The First-Time Home Buyer

Minimum Down Payment in Ontario

The minimum down payment depends on the purchase price:

• Up to $500,000: 5% of the purchase price.
• $500,000 to $1.5 million: 5% of the first $500,000 plus 10% of the portion above $500,000.
• $1.5 million or more: 20%, because mortgage default insurance isn't available at that price.

Mortgage Default Insurance

With less than 20% down, your mortgage must be insured.

The premium is a percentage of the mortgage amount — 4.00% with 5% to 9.99% down, 3.10% with 10% to 14.99% down and 2.80% with 15% to 19.99% down — and it is usually added to the mortgage.

In Ontario, provincial sales tax of 8% applies to the premium. That tax can't be added to the mortgage, so it has to be paid in cash at closing.

30-Year Amortization for First-Time Buyers

First-time buyers can now choose a 30-year amortization on an insured mortgage, rather than the standard 25 years.

A longer amortization lowers the regular payment but increases the total interest paid, and insured mortgages with an amortization over 25 years carry a 0.20% premium surcharge.

Programs That Help First-Time Buyers

Several programs can be combined.

Eligibility rules and limits apply, so confirm the details with the Canada Revenue Agency, the Ontario government or your lawyer before you rely on them:

• First Home Savings Account (FHSA): contribute up to $8,000 a year, to a lifetime maximum of $40,000. Contributions are generally tax-deductible, and qualifying withdrawals for a first home are tax-free.
• RRSP Home Buyers' Plan: withdraw up to $60,000 from your RRSP toward a first home, then repay it to your RRSP over time.
• Ontario land transfer tax refund: eligible first-time buyers can receive a refund of up to $4,000 of provincial land transfer tax.
• First-Time Home Buyers' Tax Credit: a federal non-refundable credit worth up to $1,500 on your tax return for the year you buy.

Qualifying: Debt Ratios and the Stress Test

Lenders look at two ratios.

Your housing costs — mortgage payment, property tax, heating and half of any condo fees — generally shouldn't exceed about 39% of gross income for an insured mortgage, and all debt payments combined generally shouldn't exceed about 44%.

You qualify at the greater of your contract rate plus 2% or 5.25%, not at the rate you'll actually pay. Student loans, car payments and credit card balances all count, which is why paying down a balance before you apply can make a real difference.

Budget for Closing Costs

Your down payment isn't the only cash you need.

Plan for land transfer tax (after any first-time buyer refund), legal fees and disbursements, title insurance, a home inspection, the PST on any insurance premium, property tax and utility adjustments, and moving costs.

Many buyers set aside roughly 1.5% to 4% of the purchase price for closing costs; your lawyer can give you a closer estimate.

From Pre-Approval to Keys

A typical path for a first-time buyer in Ontario:

• Get a document-reviewed pre-approval so you know your real budget and can hold a rate.
• Shop within that budget, leaving room for closing costs and a cushion for the first months.
• Make an offer with financing and inspection conditions where the market allows.
• Once the offer is accepted, the lender completes full approval, which usually includes an appraisal.
• Your lawyer handles title, land transfer tax and closing funds, and you get the keys on closing day.