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You are here: Home > Personal > Goals and life events > Owning your home > Buying a home > Becoming a homeowner > Your financial capacity

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Becoming a homeowner

Your financial capacity

Before committing to buying a property, you have to be well aware of the financial aspects of your decision.

Before buying a house, a future homeowner must supply part of the necessary funds. This money will be used:

  • as a down payment for buying a home
  • to cover start-up costs
  • to pay expenses for the first year

Down payment

A down payment is applied directly to the sale price of your house. The larger the down payment, the less you will have to borrow and the more you will save in interest.

Where will you get the money for your down payment and to pay for other costs? There are 3 main sources:

  • your savings and gifts
  • the Home Buyers' Plan (HBP)
  • other financial assistance programs

1. Your savings and gifts

How much money have you saved until now?

To find out, make a simple balance sheet of your personal savings or of your savings as a couple. Mainly, check the balances in your savings accounts. Has a relative or friend offered to help you financially by giving you some money? This money must be in the form of a non-refundable gift. Add this amount to your balance sheet.

Be aware that you should keep the equivalent of 2 or 3 months of net income in your regular account. That way, you won't be caught short to pay your usual expenses and provide for emergencies. It is also suggested that you pay off any debts with particularly high interest rates.

Haven't accumulated enough money to become a homeowner? Desjardins has savings and down payment solutions for you.

2. The Home Buyers' Plan

Do you already have an RRSP? The Home Buyers' Plan (HBP) is a government program that allows you to use your RRSP to buy or build your house. You must repay the sums to your RRSP afterwards, according to the terms defined by the federal government.

What is the advantage of the HBP? The amount you withdraw from your RRSP is not taxable.

  • How much can you withdraw from your RRSP?

The maximum is $25,000 per borrower. This amount can be applied directly to the down payment for the purchase of your house. You will, however, have to take into account certain tax rules for eligibility. To find out about tax rules regarding the HBP, see the Canada Revenue Agency site.

  • How much time do you have to pay back what you borrow?

The federal government gives you a maximum of 15 years to reimburse the total amount you withdrew for the HBP to your RRSP. You will have to pay back a minimum of one fifteenth of the total amount withdrawn from your RRSP every year. You must use the HBP judiciously, and plan the mandatory annual reimbursement amount into your budget.

If you do not reimburse this amount annually, you will be taxed on the amount that you have not returned to your RRSP. Here's a good tip: make regular instalments to a registered retirement savings plan (RRSP).

Interested in the HBP but don't have an RRSP? Desjardins can offer you an HPB loan. Meet with your Desjardins advisor to discuss it, as this solution needs to be well planned out.

3. Other financial assistance programs

Sometimes governments and municipalities offer programs other than the HBP to help you become a homeowner. These programs apply to specific areas, regions, urban boroughs or to a particular type of house.

Often, the aid comes in the form a subsidy when you buy a home or a purchase price below market value.

Your Desjardins advisor can give you information about current programs.

2 options to calculate the required down payment

Because of laws and other requirements that financial institutions must abide by, you have 2 possibilities for taking out a mortgage:

  • Provide a down payment of at least 20% of the purchase price of the house (or of its market value, if it is below the purchase price). In this case, you won't need mortgage insurance.
  • Provide a down payment of between 5%1 and 20% of the purchase price of the house (or of its market value, if it's below the purchase price). In this case, you must get mortgage insurance from the Canadian Mortgage and Housing Corporation (CMHC) or from Genworth Financial Canada.

Note that you will have to pay a premium for this mortgage insurance. It's payable only once, when you purchase your house. The premium depends on the amount of the loan, as well as on the percentage and source of your down payment.

In summary, when you buy your house, you have to have the cash needed for your down payment as well as for:

  • your down payment
  • start-up costs
  • first year expenses
  • assuming your new responsibilities as a homeowner, that is:
    • the equivalent of 2 months of net income
    • the savings required for your other projects

It's critical to evaluate the amount you have available to cover the cost of "housing" in your budget. This will allow you to find out the maximum amount you could pay to buy your house.

Use our How much can I afford to spend on a home? tool to estimate this amount.

Your budget

As a homeowner, you will likely be faced with expenses that a renter does not have to bear. These expenses are often unpredictable and expensive. Knowledgeable homeowners allow for some room to manoeuvre in their budget to account for the unexpected.

Here are the main steps to consider:

  • Before throwing yourself into buying a home, make a budget. To get an accurate picture of your income and expenses, see Budget management tool - My budget. This is the only way to see the impact of a home purchase on your net income. Are you a part of a couple? Be sure to include your net income as a couple, which will be used for common expenses.
  • For a realistic big picture, minimize your future net income and exaggerate the expenses. Are you thinking of buying a condo? Don't forget to include condo fees in your budget. These are generally paid monthly.
  • There is another important item to be seriously considered in your budget: savings. Not including it will put your financial security and other projects like retirement in jeopardy. Desjardins offers several savings solutions to help you to accumulate the necessary funds.
  • Your insurance premium for housing is another important element to your budget. All mortgage lenders require this type of insurance, but it protects you as well. Desjardins Insurance offers home and car insurance solutions adapted to your needs.

Your Desjardins advisor has budgeting expertise from which you can benefit. Among other things, your advisor will point out items you might otherwise forget (such as medical coverage, clothing, school fees, auto repairs, holidays, etc.).

Once you have your budget in hand, look at which expenses recur on regular basis and which ones you will only incur once. It would be a good idea to transfer the necessary funds into a designated account, whether on a monthly or weekly basis. Desjardins can help you choose the financial solution best suited to your needs.

Start-up costs to finalize the purchase of your home

You must plan to have the funds required to pay for these start-up costs. You don't have to include them in your budget because you'll only have to pay them once. They amount to 3% to 5% of the value of the home.

Main start-up costs
Before you buy At the notary or lawyer's After you buy
  • Evaluation
  • Inspection
  • Notary or lawyer fees
  • Additional fees and account adjustments (municipal taxes, condo fees, etc.)
  • Sales taxes for new homes (unless they are added to the mortgage)
  • Moving
  • Lease termination
  • Mail transfer
  • Connections to public services
  • Cancelling public services for your old home (in some cases)

Account for all the fees using our Start-up costs of buying a home - Québec (PDF, 183 KB) - This link will open in a new window. and Start-up costs of buying a home - Ontario (PDF, 178 KB) - This link will open in a new window.. If you do not know the exact amount, input an approximate one.

For help covering a portion of the costs, ask an advisor about our cash remittance solution for start-up costs when you're granted a mortgage on a home.

First year expenses

These are set-up or operating expenses that vary depending on the type of house you have in mind. You must plan ahead to set aside the money necessary to cover these expenses. Do not include these items in your budget. They are not recurring items.

Here are some examples of the types of expenses you will have to incur in the first year.

Main first year expenses
Your first tax bills Home maintenance Basic landscaping and inside finishing
  • Municipal and school taxes
  • Land transfer taxes ("Welcome tax" in Quebec)
  • Tools for home improvements and light maintenance
  • Outdoor and snow removal tools or devices
  • Appliances
  • Furniture
  • Light fixtures
  • Curtains
  • Patio
  • Landscaping

Your capacity to pay your mortgage

There are 2 golden rules for this calculation. They are presented here for information purposes. You will find the details for the components of the calculations and some interpretative comments on the Canada Mortgage and Housing Corporation (CMHC) web site.

1. According to your Gross Debt Service (GDS)

The amount you spend annually on housing costs should not be more than:

  • 32% of your gross family income
  • 28% when the CMHC or Genworth mortgage insurance is not necessary

2. According to your Total Debt Service (TDS)

The amount you spend annually on paying off your all your debts should not be more than:

  • 40% of your gross family income
  • 35% when the CMHC or Genworth mortgage insurance is not necessary

We recommend you evaluate your capacity to repay with great precision.
To do so, you can use our How much can I afford to spend on a home? It will allow you to map out different mortgage scenarios. Then, you can compare these scenarios to your personal budget or to your budget as a couple.

If you were to die, could your loved ones continue to pay the mortgage?

What if you were disabled? Would you need to dip into your savings for lack of income?

Even if you have salary insurance, is it enough?

For all these questions, there is an answer: Desjardins Loan Insurance.

This insurance is ideal to protect your capacity meet your financial obligations related to your loans in the event of disability or death. It includes:

  • life insurance to pay off the balance of your mortgage in the event of your death
  • disability insurance to replace your regular payments to the caisse for you while you are disabled

Learn more - Loan Insurance

  1. For homes priced higher than $500,000, the minimum down payment for insured mortages is 10% for the portion of the home price that exceeds $500,000, and 5% for the portion $500,000 and under.

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