Step 1 - Drawing up a budget and assessing your finances

The budget is a crucial step toward setting the limits for your home purchasing project.

Assess your current finances, your needs and priorities and your short- and long-term financial resources for stress-free home buying.

When you get a mortgage loan, you are obliged to invest a sum of money from your own personal assets. This is called the down payment. The bigger your down payment, the less you will need to borrow. And the less interest you will pay!

Origin

  • Savings accounts
  • Deposit certificates
  • Savings bonds
  • Mutual funds
  • RRSPs (via the HBP)
  • Cash donations or cashback incentives from lenders
  • Personal loans (under certain conditions)
  • Value of the land on which you want to build if you are the owner
  • Part of the value of the labour involved if you build the home yourself with help from friends and family

How much do you need for a down payment?

Generally, the minimum required down payment is 20% of the property’s cost or market value, whichever is lower.

Can I borrow even if I don’t have that amount?

Yes, but you to have your loan insured by the Canada Mortgage and Housing Corporation (CMHC) or Genworth Canada1. In this case, your down payment could be 5% to 20% of your property’s value2.

Mortgage insurance premium

  • Varies in relation to the down payment
  • Must be paid either at the time of purchase or added to the loan amount
  • Represents from 0.6% to 4%3,4 of the amount of the mortgage loan
  • Is non-refundable

The Home Buyers’ Plan (HBP) allows first-time homebuyers or those who have not owned a home for at least 5 years to use their RRSP as a down payment to purchase their primary residence.

2 possible strategies

Use savings you already have in an RRSP

The HBP allows you to withdraw up to $25,000 per calendar year from your RRSP ($50,000 for a couple) without paying any tax.

If you have little or no savings in an RRSP

The 90-day loan strategy allows you to participate in the HBP.

  1. Borrow the amount you need from your Desjardins caisse, up to the maximum contribution allowed.
  2. Deposit it into a Desjardins RRSP for 90 days.
  3. Withdraw this non-taxable amount from your RRSP and pay back the loan to the caisse.
  4. Use your tax refund as a down payment to buy your home.

Reimbursement

You have a maximum of 15 years to reimburse your RRSP, paying back at least 1/15th of the amount withdrawn from the RRSP every year.

Example

If you withdrew $12,000 from your RRSP, you would have to pay back $800 per year for 15 years. If you do not pay back this annual minimum, you must add this amount to your income and pay the applicable taxes.

Benefits of the HBP

  • Faster access to home ownership
  • Higher down payment
  • Lower mortgage loan and mortgage insurance premium
  • Non-taxable RRSP withdrawal
  • No interest on your annual reimbursements to your RRSP
  • Use of tax refunds to cover the down payment or start-up costs

Impacts

  • Impact on your budget because you have to ensure you can pay back the minimum reimbursement of the amount withdrawn from the RRSP
  • Loss of interest income from withdrawing money from an existing RRSP

In addition to the down payment, you’ll need approximately 3% of the value of your property to cover certain start-up costs.

Inspection fees

Before you buy an existing home, have it inspected by an expert. A detailed report will tell you whether the house requires repairs in the short or long term and whether there are any detectable defects.

Appraisal fees

Your Desjardins caisse may want to know the market value of the property you wish to buy. An expert, usually a chartered appraiser, will perform an appraisal and issue a report on your property’s market value.

Legal fees

The lawyer offers various services, including preparing, signing and registering various legal documents related to the purchase of your property.

Adjustment costs

These fees include all payments prepaid by the seller for a certain period:

  • Municipal taxes
  • Electricity or natural gas fees
  • Condo fees

As of the date you purchase the home. These fees must be paid at the lawyer’s office when signing the deal.

Land transfer tax

Land transfer tax must be paid when you become a homeowner. This sales tax is collected by the province of Ontario when the transfer is entered in the land registry office.

The amount corresponds to a percentage of the sale price:

  • 0.50% on the first $55,000
  • 1.00% on the amount between $55,000 and $250,000
  • 1.50% on the amount over $400,0005

Other fees

  • Home insurance premiums for your new property (generally higher than when you were renting)
  • Mortgage insurance premiums
  • Fees to obtain a location certificate if not provided by the seller
  • Sales tax (for new homes)
  • Moving fees
  • Public utility hook-up costs
  • Decoration
  • Purchase of new furniture and appliances
  • Yard and garden tools

In order to make wise choices that balance what you want and what you can afford, you will need to crunch the numbers carefully.

Debt-to-income ratio

2 golden rules

  1. No more than 32%6 of your gross household income should go to covering housing costs (gross debt service ratio or GDS).
  2. No more than 40%6 of your gross household income should go to paying off your debts (total debt service ratio or TDS).

Online calculators

How much can I afford to spend on a home?

Mortgage Payment Calculator

Find out what type of mortgage is right for you

Mortgage preapproval

  • Gives you the maximum value of a home you can buy based on your borrowing capacity and your down payment
  • Can protect you from potential interest rate hikes if your rate is locked in
  • Helps make your discussions with the real estate broker or property seller go easier and smoother

Tip

Avoid financial worries by looking for a house that is under your maximum borrowing capacity. That way, you’ll be able to cover all your payments, deal with unexpected financial emergencies and maintain your current standard of living.

Get preauthorized

What is the preauthorization certificate for?

  • Displays the maximum price of the house you can afford to buy
  • Shows you are a serious buyer and your purchasing capacity
  • Simplifies communication with the seller or real estate broker

3-step preauthorization

  1. Determine your financing needs with one of our advisors.
  2. Get a prompt answer.
  3. Get the loan terms and a preauthorization certificate upon approval.

View a preauthorization certificate sample (PDF, 166 KB).

Make an appointment

Montreal area:
514-745-9499

Elsewhere in Canada and the U.S.:
1-844-626-2476

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Documents you need for your meeting

Call us

Montreal area:
514-745-9499

Elsewhere in Canada and the U.S.:
1-844-626-2476

Through a mortgage representative

Ready to buy? An advisor can come meet with you any day of the week.

Find a mortgage representative

  1. Seasonal use properties or properties that are not accessible at all times of the year are not eligible for mortgage insurance (CMHC, Genworth Canada).
  2. For owner-occupied properties with 1 to 2 units. For properties with 3 to 4 units, the minimum down payment is 10% for a loan insured by CMHC or Genworth Canada. The minimum down payment required is higher if the purchase price is over $500,000.
  3. The premium may be as high as 4.5% for non-traditional down payments (for debt/equity ratios between 90.01% and 95%).
  4. A premium rebate of up to 25% may be granted if you take out a CMHC-insured loan to purchase an energy-efficient home.
  5. In Ontario, the rate is 2% for amounts over $400,000. A discount may be granted for first-time homebuyers.
  6. Percentage recommended by mortgage insurers.