Home-buying 101: a comprehensive guide for first-time buyers

Buying your first home is one of life’s biggest milestones.

It’s a decision that can be filled with excitement and maybe even a little apprehension.

After all, before getting the keys to the front door, you’ll first need to navigate through many challenges.

However, the more you can fully understand about the home-buying process, right from the start—the better equipped you’ll be to make informed decisions (and avoid costly surprises) along the way.

Here are 9 steps that will set you up for success during your first-time home-buying journey:

1: Make choices based on affordability versus likeability

One of the most common mistakes first-time buyers make is falling in love with a listing before realizing how much home they can realistically afford.

And when it comes to affordability, mortgage lenders don’t just look at your income level.

They assess your overall financial picture using a series of calculations designed to ensure you can comfortably manage the full scope of your housing costs.

These costs include:

• Principal: the mortgage loan portion paid down each month
• Interest: the monthly cost of borrowing the money
• Property taxes: the annual municipal tax for the property, divided into a monthly amount
• Condo fees: an added monthly cost if you’re looking to purchase a condo or townhouse
• Utilities: the cost to heat and cool your home, etc.

Hence why it’s important to understand the numbers beyond the purchase price before fully setting your heart on a property.

2. When it comes to the numbers, here’s how lenders determine how much you can borrow

When reviewing your mortgage application, lenders focus heavily on the following measurements:

• Gross Debt Service (GDS) ratio: Measures how much of your gross monthly income would go toward housing expenses (such as the aforementioned mortgage principal and interest payments, etc.). Generally, lenders want these costs to remain below 39% of your gross monthly income.
• Total Debt Service (TDS) ratio: In addition to housing expenses, TDS also includes all existing debt obligations (i.e. car and student loans, lines of credit, minimum credit card payments, etc.). In most cases, lenders want your TDS ratio to remain below 44% of gross monthly income.

Tip: Paying off a vehicle loan, reducing a line of credit balance, or eliminating credit card debt will increase your mortgage approval amount, often significantly.

3. The mortgage stress test will also impact the amount of mortgage you qualify for

Even if you can comfortably afford your mortgage payment today, lenders must ensure you can continue making payments if interest rates were to rise tomorrow.

That’s where Canada’s mortgage stress test comes in.

Under current rules, homebuyers must qualify at whichever rates are higher based on two scenarios:

i. The contract rate plus 2% (also known as ‘The Buffer’)

What it is: Your standard contract rate is the actual interest rate you negotiate with your lender. The ‘buffer’ is a safety margin added directly on top of that offer.

How it works: If a lender offers you a 5-year fixed rate at 4.5%, the buffer pushes your qualifying rate up to 6.5%. You do not pay this higher amount, but you must prove your monthly income can absorb it.

ii. The 5.25% Benchmark Rate (also known as ‘The Floor’)

What it is: This is the absolute legal minimum rate a federally regulated bank can use to stress test your file. It is a baseline set by the government to protect the economy when standard interest rates are unusually low.

How it works: If you negotiate an exceptionally low contract rate of 2.5%, adding the 2% buffer only brings you to 4.5%. Because 4.5% is lower than the floor, the lender is legally required to stress test you at the higher 5.25% rate instead.

We’re taking the mystery (and stress) out of the mortgage stress test

4. Keep your credit score in good standing

Your credit score plays a massive role when it comes to your mortgage approval and interest rates.

While every lender has its own requirements, borrowers with credit scores above 680 generally have access to more financing options.

Additionally, in the months leading up to a mortgage application, consider avoiding:

• Opening new credit accounts
• Carrying large credit card balances
• Financing new furniture or vehicles
• Missing bill payments
• Changing jobs

Stability is something lenders value highly.

5. Understand how much of a down payment you’ll need to make

The minimum down payment required is tiered based on the purchase price of the home:

• 5% on the first $500,000
• 10% from $500,001 to $999,999
• 20% (although there are now some exceptions available for first-time homeowners and new builds)

For example, on a purchase price of $700,000, your minimum down payment would be $45,000:

• First $500,000 (at 5%) = $25,000
• Remaining $200,000 (at 10%) = $20,000

Note: if your down payment is less than 20%, you’ll be required to purchase mortgage default insurance. Click here to get the full lowdown on making the down payment.

6. Don’t overlook closing costs

Many first-time homebuyers focus entirely on saving for their down payment that it comes as a total shock to find out that the buck doesn’t stop there.

As a general rule, you should budget an additional 1.5% to 3% of the purchase price for closing costs.

These incremental costs may include:

• Home inspection
• Property appraisal
• Lawyer fees, which also encompass:
  • Municipal and Provincial Land Transfer Tax;
  • Title search/registration fees;
  • Property tax adjustments
• Home Insurance
• Moving costs (truck rental, gas, professional movers, etc.)
• Utility setup costs (water, gas/electric, internet, etc.)

Remembering to work closing costs into your budget will help keep any financial stress to a minimum.

7. As a first-time homebuyer, there are government incentives to help lighten the financial burden

When used together, these programs can help boost savings, reduce taxes, and lower upfront costs.

First Home Savings Account (FHSA)

The FHSA combines some of the best features of both an RRSP and a TFSA (contributions are tax-deductible and qualifying withdrawals used to purchase a first home are completely tax-free).

You can contribute up to:

• $8,000 annually
• $40,000 in total (lifetime amount)

Home Buyers’ Plan (HBP)

The Home Buyers’ Plan allows eligible first-time buyers to withdraw up to $60,000 from their RRSP without paying immediate tax. The funds have to be used toward a down payment and must remain in the RRSP for at least 90 days before withdrawal (with repayments generally spread over 15 years).

First-Time Home Buyers’ Tax Credit (HBTC)

Referred to by the Canada Revenue Agency as the Home Buyers’ Amount, eligible first-time buyers can use the HBTC to claim approximately $1,500 in federal tax savings. It is a credit that is meant to help offset out-of-pocket closing costs such as legal fees, title insurance, and home inspections.

Ontario Land Transfer Tax Refund

First-time homebuyers in Ontario may qualify for a rebate of up to $4,000 on the provincial land transfer tax.

Moreover, if the property is located within Toronto, buyers may also qualify for an additional municipal rebate of up to $4,475.

Ontario New Housing Rebate (all buyers—new builds only, limited time)

This program expands relief to all eligible buyers who purchase a new primary residence or residential rental property, but only for a limited time. The purchase agreement with the builder must be signed between April 1, 2026 and March 31, 2027, with construction needing to be completed by December 31, 2031 for primary residences in order to qualify.

The Ontario New Housing Rebate structure varies by purchase price:

• $1 million or less: Eligible for a full rebate of the entire 13% HST (the 8% provincial portion plus the 5% federal portion), up to a maximum of $130,000
• Between $1 million and $1.5 million: Eligible for a flat tax reduction of exactly $130,000
• Between $1.5 million and $1.85 million: Eligible for a sliding scale reduction that tapers down from $130,000 to $24,000
• Over $1.85 million: Eligible only for the pre-existing baseline provincial reduction of $24,000

A few key things to keep in mind regarding the Ontario New Housing Rebate:

• When you look at new build listings from Ontario developers, the advertised purchase price almost always assumes you qualify for the HST rebate and has already been factored it in
• Most builders typically write a clause into the contract requiring you to assign your rebate over to them (in exchange, they take that amount straight off the sticker price of the home so you don’t have to pay it upfront)
• If you decide to rent out the property, you will technically disqualify yourself from the primary residence rebate at closing and would then be forced to pay the full HST amount to the builder upon closing (and then have to manually apply to claw it back through the separate New Residential Rental Property Rebate program).

8. Talk to a mortgage broker or agent before you start shopping

Searching for a home before understanding what you qualify for and your budget is like putting a cart before the horse.

You’ll soon find out that you’ll be going nowhere, fast.

Understanding your mortgage options kicks your first-time home-buying journey into high gear by:

• Establishing a realistic budget
• Demonstrating credibility to sellers (also allowing you to act on a property, fast)
• Identifying potential qualification issues early
• Locking in a rate for 90 to 120 days

If rates were to increase, that locked-in rate could potentially save you money.

Keep in mind, however, that a locked-in pre-approval is not a final approval. Changes to your finances before closing can still affect your mortgage eligibility.

9. If you’re an Ontario education member, be sure to get educator-specific advice.

Buying your first home is so much more than finding the right property.

It’s about preparing yourself financially, based on exactly where you are on the pay grid.

That’s where Educators Financial Group comes in.

Our mortgage advisors will help you understand your educator-specific options and then work with you to deliver a first-time home-buying strategy that aligns with your current cash flow situation and long-term financial goals. Whether you’re just starting out, or already a few (school) years into your education career, your first home may be a whole lot closer than you think.

Your first-time home-buying advantage for Ontario education members: reach out now

And be sure to check out other topics in out ‘Home-buying 101’ series

Sources:
https://www.canada.ca/en/revenue-agency/services/tax/businesses/topics/gst-hst-businesses/gst-hst-rebates/new-housing-rebate.html
https://www.canada.ca/en/revenue-agency/services/tax/businesses/topics/gst-hst-businesses/gst-hst-rebates/first-time-home-buyers-gst-hst-rebate.html
https://www.canada.ca/en/revenue-agency/services/tax/businesses/topics/gst-hst-businesses/gst-hst-rebates/first-time-home-buyers-gst-hst-rebate/what-rebate.html
https://news.ontario.ca/en/release/1007402/ontario-introducing-legislation-to-support-implementation-of-hst-relief-on-new-homes
https://www.canadianmortgagetrends.com/2026/06/ontarios-new-home-hst-relief-awaits-final-rules-as-builders-explore-workarounds/
https://www.osfi-bsif.gc.ca/en/supervision/financial-institutions/banks/minimum-qualifying-rate-uninsured-mortgages