As a First-Time Home Buyer, How Much Should I Spend on a Home in Canada?

Becoming a homeowner for the first time is exciting, but it also involves hard stressful financial decisions like taking a mortgage. One of the most critical questions you'll face is: How much should I spend on my first home? This decision can have a long-lasting impact on your and your family’s future, so it's essential to approach it wisely.

In Canada where real estate markets can vary significantly from one region to another, finding the right balance between your aspirations and your budget is the key. Let's dive into some essential considerations to help you determine the right amount to spend on your first home in Canada.

01Learn About the Costs of Homeownership

The costs of owning a home in Canada may be different than the costs in other countries, like utilities and taxes. First, you have to consider your monthly mortgage payment. This is the money that you have to pay back to the bank monthly. Homeowners also regularly pay for utilities like gas and electricity, sewage and garbage removal, and water. While not technically required, most Canadians also pay for phone services (cell phone, landline, or both), internet, and cable television.

It’s also important to note that Canada’s climate means snow and low temperatures in the winter (at least for most of the country!), which also leads to a higher heating bill. Some people choose to pay a company to remove snow, while others do it themselves. Some also choose to have someone else do landscaping and hard work, though others enjoy hard work. If you prefer to hire out these household tasks, the little costs can all add up. If budget is a big concern, you can find ways to minimize these expenses, but it’s important to know about them as you get started.

02Understanding the 32% Rule

In Canada, a commonly used guideline for determining an affordable mortgage payment is the 32% rule. This rule suggests that your monthly housing costs, including mortgage payments, property taxes, and heating expenses, should not exceed 32% of your gross monthly income. This helps ensure that your housing costs remain manageable and leave room for other essential expenses.

03Talk to a Mortgage Broker and Get Pre-Approved

A mortgage is a loan that you take out to pay for a home. It’s smart to meet with a mortgage broker to go over your options. For instance, decisions about mortgages are typically based on a combination of credit history and salary, along with job history. As a newcomer to Canada, you will not yet have a Canadian credit score, and you won’t have a long job history within the country. This may mean that the lender requires you to make a higher down payment, or you may need to wait until you’ve built up some Canadian credit.

During the mortgage pre-approval process, the bank looks at all of your financial information. They will then tell you how much you will be allowed to borrow and how much interest you’ll pay on that money.

Read More: Understanding the Mortgage Application Process

04Save Up Your Down Payment

The mortgage lender should have told you how much of a down payment you will need. Canadians typically need at least 5% of the cost of the home, but as we just mentioned, new immigrants may need more. We suggest having at least 20% for the down payment on a home. For instance, if you want to buy a $300,000 house, you will need to have at least $60,000 saved. Since it can take a long time to save up this money, you will want to get started as soon as possible.

Keep in mind that if your down payment is less than 20% you will also need to factor mortgage insurance into your payments.

05Make Sure You Know Your Budget

With the mortgage pre-approval, you will know how much the bank will lend you, but you should also think about whether that amount of money makes sense for your future.

Simply because you can get a mortgage for $500,000 doesn’t mean you need to purchase a $500K home! Look at what you and your family need, and go from there. It doesn’t make sense to purchase at the top of the end of your budget if you don’t need it.

Once you know how much you’re willing and able to spend, you have a great starting point for searching for your home.

Buy the Home That’s Right for You

Now that you know all of this and have your down payment saved up, you are ready to start hunting for houses for sale . Look carefully at all of your options, then select the house that has everything you need. If you have any questions about buying your first home in Canada, you can chat with The Canadian Home experts using the chat icon on top of the webpage.