Buying your first home

Buying your first home in Canada is one of the biggest financial decisions you will make. Understanding the requirements — down payment rules, the mortgage stress test, and the help available through federal programs — will make the process clearer and help you plan ahead.

How Much Down Payment Do You Need?

Canada uses a tiered system for down payments based on the purchase price of the home. The minimum is 5% on the first $500,000, then 10% on the portion of the price between $500,000 and $1,499,999. Homes priced at $1.5 million or above require 20% down. For example, if you buy a home for $600,000, you would need 5% of $500,000 (which is $25,000) plus 10% of the remaining $100,000 (which is $10,000), for a total minimum down payment of $35,000.

What If You Cannot Put Down 20%?

If your down payment is less than 20%, you must purchase mortgage default insurance, commonly called CMHC insurance (Canada Mortgage and Housing Corporation), or insurance through competitors like Sagen or Canada Guaranty. This insurance protects the lender but makes low-down-payment mortgages possible for buyers. The insurance premium — typically 2.8% to 4.0% of your mortgage amount — is added to your mortgage and paid over time. The lower your down payment, the higher the insurance premium. However, many lenders actually offer lower interest rates on insured mortgages, so a smaller down payment does not always mean a more expensive overall deal.

The Mortgage Stress Test

Canada's mortgage stress test is a federal qualification rule that applies to all borrowers working with banks and federally regulated lenders. It ensures that you can afford your mortgage payments even if interest rates rise. The test is not a barrier you must pass in the same way as a credit check — rather, it reduces the amount you can borrow by requiring lenders to qualify you at a higher interest rate than you will actually pay.

How the Stress Test Works

When you apply for a mortgage, lenders must qualify you at the higher of two rates: either your contract rate (the actual rate you will pay) plus 2%, or 5.25%, whichever is greater. This is called the stress-tested rate. For example, if your lender offers you a mortgage at 4.04%, the stress test requires you to prove you can afford payments at 6.04% (4.04% plus 2%). The bank does not charge you 6.04% — you pay only 4.04% — but your application is reviewed as if you were paying the higher rate. This directly reduces your maximum borrowing power and the purchase price you can qualify for.

All federally regulated lenders apply the stress test when you apply for a new mortgage or when you refinance. The stress test is reviewed annually, so rates may change. Credit unions and private lenders may have different rules or may not apply the federal stress test, but they often have higher interest rates or stricter requirements in other areas.

Land Transfer Tax and Other Closing Costs

When you buy a home in Canada, you must pay several costs beyond the down payment. Land transfer tax (also called property transfer tax in some provinces) is a one-time tax paid at closing when the property ownership is transferred to you. This tax is separate from your down payment and cannot be included in your mortgage.

Land Transfer Tax by Province

Most Canadian provinces charge land transfer tax calculated as a percentage of the purchase price using tiered brackets — the higher the price, the higher the effective rate. Alberta and Saskatchewan are exceptions: they do not charge land transfer tax but instead charge a flat title transfer fee that typically costs less than $1,000 on a $500,000 purchase. Ontario has graduated marginal rates from 0.5% to 2.5% of the purchase price. British Columbia also uses tiered rates. Toronto adds an additional municipal land transfer tax on top of the provincial rate, making it one of the most expensive markets for this cost.

First-Time Buyer Rebates on Land Transfer Tax

Several provinces offer rebates for first-time home buyers to help offset land transfer tax. In Ontario, eligible first-time buyers receive a rebate of up to $4,000 on the provincial land transfer tax — enough to eliminate the tax entirely on homes valued up to about $368,000. In Toronto, an additional municipal rebate of up to $4,475 may apply. British Columbia offers the most generous rebate, with a full exemption on the property transfer tax for first-time buyers on homes valued up to $835,000. To qualify for these rebates, you typically must be a Canadian citizen or permanent resident, be at least 18 years old, occupy the home as your principal residence, and not have previously owned a home anywhere in the world.

Other Closing Costs

Beyond land transfer tax, you will need to budget for legal fees (paid to your real estate lawyer or notary to handle the transfer), title insurance (protects you against defects in the property title), and a home inspection (a professional evaluation of the home's condition). These costs typically total 1.5% to 4% of the purchase price. Your lawyer will collect the land transfer tax at closing and remit it to the provincial government. Remember that these costs must come from your closing cash budget — they are not part of your down payment and cannot be rolled into your mortgage.

The First Home Savings Account (FHSA)

The First Home Savings Account is a registered savings plan introduced by the federal government to help first-time home buyers save for a down payment. It combines features of an RRSP and a TFSA (Tax-Free Savings Account): your contributions are tax-deductible (like an RRSP), and your withdrawals for a qualifying home purchase are tax-free (like a TFSA).

FHSA Eligibility and Contribution Limits

To open an FHSA, you must be a Canadian resident for tax purposes, be at least 18 years old and no more than 71 on December 31, and be a first-time home buyer according to the Canada Revenue Agency (CRA). The CRA considers you a first-time buyer if you and your spouse or common-law partner have not owned a principal residence during the current calendar year (except the 30 days immediately before opening the account) or during any of the previous four calendar years. You can contribute up to $8,000 per year with a lifetime limit of $40,000. Unused contribution room carries forward — if you contribute only $6,000 one year, the unused $2,000 can be added to your next year's limit of $8,000, giving you $10,000 of contribution room.

How the FHSA Works

Money you contribute to your FHSA is tax-deductible, meaning it reduces your taxable income for that year. Any investment income earned inside the account — interest, dividends, capital gains — grows tax-free. When you withdraw funds to buy your first home, those withdrawals are not taxed. The account can remain open for a maximum of 15 years, until the end of the year you turn 71, or until the end of the year after your first qualifying withdrawal, whichever comes first. If you do not use the funds within 15 years, you can transfer any unused balance to your RRSP on a tax-deferred basis, or you must withdraw the funds and include them in your income.

The Home Buyers' Plan (RRSP Withdrawal)

The Home Buyers' Plan is a federal program through the Canada Revenue Agency that allows first-time home buyers to withdraw money from their Registered Retirement Savings Plan (RRSP) tax-free to use toward a down payment or closing costs. This program can help you access savings you have already accumulated in registered accounts without triggering a large tax bill.

HBP Withdrawal Limits and Eligibility

You can withdraw up to $60,000 from your RRSP under the Home Buyers' Plan as an individual. If you have a spouse or common-law partner who also qualifies, each of you can withdraw up to $60,000, for a combined total of $120,000. To be eligible, you must be a Canadian resident at the time of withdrawal and when you purchase the home, you must be a first-time buyer (not having owned a home in Canada during the four years before the withdrawal), and you must have a written purchase agreement for the home. The withdrawal must be completed within 30 days of acquiring the property. You can make multiple withdrawals from different RRSP accounts in the same calendar year as long as the total does not exceed your limit.

Repayment of HBP Funds

Unlike the FHSA, HBP withdrawals must be repaid to your RRSP. You begin repayment in the second year following the year you made the withdrawal (for example, if you withdraw in 2026, you start repaying in 2028). You have up to 15 years to repay the full amount. The CRA will send you an annual statement showing your minimum repayment amount. If you fail to repay the required amount in any year, the unpaid portion is added to your taxable income for that year and you will owe tax on it. Recent changes allow first-time buyers who made withdrawals between January 1, 2022 and December 31, 2025 to delay the start of repayment by an additional three years (from five years instead of the usual two years after withdrawal).

Combining FHSA and HBP

You can use both the FHSA and the Home Buyers' Plan for the same home purchase. This means a couple could theoretically save $80,000 through an FHSA (each spouse contributing up to $40,000 lifetime) and withdraw $120,000 from RRSPs through the HBP, for a combined tax-sheltered source of $200,000 toward a down payment or closing costs. Many first-time buyers use the FHSA for new contributions while saving, then use the HBP to access existing RRSP savings accumulated before opening an FHSA.

Tips for New Canadian Homebuyers

• Get a mortgage pre-approval from a lender or broker before house hunting. This confirms your maximum purchase price, shows sellers you are serious, and gives you time to understand the stress test impact.
• Budget for closing costs separately from your down payment. Set aside an additional 1.5% to 4% of the purchase price for legal fees, title insurance, home inspection, land transfer tax, and other costs.
• If you are a permanent resident (PR) or recent immigrant without a Canadian credit history, some lenders offer specialized newcomer mortgage programs, though they may require a higher down payment or charge a higher rate.
• Check your province's first-time buyer rebates on land transfer tax. Even if you live outside Ontario or British Columbia, your province may offer support.
• Work with a mortgage broker licensed in your province. They can access multiple lenders, compare rates, and help you understand how the stress test affects your situation.
• Keep your Social Insurance Number (SIN) and permanent residence (PR) or other status documentation accessible — lenders will verify these when processing your mortgage.

Key Takeaways

• Minimum down payments in Canada are tiered: 5% on homes under $500,000, 10% on the next $1 million, and 20% on homes over $1.5 million.
• If you put down less than 20%, you must pay mortgage default insurance (CMHC or similar), which is added to your mortgage.
• The mortgage stress test reduces how much you can borrow by requiring lenders to qualify you at a higher interest rate than you will actually pay.
• Land transfer tax is due at closing and varies significantly by province. Alberta and Saskatchewan have no percentage-based land transfer tax; Ontario and British Columbia have graduated rates. First-time buyers in many provinces qualify for rebates.
• The FHSA allows first-time buyers to save up to $40,000 tax-deductibly, with withdrawals for a home purchase tax-free.
• The Home Buyers' Plan allows first-time buyers to withdraw up to $60,000 tax-free from their RRSP (or $120,000 per couple) toward a down payment or closing costs, with repayment over 15 years.