Are you financially ready to buy a home?

Purchasing property is one of the largest financial decisions most people will ever make. Understanding your down payment, mortgage options, and overall affordability can help you approach the process with clarity and confidence.

Here are several financial factors every buyer should understand before entering the market.
 

Understanding Down Payments

In Canada, buyers must typically provide at least 5 percent of the home’s purchase price as a down payment.

However, putting down 20 percent or more offers several advantages:

• Avoid paying mortgage insurance
• Lower monthly mortgage payments
• Save thousands of dollars in interest over time

If a buyer puts down less than 20 percent, mortgage insurance is required. This insurance protects the lender and is added to the mortgage amount.

While a larger down payment can be beneficial, entering the market with 5 percent is still common and allows many buyers to start building equity sooner.
 

Saving for a Down Payment

First-time buyers have several tools available to help build a down payment.

Some common options include:

First Home Savings Account (FHSA)
Allows buyers to contribute up to $8,000 per year tax-free, with a lifetime limit of $40,000.

Home Buyers’ Plan (HBP)
Allows buyers to withdraw up to $60,000 from their RRSP, which must be repaid within 15 years.

Tax-Free Savings Account (TFSA)
Savings can grow tax-free and be withdrawn for a home purchase.

First-Time Home Buyers’ Tax Credit
Provides a non-refundable tax credit that can help offset some of the costs associated with buying a home.

Using these programs together can help buyers reach their savings goals faster.
 

Remember – The Down Payment Is Not the Only Cost

One of the most common surprises for new buyers is that the down payment is only part of the financial picture.

Homeownership also includes several additional costs, such as:

• Legal fees
• Home appraisal
• Title insurance
• Land transfer tax
• Moving expenses

Many financial professionals suggest budgeting approximately 3 percent of the home’s purchase price for closing costs.

Homeowners should also maintain a financial cushion for maintenance and repairs. A common guideline is to set aside about 1 percent of the home’s value each year for ongoing upkeep.

This helps prevent becoming house-rich but cash-poor.
 

Shopping for a Mortgage

Choosing the right mortgage can feel overwhelming, but understanding the basics can make the process easier.

Two professionals typically help buyers secure financing:

Mortgage Specialists
Work for a specific bank and offer that institution’s products.

Mortgage Brokers
Work independently and compare mortgage options from multiple lenders.

Both can help buyers evaluate rates, mortgage terms, and available lending options.

Your REALTOR® can also be a helpful resource when choosing the right professionals to work with.
 

Understanding Mortgage Types

Mortgages generally fall into two main categories.

Open Mortgages
Allow borrowers to repay the mortgage early without penalties, though interest rates are usually higher.

Closed Mortgages
Offer lower interest rates but limit early repayment without penalties.

Buyers must also decide between:

• Fixed rates, which remain stable during the mortgage term
• Variable rates, which can rise or fall with market conditions

The right choice depends on a buyer’s financial goals and comfort level with interest rate changes.
 

Why Mortgage Pre-Approval Matters

Obtaining a mortgage pre-approval early in the process can provide several advantages.

Pre-approval helps buyers:

• Understand their realistic budget
• Demonstrate seriousness to sellers
• Act quickly when the right property appears

However, pre-approval does not always guarantee final approval. Lenders may still review employment details, income verification, and other documents before confirming the mortgage.

Interest rates may also change during the home search, which can affect affordability.
 

How Lenders Decide What You Can Borrow

Mortgage lenders evaluate several factors when determining how much you can borrow.

These typically include:

• Credit score
• Income and employment stability
• Existing debt obligations
• Debt servicing ratios

A strong credit history and manageable debt levels can improve both approval chances and the interest rate offered by lenders.
 

What Repeat Buyers Should Consider

Homeowners who are buying another property may have additional financial strategies available.

For example, they may:

• Use equity from their current home
• Transfer their existing mortgage to the new property
• Access savings from TFSAs

However, some government programs designed for first-time buyers may not apply.
 

Buying Before Selling

Occasionally buyers find their next home before selling their current one.

In these situations, it is important to determine whether carrying two properties temporarily is financially manageable.

This may involve:

• Carrying two mortgages
• Paying utilities and property taxes for both homes
• Covering maintenance costs on two properties

A REALTOR® and lender can help evaluate whether this strategy is financially feasible.
 

Final Thoughts

Buying a home involves far more than simply finding the right property. Financial preparation plays a critical role in ensuring the purchase is sustainable and aligned with long-term goals.

With the right planning and guidance, buyers can approach the process with confidence and make informed decisions every step of the way.

 

Thinking About Buying a Home?

Understanding your finances is the first step toward making a confident move.

[Schedule a Conversation]

Every buyer’s situation is different. If you are thinking about buying or selling in Durham Region or the GTA, I would be happy to help you explore your options and guide you through the process.

 

Source Credit

Source: Adapted from REALTOR.ca with insights from RBC Mortgage Specialist Marion Leblanc.

 

Thanks For Reading Today’s Blog!

Brian Kondo
Sales Representative / Team Leader
The Brian Kondo Real Estate Team
Re/Max Hallmark First Group Realty Ltd.
905-683-7800 office
905-426-7484 direct
brian@briankondo.com
www.BrianKondo.com
www.BrianKondoTeam.com


If you or anyone you know is considering making a move in the next little while, give me a call or pass on my number ... 905-683-7800 (Office) or 905-426-7484 (Direct).

If you would like to see any of my previous blog posts, please click here!