First-time buyer checklist for Ontario: from budget to closing day

In Ontario, buying your first home takes five steps, from setting a budget to closing with a real-estate lawyer. In between, you get pre-approved, make an offer that is conditional on financing, and get the lender's final approval on the actual property. Along the way, first-time buyers can use the First Home Savings Account, the RRSP Home Buyers' Plan, land transfer tax refunds and, on an insured mortgage, a 30-year amortization.

Step 1: Set a budget you can live with

Many buyers start with the monthly payment they are comfortable with, not the largest mortgage a lender might offer.

Lenders look at two ratios. GDS (gross debt service) is your housing costs as a share of your gross income. Housing costs are mortgage principal and interest, property tax, heating, and generally half of any condo fees.

TDS (total debt service) adds your other debts, such as car loans, credit cards and lines of credit. For insured mortgages, CMHC's limits are a GDS of up to 39% and a TDS of up to 44%.

Your budget also needs room for the down payment and closing costs. The minimum down payment is 5% of the first $500,000 of the price and 10% of the portion from $500,000 to $1.5 million. Our article on down payment rules works through an example, and the affordability calculator gives a quick estimate.

Step 2: Get pre-approved

A pre-approval is a lender's review of your income, debts, credit and down payment. A pre-approval tells you how much you are likely to be able to borrow. A pre-approval usually comes with a rate hold: the lender holds a rate for you for a set period while you shop.

A pre-approval is not a commitment to lend. Your pre-approval is subject to lender approval of the property you choose and verification of your documents. We explain how a pre-approval differs from a pre-qualification in pre-qualification vs pre-approval.

The lender will also test you at a higher rate than the one you are offered. That higher-rate test is the stress test, covered in the mortgage stress test explained.

Step 3: Make an offer conditional on financing

When you find a home, your real-estate agent can write the offer with a financing condition. A financing condition gives you a set number of days to get the lender's approval on that specific property. If the financing does not come through within that time, the condition lets you walk away according to the terms of the offer. Many buyers also add a home inspection condition.

Waiving the financing condition to make an offer more attractive is a real risk. If the lender does not approve the property or the price, you are still bound by the agreement. Talk to your lawyer and your broker before you remove any condition.

Step 4: Get the lender's approval on the property

Once your offer is accepted, the lender reviews the property itself, often with an appraisal (an independent estimate of the home's value). The lender also verifies your documents: pay stubs, employment letter, tax documents, and proof of down payment.

If the property and your documents check out, the lender issues a commitment with its own conditions. Many buyers wait for the lender's commitment before they remove their financing condition. The final decision always rests with the lender.

Step 5: Close with your lawyer

In Ontario, a real-estate lawyer handles the closing. The lawyer searches the title, registers the mortgage and the transfer, arranges title insurance, and receives the mortgage funds from the lender.

Before closing day you pay the down payment balance and closing costs to your lawyer. Closing costs include land transfer tax and legal fees. If your mortgage is insured, closing costs also include the 8% Ontario PST on the insurance premium, which you must pay in cash. See Ontario closing costs for the full list.

First-time buyer programs you can use along the way

Several federal and Ontario programs are built for first-time buyers. Check each program's eligibility rules on the official sites, and ask an accountant how the programs fit your tax situation.

• First Home Savings Account (FHSA): you can contribute up to $8,000 a year, to a lifetime limit of $40,000. Contributions are tax-deductible, and qualifying withdrawals to buy a first home are tax-free. Details are on Canada.ca.
• RRSP Home Buyers' Plan: you can withdraw up to $60,000 from your RRSPs toward a first home. The money must be repaid to your RRSPs over 15 years.
• Land transfer tax refunds: Ontario refunds up to $4,000 of its land transfer tax to eligible first-time buyers, and Toronto rebates up to $4,475 of its municipal tax. Broadly, you must be 18 or older, live in the home within nine months and apply within 18 months. Neither you nor your spouse, while you were spouses, can have owned a home anywhere in the world. Further conditions apply.
• 30-year amortization: the amortization is the total time it takes to pay off the mortgage. On an insured mortgage, first-time buyers can choose 30 years, longer than other insured borrowers can. The longer amortization lowers the monthly payment but adds to the total interest paid.

The first-time buyer checklist to keep

1. Work out a monthly payment you are comfortable with.
2. Open an FHSA early so contributions have time to build.
3. Gather pay stubs, an employment letter, tax documents and down payment records.
4. Get pre-approved and note when your rate hold ends.
5. Make your offer conditional on financing and inspection.
6. Remove conditions only after the lender's commitment is in hand.
7. Hire a real-estate lawyer and budget for closing costs.

What to do next

If you're starting to plan a first purchase, a short call can put numbers to each step. Use our call-me-back form and we'll reach out. You can also read more about buying a home with a broker or start with the affordability calculator. All mortgage approvals are subject to lender approval.