Buying a home is one of the biggest financial decisions you’ll make and being prepared can make the process a lot smoother and more enjoyable. Whether you are a first-time buyer or a seasoned homeowner looking for your next property, getting your finances in order is key. 

The first step is understanding what you can afford. Start by taking a good look at your income, monthly expenses and any existing debts. Mortgage lenders typically recommend that your monthly housing costs (including mortgage payments, property taxes and insurance) should not exceed around 30-35% of your gross monthly income. However, this is just a guideline. Only you know what feels comfortable based on your lifestyle and spending habits.

Next, consider saving for a down payment. In Canada, you will need a minimum down payment of 5% for homes under $500,000, 10% for homes between $500,000 and $1 million, and 20% for homes that cost over $1 million. The more you can put as a downpayment, the better, as a larger down payment can mean lower monthly mortgage payments and less interest over time. Plus, if you put down less than 20%, you’ll need to pay for mortgage insurance, which adds to your overall costs. If you are planning to buy soon, setting a clear savings goal for your down payment is a great way to start.

For many first-time buyers, using RRSP contributions can help boost your down payment. The Home Buyers’ Plan (HBP) allows you to withdraw up to $35,000 from your RRSP tax-free to put toward your down payment, as long as you repay it over 15 years. This can be a great way to supplement your savings and reduce your mortgage amount. Additionally, if you’re receiving a financial gift from parents or other family members, it can also be used toward your down payment. Just make sure to have documentation of the gift, as lenders may require proof that the funds don’t need to be repaid.

Beyond the down payment, remember there are closing costs to account for. These are additional fees that come up at the end of the buying process, typically ranging from 1.5% to 4% of the home’s purchase price. Closing costs include things like land transfer taxes, legal fees, home inspections, and other administrative costs. Having some extra funds saved up for these expenses will help you avoid any surprises. Use this mortgage calculator to calculate the expenses for individual properties

Another important step is checking your credit score. Your credit score plays a big role in determining your mortgage rate, so it is a good idea to review it before you start house hunting. A higher credit score can help you secure a lower interest rate, which can save you thousands of dollars over the life of your mortgage. If you find that your credit score could use a boost, take a few months to pay down debts, make timely payments, and avoid applying for new credit. Even a small improvement can make a difference.

Once you have a solid sense of your budget, consider getting pre-approved for a mortgage. A pre-approval gives you a clear idea of how much a lender is willing to loan you based on your income, credit, and down payment. This not only shows sellers that you’re a serious buyer but also helps you focus on homes within your price range, making the search process easier. Keep in mind, though, that a pre-approval is not a final guarantee.  It is always wise to stay within your budget even if you are approved for more.

Finally, remember that buying a home is a long-term commitment and it is okay to take your time to save and prepare. Setting a realistic budget, building up your savings and securing a good credit score will make the process smoother and give you peace of mind. With a solid financial foundation you will be ready to take on homeownership confidently. And if you find yourself in a competitive market, make sure you know how to make an offer that stands out.

For more tips on navigating the buying process, check out our guide on Understanding the Toronto Real Estate Market and our article on The Home-Buying Process: Step-by-Step Guide on hometogoteam.com. We are here to help answer any questions you have about making your dream of homeownership a reality!