much Money Should You Have Before Buying a House in Canada
Determining how much money you need to purchase a home in Canada is difficult since it’s dependent on the home’s purchase price. Due to changing market conditions, you can budget effectively by knowing the property values and the current market values.
The best thing you can do is figure out the average price and save up what is needed for a down payment. That said, while 5%-10% of the purchase price is the minimum down payment amount, it’s also smart to have a bit more so you have some funds in case of emergencies and you have enough to cover any closing costs as well as the total costs of the down payment.
Depending on which financial institution you get a mortgage loan from, they may want you to have some sort of financial protection. Especially if you don’t have an emergency fund, this is usually in the form of a line of credit. Having the funds for additional costs, including moving expenses, can reduce the financial burden. Lenders prefer you to have less financial stress so they have less risk.
How Much Do You Need to Make in a Year to Afford a $400,000 House?
It’s hard to determine exact amounts, but based on the average purchase, it’s recommended that you have a minimum household income of between $100,000 and $125,000 annually to avoid financial strain. However, this is based on having the minimum down payment of between $20,000 and $80,000. If you’re able to save money and put a larger down payment, then your income could be less.
How Much Do You Need to Make in a Year to Afford a $600,000 House?
If you have to get a mortgage with a minimum payment down of between $30,000 and $120,000, then your annual income is an important factor to consider. In order to reasonably afford a home for $600,000, you would need to have an annual household income of $133,200.
How Much Do You Need to Make in a Year to Afford a $1,000,000 House?
Without having a large down payment for a million-dollar home, the standard down payment is between $50,000 and $200,000. In order to reasonably afford a home of this price, you would need an annual household income between $260,000 and $300,000.
