Getting Your Foot in The Door

Getting
Your Foot
In the Door
How to Buy Your First
Home in Canada
Kyle Prevost & Justin Bouchard
YoungAndThrifty.ca
Getting Your Foot In the Door - How to Buy Your First Home in Canada
Table of contents
Introduction....................................................... 1
So You Think You Want to Buy a House?.......... 5
The Nuts and Bolts of House Buying............... 13
What Can You Afford?..................................... 27
Closing Costs – Surprise!................................ 32
Executing Your Game Plan.............................. 36
Building Your Dream Team............................... 43
Saving Up Your Down Payment....................... 54
Investing Your Way Into Your First Home.......... 59
Finding Your Dream Home............................... 61
Checklist......................................................... 65
Conclusion...................................................... 66
Kyle Prevost & Justin Bouchard - YoungAndThrifty.ca

Introduction a stock and bond, or even how interest rates

worked. Pretty much the only thing I knew about
money was that debt wasn’t good and that
Seven years ago I decided to buy a house. I
credit card debt
had no logical reason to become a homeowner
was very, very bad.
– other than it was expected of me as a middle-
(Mind you, if you’re
class Canadian. Looking back, I’m not sure I
only going to know
would advise my younger self that this whole
two things about
house-buying experience was a good idea, but
finance, those
luckily it worked out pretty well in my case.
aren’t bad places
to start.)
At the time, I was just starting a shiny new job as
a teacher in a small community. It soon became
The research and execution involved in buying
obvious that not only did I have no idea how to
a home without a real estate agent (neither I,
buy a house (or even a clue about what a large
nor the seller used one) was empowering. It led
undertaking it was), but I didn’t understand much
to dozens of books being read, hundreds of
about personal finance in general. I couldn’t tell
hours of surfing financial blogs, and many more
you what an RRSP was, the difference between
financial adventures. Today I can proudly say
Kyle Prevost & Justin Bouchard - YoungAndThrifty.ca 1

I’ve written about financial matters in The Globe you, or a book that claims to hold the magic key
and Mail, National Post, Metro News, Canadian to real estate wealth. Instead, it is meant to be a
MoneySaver Magazine, and the Toronto Star primer on how to get into your first home without
amongst others. My partner-in-crime and I co- falling flat on your face. Please feel free to make
wrote a book for young Canadians called More use of the lessons I’ve learned the hard way.
Money for Beer and Textbooks – A Financial
Guide for Today’s Canadian Student and then Given individual needs and the vast range
put together a podcast by the same name. of housing markets across Canada, I won’t
Hopefully this free guide to buying your first home presume to tell you which house to buy or give
in Canada will similarly empower you. my uneducated opinion on if it’s a good time to
hop into the housing market. Instead, you will
This eBook is written find information on topics such as how to best
for young Canadians save for a down payment, what CMHC mortgage
by a young insurance is, the types of closing costs you can
Canadian. It is not expect before you move into the house you just
the be-all and end- bought (a huge shock for me), what types of
all guide to choosing professional advice you’ll need, and many other
the perfect home for little nuggets of info I wish I had seven years ago.

My goal is to provide folks with this information Disclaimer:

in a way that doesn’t suck, and with writing that
doesn’t remind you of a soulless government Before we get too far, I should remind you that I
document. am not a certified expert in the field of real estate.
I do not have any real estate-related credentials,
If you have any questions or comments (or nor do I have a degree or diploma in a financial
just want to say hi!) please drop us a line using field. The information that I’ve presented in
our Contact Us Page, or through Twitter and the following pages has been researched from
Facebook. dozens of reputable Canadian publications. Any
errors that remain are entirely my responsibility.
This eBook is not intended to replace full-service

professional advice. If you are not comfortable
purchasing or selling a home by yourself, please
contact professional help.
I have decided not to charge anyone for this

eBook and subsequently ask that people accept

that there are a few affiliate links included within useful knowledge to help empower you during
these pages. I personally stand behind and the home-buying process. I wish I had read
recommend the resources that I reference in this something like this years ago. If it accomplishes
eBook and believe you’ll find that the companies these goals, feel free to share it with your friends.
involved have great track records if you look
through their online reviews. I recommend these
same resources to my family and friends when
they ask me where to look for information on
buying homes, renewing mortgages, or other
housing-related topics.
I have asked for your email so that I might

send you future special offers for eBooks that I
produce, and also to ask for your feedback on
what you might like to read going forward.
Thank you for your support. I hope the effort I

have put into making this book will arm you with

So You Think You bank? Maybe it is. Only you can make that
personal value decision.
Want to Buy a Most Canadians, however, are not aware of all
House? the facts in the rent vs. buy debate. Because

we are unaware of the facts, we have this weird
If you are a young person in Canada, there’s a home ownership cult that has developed over
good chance you should not be a homeowner. decades. Most Canadians today simply default
to buying a home. It’s almost pencilled in as a
Yes, you read that correctly. I know, it’s a bit of an

odd way to start a guide about buying a home
but hear me out. This might be the only chapter
of the book you’ll need!
Canadians (and Americans for that matter) have

a weird obsession with home ownership. Don’t
get me wrong, owning a home can be wonderful,
but is it nicer than retiring with $2 million in the

rite of passage for the middle class, or generally Preet has attracted some skeptics over the last
accepted as a life milestone. Given the way few years by defending his personal decision
Canadian home prices have risen over the past to rent a home instead of buy one. It’s not as if
20-plus years (I’m not going to get into the Preet couldn’t afford a down payment. He just
endless debate on whether home prices will stay consciously chooses to rent, for a variety of
this high), this innate drive to own a home – one logical reasons.
that was likely embedded in us unconsciously at
a very young age – is likely the wrong decision for In defending his rationale, Preet developed
a lot of folks from a wealth-building standpoint. two essential resources you should seek out if
you’re considering taking the plunge on a home
Now, I could go through the various aspects purchase: a superb whiteboard video that clearly
of renting versus buying in a Canadian context illustrates the factors involved with renting vs.
and sound intelligent while quoting studies, buying (and why traditional attitudes don’t always
percentages and statistics. Truthfully though, I’d come out on top), as well as an excellent rent-
just be doing a pale imitation of a guy named vs.-buy excel calculator. Check them both out
Preet Banerjee. If you don’t know Preet, he’s one here.
of Canada’s leading voices in personal finance –
as well as a neurosurgeon and race car driver.

If you need a quick rundown or reminder of result of renting instead of buying. But, if you can
Preet’s rental considerations, or were too lazy stay disciplined and invest that difference, it is
to click the link and watch his videos, here’s a quite likely that the renter will come out ahead
summary. – especially in some of Canada’s largest urban
markets.
1) Renting a place to live = renting space,
whereas a mortgage = renting money (both are 4) Homes can be sold for a tax-free profit. BUT,
forms of rent). ask yourself this. When do you intend to sell your
home, cash in that profit, and rent? If you don’t
2) Transactional costs (such as Realtor ever intend to sell and/or downsize later in life
commissions) are MASSIVE over the course of a as part of a retirement plan, then that profit will
lifetime of buying and selling properties. never be realized.
3) One of the reasons that home ownership is 5) There are taxes on investment gains if they are
so effective at building wealth is that it forces invested outside of a tax-advantaged account.
you to make that monthly mortgage payment With the new TFSA limits, it is entirely possible
every month. As a renter, it’s a lot easier to a person will not owe any taxes on investment
spend the extra money you should have as a gains. (Preet is conservative in his calculations –

probably so the home ownership crowd doesn’t As Preet points out in his video, the idea that a
spit vitriol at him.) dollar invested in Canadian real estate is better
6) Remember that when you purchase a home,

the added costs are just beginning. Buying might
still be a great deal, but you should make that
decision with both eyes wide open, not on the
basis of some platitude your parents like to say.
What Builds Wealth Faster – Real

Estate or an Investing Portfolio?
than a dollar invested in a diversified long-term
investing portfolio is simply false. The overall
“My house is the best investment I ever made!”
returns are not even close.
– Every middle-class dad in Canada
The myths surrounding real estate

The statement above might be technically true
outperformance have traditionally rested on three
in a lot of cases – but only because the average
pillars:
Canadian makes really bad investments.

1) You can touch and feel real estate/buildings, with real estate investments, but that doesn’t
so that tangibility makes it better. necessarily make it any less risky than other
types of investing – just more common.
2) You can borrow 19x the amount of money
you have in the bank to buy a home and no one 3) Canada has a massive real estate sales
blinks an eye (that’s called a 5% down mortgage industry with a very strong interest in convincing
after all). But if you ever borrowed 19x your you that buying and selling homes is a good way
savings to invest in a portfolio, conventional to make money and that the Canadian dream
wisdom would label you a risky gambler. should be to move into a bigger/better home
every 8-10 years.
In fact if you borrowed even half the amount of
money you already have, you’d likely be amongst Again, I’m not saying owning a home is bad. I’m
the more risky investors in Canada. about to spend thousands of words explaining
how to go about owning a home. Moreover, my
Borrowing money in order to invest is called wife and I own a home; it likes us and we like it.
leverage, and leverage is much more easily
applied in the world of real estate. It allows What I’m saying is, if you never plan to sell your
aggressive landlord investors to do quite well house to fund your retirement or lifestyle, then

it is NOT an investment. If you do plan to sell at Canadian scouring the job market and trying to
some point, you should realize that historically piece together the post-secondary credentials
speaking, Canada’s housing market has been that might get them a second look, knows that
on an unprecedented tear over the last 20 years. it likely won’t be easy getting a job where they
Most likely, the value of your home won’t grow as grew up or went to school.
quickly as the value of your investment portfolio.
It’s pretty easy to argue that being geographically
Career Flexibility flexible and able to move to where the jobs are, is
more important than ever before. Once you land
As a young Canadian, there is one final something with a company you like, doing a job
consideration you must make before deciding to you enjoy, moving might be essential to climbing
make the leap – your J.O.B. up the ladder or pursuing a lucrative opportunity.
There are countless stories of people purchasing
If you happen to be one of those lucky persons homes on the high end of their budgets, only
with a great gig that pays well, is stable and to pay all the same transaction costs again two
fulfilling, then congratulations, you are one of years later when they moved. Some people
roughly 17 Canadians from coast-to-coast let those same considerations keep them from
to enjoy such a luxury. The average young taking a new promotion. The fact that they had

now bought a house and “put down roots” had

limited their upward mobility.
Remember, rental contracts are almost always

cheaper and easier to get out of than a home
that needs to be sold – often by a considerable
margin.
The Good Stuff

ledger. In turn, I think it’s necessary to present a
Now that I’ve scared some of you away from rock-solid argument that likely hasn’t been heard
buying a house, let’s quickly review the pros of before.
home ownership.
Most Canadians are much more familiar with the
The reason I slanted a bit while explaining home points in favour of homeownership.
buying concerns was to try to counter the huge
cultural bias we have towards home ownership. 1) It is fun to take pride in homeownership and
It’s important for folks to see both sides of the “make something your own”. What else is there

to talk about at middle-class Canadian dinner So, you’ve used Preet’s fancy calculator, weighed
parties after all? the pros and cons for your specific situation,
and decided that you’re ready to join the 70% of
2) Forcing yourself to build net worth through Canadians who own their home. Now what?
a mortgage payment is more realistic for most
people than building an investment portfolio with
whatever cash is left at month-end.
3) You can build “sweat equity” by pouring your

own time and energy into renovations that make
your property more valuable (despite the fact
that most people overvalue how much more their
home is worth as a result of renovations).
4) Owning gives you the peace of mind that no

one can force you to pick up and move (as long
as you pay your mortgage and property taxes).

The Nuts and the largest purchase you’ll ever make, I think it’s
pretty important to understand the details.
Bolts of House
What’s In a Mortgage Anyway?
Buying
A mortgage is basically a loan used almost
Before we get to the fun stuff — like looking at exclusively for real estate transactions in which
how much you can afford — we need to get a the property is
little more familiar with housing jargon. After all, essentially collateral
if you don’t know what these terms mean, how for the loan. If you
are you going to negotiate the best deal and don’t make the
understand all the contracts you’ll sign? Let’s payments, the
start with the mortgage paperwork. bank/lender can
seize ownership of the property.
My mortgage contract was 30 pages long and
it was about as simple as they come. I know Because mortgages entail a large amount of
this stuff isn’t the most scintillating literature, money and are backed by a physical asset, they
but when you consider that your house is likely allow most people to borrow money at

a relatively low interest rate and pay it off over you need to come up with at least 5% of the
several (usually 25) years. agreed upon price upfront.
Mortgages aren’t like any other loan. They have Alternatively, to avoid paying CMHC insurance,
some pretty specific characteristics, including you need to pay 20% of the purchase price
the… upfront. Then you can mortgage the remaining
80%. Once you’re able to commit to a 20%
Down Payment down payment, your mortgage will be referred

to as a conventional mortgage. If you purchase
In order to get a mortgage loan, you need to a house with 5%-19.99% down, then you’ll
pay a certain percentage of the purchase price be signing up for a high-ratio mortgage. Many
upfront. In other words, you can’t borrow 100% people recommend coming up with a 20% down
of what the house costs. payment no matter what, as it gives you financial
breathing room.
There was a brief period of time when borrowing

100% of the purchase price was allowed and it CMHC Insurance
was referred to as a “zero-down” mortgage. This
is no longer doable. To buy a house in Canada Many people are confused about what CMHC

insurance actually is. They believe it is some type The insurance premium for this mandatory
of home insurance that will protect them in case CMHC insurance is added on to your mortgage.
something bad happens (like most other kinds You can figure out how much will get tacked on
of insurance). That isn’t the case. CMHC stands by using their calculator. The amount is based on
for Canadian Mortgage and Housing Corporation what percentage of the purchase price you put
and its insurance which the government down.
essentially forces you to buy. It doesn’t protect
you – it protects the lender (your financial While the insurance cost itself is usually rolled
institution). into your mortgage payments, if you live in
Manitoba, Ontario, or Quebec, the provincial
The government promotes this “default taxes on that insurance premium are due upon
insurance” to prevent a sudden surge in home closing the property. This can be a real surprise
foreclosures from destroying the Canadian at a time when money is already likely to be tight.
economy. When you think about what a 5%
down payment actually means – that you’ve For example, if you purchase a home for
borrowed 19x the amount of money you had – $300,000 and make a 10% down payment, a
you can see why banks need to be protected $6,480 insurance premium will be added to your
from that sort of risk. mortgage. Then, if you live in Ontario where PST

is 8%, a further $518.40 will be due in cash, payment, the quicker you’ll pay down the loan.
before you get the keys to your palace.
Mortgage Term
Amortization
Some first-time homebuyers mistakenly think
Here’s a confusing term that few laypeople truly their mortgage loan is locked in for the entire
understand. Albeit, many pretend that they do so length of the initial amortization. In other words,
that they don’t look “silly”. Classic Emperor-has- they believe that if they go to Bank X and take
no-clothes type of stuff. out a 25-year mortgage, that mortgage needs to
be held by that institution for the next 25 years.
Amortization refers to the process of making This is fortunately not the case.
periodic payments to decrease loan principal
over time. An amortization schedule tells you Mortgages get broken up into chunks of time
how long you’ll be paying off a mortgage loan. called terms. Terms can be for almost any length
The most common initial amortization is 25 years of time but are usually in increments of one year.
in Canada. You can change your amortization The most popular length of time in Canada is five
period on the fly if you want to, simply by making years. But this doesn’t mean that five-year terms
bigger payments. The more you pay on each are the best. Indeed, many experts recommend

one-year terms, for example. Others believe this idea, with more than 3 out of 4 Canadians
in trying to “time the market” and lock into a sticking with their mortgage providers at maturity.
10-year term when interest rates are low. This Consumers should remember that at the end of
rarely works since people are generally poor at each term they hold a fair amount of negotiating
predicting interest rates. leverage. Never be afraid to try and negotiate for
more favourable terms.
At the end of each term (i.e., “maturity”) the
holder of the mortgage can move the mortgage Closed vs. Open Mortgages
loan over to another lender and/or renegotiate
any items they wish to change in the mortgage There are two main considerations when
contract. In fact, studies show that people who comparing mortgage terms. One is whether to
are willing to change lenders as their term ends go with an open or a closed mortgage.
often end up paying less over the course of their
mortgage. That’s because companies are betting The terms “open” and “closed” basically refer
that if they offer you a great deal to transfer to whether a person can pay off their entire
your mortgage to them, inertia will take over, mortgage (or a very large chunk of it) early with
your life will get busy, and when the term ends no penalty. You can have either an open or a
you’ll simply renew with them. Statistics back up closed mortgage with either a variable or fixed

interest rate. The choices are independent of one The vast majority of Canadians don’t have the
another. means to pay their mortgage off all at once
or at an extremely accelerated rate; therefore,
Keeping It Simple (The Closed most aren’t worried about the fact that they
are “locked in” for the length of their term. In
Mortgage)
exchange for sacrificing some flexibility with a
closed mortgage, lenders will usually reward you
Most Canadians prefer the simplicity of a basic
with a significantly lower interest rate compared
closed mortgage with fixed interest payments.
to an open mortgage. Typically, the majority of
They are easy to understand and there are no
rates you see displayed on rate comparison
surprises; however, closed mortgages cannot
sites or bank advertisements are for closed
be fully paid before the end of their term. Most
mortgages.
lenders allow limited pre-payment privileges (i.e.,
extra payments over and above your normal
mortgage payment). These privileges allow
you to pay a certain percentage of the original
mortgage amount with no penalty, but full payoff
requires that you pay a penalty - unless you wait
for your maturity date.

Staying Limber (The Open to pursue is your rate of interest. There are two
main types of ways to choose to pay interest
Mortgage)
when it comes to mortgages and they are
broadly known as variable and fixed. There’s also
An open mortgage is appropriate for people
a niche option called a hybrid where you can
who want flexibility built into their mortgage. You
actually have each: part fixed and part variable.
can typically pay off an open mortgage at any
But for simplicity’s sake, few people go this
time without penalty or convert it to a closed
route.
mortgage. Some people like this flexibility if they
expect to sell their home relatively soon, or come
The terms “variable” and “fixed” refer to whether
into a large sum of money, which they can use to
your mortgage rate can change during the term.
pay off their entire mortgage.
As the names would imply:
Rates of Interest – Variable vs.

Fixed
One of the most important decisions you’ll have

to make when looking at what sort of mortgage

• a variable interest rate will go up or down as changed the key interest rate.
the prime rate changes over the course of a
mortgage term, When you are comparing mortgages, finding the
• a fixed interest rate will stay the same for the best interest rate could save you hundreds or
length of your mortgage term no matter what even thousands of dollars over the course of your
happens to the prime rate of interest. term. That’s why it’s important to “compare apples
to apples”. Most places will list their current
A prime rate of interest is the interest rate that mortgage rates as Prime + X (almost always listing
a bank gives its “most trusted” or credit-worthy the closed mortgage rates due to the relatively low
customers. It’s influenced by the Bank of number of people that request open mortgages).
Canada’s overnight rate (a.k.a. key interest rate). These days, if you have a long relationship with
When you hear that the Bank of Canada a lender and/or you are considered quite a safe
lowered the key interest rate, this means that risk (see our article on credit scores for more
you should be able to borrow money at a lower information), you can negotiate a mortgage
rate of interest going forward. Most big financial interest rate down to Prime -.80% or lower. For
institutions will have the same prime interest example, if I go to my local credit union and I see
rate, but it doesn’t hurt to double check your their prime interest rate is 3%, then I would try
lender, especially if the Bank of Canada has just negotiating down to 2.2% (a.k.a. Prime -.8%).

If you don’t have an enviable relationship with a rates, and renegotiating frequently.
financial institution you can still ask for this sort of
discount and negotiate from there. Alternatively, For many folks, however, paying the very rock
you can go online and, in seconds, see what bottom amount of interest over the course
sort of rates lenders from around the country are of their mortgage is not the only relevant
offering. You will see that mortgage rates are consideration. Some are afraid of not being
categorized by length of the mortgage term and able to make the monthly or weekly payments if
whether the rate is fixed or variable. The biggest interest rates go up. Others hate the rigmarole
discounts are provided to those willing to take on of negotiating a new mortgage term every year
the uncertainty of a closed variable mortgage. or so. (Even though with internet comparison
shopping this process is now easier than ever
I have no way of knowing which type of before).
mortgage is best for your specific situation;
however, many long-term studies that looked at If you can afford a bit of a bump in interest rates
decades-worth of data have concluded that the over the term of your mortgage, then negotiating
majority of people would pay the least amount a good discounted variable is often the best way
of money over the course of their mortgage by to go. But you need to decide if you can live with
steadily using short-term, variable mortgage the risk of higher interest costs. Remember that

no one really knows what the prime interest rate Down payments and interest rates are
(and consequently what variable rate mortgages) important, but they aren’t the only key items in
will do over the long term. It’s impossible to tell your mortgage contract. There are a few other
where rates are headed six months out, never important elements as well. Most people largely
mind over five-to-ten years. ignore them as they’re blinded by the enthusiasm
to get into their new home. One is your ability to
Here’s a graph that will give you some historical make extra principal payments (over and above
context on interest rates (it should not be the minimum that you agreed to pay).
depended upon to predict the future).
You might think that, like many other loans, if
Prepayment Terms you run into some cash through a promotion or

inheritance you can simply pay off your mortgage
and celebrate. That isn’t the case with closed
mortgages. Lenders carefully manage the speed
at which you pay back your loan. Their goal is
obviously to keep your repayments relatively
slow in order to collect the maximum amount
of interest. As a result, most closed mortgage

contracts only allow you to pre-pay 10% to let you “blend” your old interest rate with a
20% of your mortgage each year before a new lower one if you extend the length of your
penalty kicks in. For some people, prepayment mortgage with them.
size doesn’t matter at all as they don’t plan on
making any extra payments on their mortgage,
but for others it could be a major factor.
Breaking Your Mortgage
“Man, interest rates are going through the

basement and that new credit union has a
great rate if I transfer over – but how do I get If these options don’t sound great to you, there
out of my current mortgage?” are usually built-in ways to get out of (“break”)
your closed mortgage contract. Traditionally,
Unlike diamonds, mortgages aren’t forever. Most most lenders charge the equivalent of three
people simply wait until their mortgage term is months’ worth of interest in order to get out of
up before switching institutions or trying to get a contract; however, now there are all manner
a lower interest rate. Alternatively, some lenders of ways to calculate penalties for terminating a

mortgage early. One is based upon a concept loan.

called the Interest Rate Differential (IRD). I’m not
even sure I could describe some of the weird Other folks like to schedule their mortgage
calculus banks use in these instances, so make payment to be withdrawn from their account the
sure your lender explains it before you sign on day after payday (or the Monday after). Since the
the dotted line. mortgage is their largest payment, it makes it
easier to budget for the rest of the pay period.
Weekly, Bi-weekly, or Monthly

Payments Construction or Building
Mortgages
How money comes out of your account to
make periodic mortgage payments is also If you’re looking to build your own house right off
something you’ll have to decide on. Many people the bat, you are in a somewhat unique position.
recommend going with a more frequent rate New-build mortgages are sort of a separate
such as weekly or bi-weekly. That’s because as category altogether. Most of the time lenders
you pay your mortgage down quicker, you pay will release parts of the loan – or “draws” – at
substantially less interest over the course of the various agreed-upon stages of completion. Often

these stages will include the land purchase, lock your finished home (as defined by an appraiser
up (windows and doors are installed), drywall and cost estimates from your builder). This
installation, and occupancy (with occupancy means that, as the buyer, you may need 20% to
permits being issued). The process of getting 25% of the value of the finished house in order to
your mortgage funds released can be somewhat secure this type of mortgage. That makes draw
confusing. You have to have enough of your own mortgages less accessible for most first-time
funds to reach certain stages before the next homebuyers.
level of funding kicks in.
Rent-to-Own Mortgages
The reason for all these rules is the relatively high
level of risk that a new construction mortgage Another niche strategy for getting into a home
presents for a lender. If you decide to abandon is using a rent-to-own option. These mortgages
the project as it’s being built and default on the are most often used by people who cannot get
mortgage payments (at a massive hit to your a conventional or high-ratio mortgage for the
credit score), the bank would be left with a half- time being, but are hoping that after a period of
finished building – not exactly an ideal situation. renting they will qualify.
New construction mortgages will typically only Some experts claim that renting to own is never
lend up to 75% to 80% of the appraised value of a great option. Others think that for people in a

very small percentage of situations (such as a mortgages are controversial is that if a buyer still
recent divorcee), it makes some sense. does not qualify for a mortgage at the end of the
agreement (and sometimes the appraised value
The basic idea is that if a buyer finds a home of the house has gone up substantially during
they like, they pre-negotiate a deal with the seller the rental period), then they lose the amount they
whereby they will rent the home for a certain paid at the beginning in order to have an option
amount of time. Sellers sometimes use a deal to purchase, as well as their monthly premiums.
like this as a “carrot-on-the-stick” incentive to Most experts agree that if you can qualify for
get people into their house. Most of the time a conventional or high-ratio mortgage on your
buyers will pay an upfront fee of 2% the house’s own, you should go that route instead of renting
appraised value +/-, in order to give themselves to own.
the “option to purchase” at the end of the
agreement.
Sometimes an extra premium is also added

into the monthly rent. That goes towards the
prospective buyer’s down payment at the
end of the agreement. The main reason these

What Can
You Afford?
You’re saving up your 20% down
payment, you know what to look for
in a mortgage contract, and you are
ready to start looking for the house
of your dreams. The only problem
is, you’re not sure how much you
should spend.
After all, your parents and

grandparents might have told you
something like, “Buy as much home
as you can comfortably afford, and
then you can grow into it.” This

might have worked out ok for some of the past Rules of Thumb
generations, but I’m fairly certain it’s not too
brilliant going forward. Breaking the bank every Before going house shopping, you need to
month to squeeze out a mortgage payment know how much the bank will lend you (we’ll
is a quick way to cripple your overall financial get into something called “pre-approval” a little
plan and lower your standard of living (Google: later) and how much you should actually spend.
“House Poor”). You should know that banks love mortgages.
Long mortgages are best since you’ll pay lots of
When you look for your new place, don’t do interest.
things “HGTV-style”. That’s where you say you’re
looking for something in the $200,000-$225,000 Consequently, lenders of all types will often
range and then fall in love with a $250,000 bend over backwards to get you into a home
home. (But it’s ok, because you negotiated down that will take a sizable bite out of your monthly
to $242,000. Heck, you basically made money budget.
right?) There are two main ratios and/or rules of thumb
most lenders use to determine just how large a
mortgage you’ll be eligible for.

PITH and the Gross Debt Service home on a 25-year mortgage), and my heating
bill is $3,600 per year, while I pay $3,000 in
Ratio (GDSR)
taxes, then my total PITH number is $18,600. My
wife and I would have to earn at least $58,125
This pithy acronym refers to Principal, Interest,
in order for lenders to consider us for this
Taxes, and Heating costs – in short, the costs of
hypothetical home under most circumstances.
owning your home. Fifty percent of condo fees
are also often added to this equation. To figure
out our GDSR, we will take the household’s Total Debt Service Ratio (TDSR)
gross income (how much money you make from
all income sources before any taxes are taken off) The second rule of thumb is that your entire
and divide our PITH figure by that number. Most monthly debt load should not be more than 40%
lenders want your GDSR to be at or under 32%. of your gross monthly income. Basically, the
Well-qualified clients can go up to 39%. lender will take the number you used when you
figured out your annual housing costs (PITH) and
For example, if I am looking to get a $1,000-per- add any other debt that you have. This includes
month mortgage payment (this would get me any car loans, credit card debt, alimony, child
something in the neighborhood of a $250,000 support, and any other loans.

To continue my example, if I want to buy the you and your partner make $80,000 before tax,
same house as above, the lender will take you’re likely down into the $60,000-$65,000
into consideration that I have $2,000 in credit range in terms of your net income before you
card debt and a $300 monthly car payment. even see your paycheque. If your mortgage size
My relevant TDSR figure is $24,200 for the required the maximum 32% GDS ratio, that’s
year. Most lenders will allow 40% of your gross another $25,600 gone. Now you’re left with only
income; therefore, by this ratio, my wife and I about $40,000 a year to pay for basic necessities
would likely be approved for our hypothetical such as food, phone bills, vehicle maintenance,
$250,000 mortgage if we had a gross income of gas, child-related expenses, insurance, etc. You
$60,500. likely won’t have much breathing room to throw
at worthwhile goals like retirement savings, RESP
Just Because You Can, Doesn’t contributions, vacations, or small luxuries. (This
isn’t even accounting for higher interest rates or
Mean You Should
unexpected job loss.)
If you spend 32% of your gross income on

Some Canadians will actually borrow even more
housing costs, you will have to sacrifice in a lot
than what the standard debt ratios recommend.
of other areas in your life. It’s just basic math. If
They do this by going to a “B” or “second-tier”

mortgage lender. I wouldn’t recommend that

approach at all. Give yourself some breathing
room and don’t tempt yourself by shopping for
homes outside of your true affordability range.

Closing Costs – 1.5% to 4% of the cost of the house on hand –

on top of your down payment. Closing costs can
Surprise! add up in a hurry. Three percent of a $250,000

home is $7,500 after all. That’s not exactly
chump change for most young Canadians.
The size of my closing costs were the largest
surprise to me when I purchased my home.
Saving this money can be a frustrating
To have that burden hit me on top of scraping
experience. You’ve already worked hard to make
together my down payment was not something
sure you have a solid down payment. It can start
I was properly prepared for. After talking to
to feel like you’ll never get into your new home.
several of my friends about their home-buying
But, it’s better to be properly prepared than to be
experiences, I learned that I wasn’t alone. I was
scrambling to cover fees at the last minute.
getting buried in an avalanche of paperwork that
seemed to cost me more money every time I
Closing costs are also one of the main reasons
turned around.
that moving every few years is incredibly
expensive. Here’s a list of where you’ll be
Only after buying the house did I learn that in
sending cheques before you reach the light at
order to make sure everything goes smoothly,
the end of tunnel:
you should have somewhere in the range of

• Home Inspection Fee – This isn’t a “must- • Land Transfer Tax – You thought you could
have” in some cases. Lenders generally buy a house without paying taxes? Guess
don’t force you to do a home inspection again, every time a property changes hands
before completing a mortgage. But it’s your provincial government makes sure it
highly recommended nonetheless. HGTV gets its share. Some cities, like Toronto,
has roughly 17 shows all based around the have a municipal land transfer tax as well.
concept of inadequate home inspections This tax is calculated as a percentage of the
requiring major renovations. Again, this will property’s value. For example, a $400,000
likely be the largest purchase you ever make. house in Toronto will see you pay $4,475
Wouldn’t you rather spend a few extra bucks to the Ontario Government, and a further
and sleep well at night? $3,725 to the City of Toronto. I feel your pain.
• Legal Fees – While some people try to • Property Insurance/home insurance –

complete paperwork alone, lenders often Lenders often won’t let you take possession
require the use of a lawyer or notary to of a property before it is insured. Get ready
process the mortgage closing. Mine came in to pony up $100 per month or so to protect
around the $1,000 mark (and that’s cheaper your new purchase from all manner of
than the average)… ouch! potential disasters.

• Title Insurance – Your property/home • Condo Fees – If you’re like many young
insurance won’t protect you from weird Canadians and looking to purchase a
occurrences like title fraud, disputes over condominium as your first step on the
property lines, or anything that threatens your housing ladder, you need to become familiar
legal ownership of the property. Chalk up with condo fees. These monthly payments
another $200-plus. go to pay for maintenance and management
around the facility and can vary substantially
• Property Taxes – When you were renting from $100 to more than $600 per month.
before purchasing your first home, you
likely escaped property taxation. This is a • Moving Costs – If you have a lot of friends
municipal tax and is generally calculated as a that owe you one – and you don’t mind
percentage of your home (with a few caveats investing in some pizza and adult beverages
depending where in Canada you live). Most – you might be able to cut down on your
cities will have you forking over anywhere moving costs a lot. All the same, moving
from $2,000 - $4,000 annually on the typical trucks and the gas that goes in them aren’t
starter home. Check with your lawyer on free. If you’re changing cities, don’t forget
the taxes due when you take over your new to factor in meals on the road, sleeping
home. accommodations, driving multiple vehicles,

storage and several other little costs that can insurance that protects someone else – but
really add up. that you’re forced to pay. Come up with a
20% down payment and you don’t have to
• Provincial Taxes on CMHC Insurance – In worry about this one.
case you forgot, our old friend CMHC is
back to remind you that you owe tax on this • Making the House Yours – Most people
recommend changing the locks when you
move into a new place for obvious reasons.
You may also want to do some painting and/
or cleaning before moving all of your stuff in.
There is no better time to make sure you get
into every nook and cranny.

Executing Your but the point is that it’s all pretty straightforward.
Game Plan People buy vehicles on whims, you watch

them do it in movies, and it is relatively painless
compared to the marathon of buying a house.
I don’t know what I thought buying a house
No one ever made a movie where you watch
would look like, but I know I was shocked at just
someone look badass while filling out some pre-
how complicated the transaction was. Maybe
approval paperwork, and then three months later
it’s because I was using my vehicle purchase
they submit an offer to purchase, etc. There
as a reference point. After all, for most people,
is no “I’ll take it” and you roll off the parking lot
buying a vehicle is the second-largest consumer
feeling good about life in the house-buying world.
purchase they’ll ever make. Car shopping is
comparatively easy. You simply look up a few
So, if it’s not like buying a car, and you don’t
things online, go to a dealership (or decide on
just see a price written on the window in yellow
a private sale), maybe get a mechanic’s opinion
marker - how do you pay for a house? What
if you want to be super thorough, and then
steps do you need to take to get your name on a
negotiate the price and/or features. Obviously
piece of paper saying you now own it?
you could break those steps down a little more,

1) Pre-qualified, Pre-approved, level in advance. That way, nothing is rushed

when you start making offers.
Pre-pared
Any piece of paper you have ever created in

Get pre-approved about 91 months before you
your life will want to be looked at by your lender,
actually think you might want to buy a house.
especially if you’re young, and especially if you
Okay, that might be a slight exaggeration, but
haven’t had a super stable job with a large
seriously, start talking to your preferred lender
employer for several decades. I think my lender
early in the process.
even requested my 7th grade report card at
some point.
Even better, get pre-approved from a couple
of different places. Pre-approved means you’re
As part of the pre-approval process, many
conditionally approved for a mortgage – up to
lenders will want to do a hard inquiry of your
a certain limit – in advance of actually buying a
credit score. If you plan on comparing the
house. It speeds up the process substantially
offerings of several different lenders (a smart
once you find the home you’ve always wanted.
move) you may want to ask for a pre-qualification
Basically, the idea is that the lender gets all of
instead of a pre-approval. I know this sounds
your paperwork in order and assesses your risk
confusing, but the reason for this extra step is

that hard inquiries on your credit score in a very income from commissions, or do a lot of contract
short period of time it can negatively affect how work, then everything in the previous paragraph
lenders see your credit worthiness. Asking for is exponentially true. Lenders love boring people
a pre-qualification is a great way to get the ball like me – a teacher with an income that can be
rolling without a broker or lender pulling your easily verified with an employer call and a couple
credit. of pay stubs. If you instead earn money that’s not
easily-provable, expect more paperwork in your
Start early so that you’re not rushed into an future.
unfavourable rate and product. The home-buying
process can take several months from start to
finish—or as little as a few weeks if you’re lucky,
want to rush it and everyone cooperates. I’ve
seen many a buyer go through open house after
open house, only to have their hearts broken
when their financing or paperwork fell through
due to a time crunch. 2) Offer to Purchase (OTP)
If you are self-employed, receive much of your Buying isn’t easy. You don’t simply agree to pay

the asking price, tell your bank to send your 3) Negotiation and Counter Offers
mortgage money and then walk away with the
keys. It is the buyer who starts the dance of You or your agent will submit your OTP to the
house buying by submitting an Offer to Purchase seller/vendor and cross your fingers. In a perfect
(a.k.a. Offer to Buy or Agreement of Purchase world, the seller accepts your offer and you’re off
and Sale). to the races. More often, the seller will now make
a counter offer. A counter offer can include any
In my experience, Offers to Purchase (OTPs) number of items in addition to the price. It usually
are relatively simple to prepare yourself in includes a time limit on how long you have to
certain cases – but in some instances the deal accept, or is contingent on the buyer providing
in question is more complicated. A while back, specific paperwork. The
I got a template from a friend’s lawyer, filled it counter offer can also
out, had him look it over quickly, and we were include specific repairs to be
all satisfied with the document. That being said, completed before a certain
many people recommend getting a Realtor or date and a list of appliances
lawyer to look over the offer. After all, it is a legal and chattels that form part
document and will dictate the specifics of your of the deal. You as the buyer
house purchase. can simply:

• sign the counter offer and move on 4) Inspections and Walkthroughs

from there
• reject the counter offer outright, or Once the buyer’s offer is officially accepted, and
• amend the offer and send it back. before the settlement date, all inspections and
This is how official negotiation takes place during walk-throughs by the buyer must take place.
the house-buying process. Naturally, the seller Sometimes a mortgage lender will stipulate that a
can also reject the offer at any point and stop the home inspection must be done, but usually it’s at
transaction from moving forward. the borrower’s option. Any issues and resolutions
that arise at this point should be negotiated and
If the seller accepts your OTP or counter-to- included in an OTP amendment signed by both
their-counter offer at any point in the process, parties. For example, if new flooring was part
then you (the buyer) are legally obligated to of the offer, then this should be completed prior
go through with the transaction; therefore, it is to the settlement date. The time between the
crucial that you understand all the terms in the acceptance of the offer and the settlement date
OTP document. is commonly referred to as the closing period
and is usually 40-50 days.

5) Closing and Lawyers part of the escrow process as well.
Before you get to your closing day celebration, 6) Closing Day – Welcome to Your
the closing process must be completed and New Home!
a goat sacrificed to the deity of lawyers and
paper shufflers everywhere. As part of an OTP, a Closing Day (a.k.a. settlement) is the grand finale
deposit is usually required. This deposit can be in to the whole deal. If everything goes according to
the form of a personal cheque or it might need to plan you will take legal possession of your home
be a certified cheque. This money will eventually on this day. The vast majority of the paperwork
go towards your down payment, but for the time should be taken care of long before this point.
being it will rest with a neutral third party. This On the closing date, your lender should release
third party will juggle the relevant documents the money backed by your mortgage loan to
from both parties and complete the transaction your lawyer. You will provide the balance of your
once all conditions have been met. This whole down payment (some of it will already be sitting
process is generally referred to as the escrow in escrow from your deposit) and the relevant
process or something “being held in escrow”. closing costs to your lawyer. At this point, the
There may be a few other expenses relating to lawyer(s) handling everything finally earn their pay
insurance and taxes that can be required to be

and send your down payment and the mortgage

cash to the seller (minus commissions, which are
sent to your real estate agents – if applicable).
Your lawyer then completes the legal title work,
registers the house in your name, and FINALLY
hands you the keys to your new home. Yay!


Building Your Your Lawyer
Dream Team One could argue that this is the only non-
replaceable position on your team. Lawyers are
If you’re feeling somewhat intimidated by the clearly the MVP of most home-buying squads
complexity of home buying, join the club. It’s a (unlike Realtors who take all the glory and puts
lot to take in, and most of us have no sense for their faces on bus benches).
the steps involved until we find the home of our

dreams and actually start the process. Your lawyer has a lot of responsibility and if you
choose to take the field without a real estate
The good news is that there’s plenty of help out agent, they will be even more valuable to you.
there for you to lean on as you go through the Choose this franchise player wisely. They can
home-buying process. The not-so-good news is save you a lot of headaches down the road. The
that all of this help comes with a price tag. I’m a best part about having a lawyer work for you is
big fan of the DIY approach in many cases, but that, even though they aren’t cheap, they don’t
before we get into that cash-saving idea, let’s look work on commission. We’ll explain why this is
at building a team that can help ease your load. important when we get to real estate agents in
a moment. For the time being, just think about

paying $2,000-$3,000 for a great lawyer as go with a real estate agent, the lawyer can also
opposed to 3% of a home’s purchase price. handle some of the agent’s responsibilities.
There can be a big difference between a flat-fee
and a variable commission. When choosing a lawyer, try to find one that
specializes in real estate transactions. Finding a
Your lawyer will make sure the property you want specialist can save you on legal fees and ensure
to buy is in good legal standing and doesn’t have you get the best advice.
any liens, penalties, clean-up orders, or other
complications. The most important thing your Lender
lawyer should do for you is review all contracts
before you sign them and answer any questions
you might have. As a buyer, this is especially
important when it comes to the OTP. If that
document is accepted by the seller, the process
is done and nothing more must be added unless
both parties agree. Your lawyer will also explain This teammate will make sure your mortgage
and handle the actual transaction of money is in place prior to all of the other razzle-dazzle
during the escrow period. If you choose not to stuff. Remember when we talked about getting

Mortgage Broker
If you don’t want to deal with lenders one-on-

one, a mortgage broker can help negotiate a
good deal on your behalf. Mortgage brokers
can give advice on which mortgage fits your
needs best, and often provide access to lower
unpublished rates. That said, there is some
controversy over whether using a mortgage
pre-approved? That’s what these guys are broker is ultimately in a person’s best interests.
going to do, among other things. In addition, That’s because their pay comes from a lender’s
the lender will work with your lawyer to transfer commission. Moreover, there are sometimes
the mortgage loan money in order to actually vague financial incentives earned by brokers
complete the transaction. A lender could be any to funnel clients to specific lenders. In the last
few years, online mortgage brokers and rate
bank, credit union trust, insurance company or
comparison sites have sprouted up to add
wholesale mortgage provider.
transparency to the financing game. They are
a growing force when it comes to comparing
mortgage rates and providing quotes.

Realtor/Real Estate Agent/Real a home, they will likely ask you who your
real estate agent is. This term is rife with
Estate Salesperson
misconceptions and technicalities. The term “real
estate agent” refers to someone who is licensed
Before I get into helping you navigate this
to deal in real estate. It is a basic qualifier when
labyrinth of terminology and hidden costs, I need
it comes to real estate transactions. But it is not
to be upfront with my biases. I’m really not a
a great descriptor – despite its widespread use.
fan of the current real estate business model in
Confused yet? Stay with me.
Canada. I think it’s ridiculous that we still work on
a commission-based system. (Does a real estate
The term “real estate agent” is usually referring
agent work twice as hard to sell a $500,000
to someone who works on behalf of a real estate
house as they do a $250,000 house? No? Well,
broker. They are also sometimes referred to as
why do they get paid twice as much?) This is a
“real estate salespeople”, which is probably the
heated debate that I’ll delve into a little more at
most accurate job title of the bunch.
the end of this chapter, but I wanted to be clear
about my stance from the get-go.
Now, just to make things even more confusing,
the term “Realtor” (that is often used
If you tell someone you are looking to purchase
interchangeably with real estate agent and real

estate salesperson) is a trademarked term that stated needs. Agents can also coordinate
denotes an individual that has met certain levels between the other members of your team,
of education and has agreed to a specific set recommend professionals to fill the other roles,
of professional standards. All Realtors are real make phone calls on your behalf, and make
estate agents, but not all real estate agents are sure all documentation is completed properly. In
Realtors. exchange for those services, enlisting the help
of one of these individuals will usually cost the
Realtors are most notable for the fact that they buyer 2.5-3% of the value of the home they are
can list properties on the Multiple Listings Service buying.
(MLS). This is quite an advantage if you’re selling
a house. Many people will immediately claim this is not
true and that the seller pays the cost of the
To make a long story short still pretty long, your commissions for both the buyer’s agent and
real estate agent/Realtor/real estate salesperson/ the seller’s agent. Well, here’s the deal – both
real estate broker exists to help smooth out camps aren’t technically wrong. No money
all the technicalities involved in a real estate comes directly out of the buyer’s pocket to pay
transaction. In the buyer’s case, they give an agent, BUT the total commission paid to the
advice on properties that best fit the buyer’s seller’s agent (if they use one) is then divided

between the two agents. Guess who pays for folks come in. They’ll explain the various types
that commission? The person that is buying the of scenarios that you need to be insured for, and
house pays the price, and then the seller hands work with you to find a package that fits your
over the commission percentage. So you tell me needs. The insurance broker’s costs are almost
who is actually paying. always included in the insurance they provide.
All I know is that if I buy a house without using an Home Inspector

agent, I’m asking for a 3% reduction in the price.
We have a great article here that discusses this As a buyer, you can’t put enough emphasis on
commission terminology debate. It’s one of the this position. While you don’t technically need a
most popular on our site. Skip to the end of this home inspector in some cases, it’s my opinion
chapter for more on the DIY approach vs. using that one can never be too careful when making
an agent. such a large and important purchase. Check
around, get references, make sure you get
Insurance Broker someone who is knowledgeable and professional
– not someone who is simply there to sign off
You need to get your house insurance in place and collect a quick cheque. Unless you’re a
before you get the keys. That’s where these construction expert, this member of your team

will be your eyes and ears when it comes to job and hardwood floors right away (I love new
looking at the most important stuff (no, not the paint jobs and hardwood floors too – no worries!).
granite countertops and walk-in closets). I’m Unfortunately, their souls are sometimes crushed
talking about whether the foundation is stable, when they find out that $30,000 in repairs
what (if any) repairs need to are needed just to keep the
be done, and if there were basement from collapsing, or
problems in the past. to keep water from pouring in
during the next heavy rain. A
A home inspector conducts decent home inspection should
a visual inspection where cost around $500, depending
they walk through the house on your region, and it’s worth
and take a look at everything every penny.
from plumbing and electrical, to looking at what
problems the drainage pattern of a property could Appraiser
present. A real professional will even be able to
give you an educated guess on when certain parts As one might expect, an appraiser appraises
of a building will likely need to be replaced. the value of a property (a.k.a. tells you what it’s
Often, homebuyers fall in love with a new paint worth). You might want this for your own benefit

– but comparing on the internet can sometimes property are and where the property lines are
give you very similar results. relative to other land and highways. They are
done when a property is initially purchased and
In practice, your lender may actually require you a home built, but are often lost. In combination
to have a property appraised before completing with title insurance, a land survey can protect you
your mortgage. The appraiser will carefully against misunderstandings and disagreements
examine all of the home’s characteristics before such as who owns the property that a fence is
comparing it to other recent sales in your area. on, or if your driveway is completely on your land.
Appraisals range from $250 to $500 or more for Land surveys vary depending on the complexity
outlying areas or unique properties. of the property, but should range in the $500 -
$2,000 territory.
Land Surveyor
DIY vs. Paid Professional
You may not need a land surveyor, but if the
property does not have a current survey, you In many cases the number of positions on your
will generally need title insurance to make the team that need to be filled aren’t decided by
purchase. A land survey will carefully document you. Oftentimes your lender will decide if a home
exactly what the physical dimensions of the inspection, land survey, or appraisal needs to

be done. The position that is most expensive, had better be excellent in order to get that level
however, is purely optional: your real estate of value. For me, that level of service doesn’t
agent/real estate salesperson/Realtor (hereby exist, but everyone values time and expertise
referred to as “agent” for simplicity’s sake). differently.
So, if you didn’t click through to our article on Most of the time the decision on whether or not
how real estate commissions are calculated to use an agent happens on the other side of
and how your agent gets paid, here’s the short the home-buying transaction. You’ll find a lot
and sweet. You can negotiate a flat fee for your of articles talking about saving money by not
agent’s time (a good idea in my books) or you using an agent when you sell a home. There
can pay a commission. The average commission are now many different levels of service and
that is usually split between the seller’s agent and value propositions available if you wish to do
the buyer’s agent is 5-6%. That’s a lot of money! some of the work of selling your home yourself.
I often wonder if most people understand just There isn’t much out there on using an agent to
how much money that is. On a $300,000 home, buy your home though. This is the result of the
6% is $18,000. If half of that share is yours, how misunderstanding we talked about earlier, with
many hours do you have work to earn $9,000 respect to who pays for what when someone
in after-tax income?! The services you receive buys a house. This debate often leaves both

myself and the person that disagrees with me you, the buyer, to make a quick purchase.
quite frustrated. Once again, all I know is this: if I’m not saying agents are bad people, I (like
I’m not paying an agent, I’m getting that house Freakonomics authors Dubner and Levitt) am
for 2.5%-3% cheaper every time. saying that agents are human. If you give a
group of people a large financial incentive to get
If you’re thinking about using an agent to sell a deal done quickly, on average that deal will get
a home, I suggest you read the chapter of the done more quickly. Depending on what buttons
bestseller Freakonomics that talks about the they want to push, agents can create a sense
incentives that agents have for selling your home. of urgency for a buyer that doesn’t necessarily
**Spoiler Alert** - they’re not getting you the exist. This is especially true when the same
same value as they get themselves! The authors agency/broker is handling the transaction on
of that book have no “dog in the fight” when it behalf of the buyer and the seller. Think about
comes to selling your house. They don’t have how much of an incentive there is to get a deal
any interest one way or the other, so why would done when you get to make profit on both sides
they present such a compelling case against of the equation!
agents? Subsequent studies have confirmed
their conclusions.
Agents have a huge incentive to convince To be brutally honest, I didn’t use an agent when

I purchased a home and I fully plan on never sure the house is in good shape, my Google-
using one. Yes, agents can provide good advice fu skills to determine what my purchase price
and smooth out any potential problems with the should be, and my own best interests at heart to
transaction. For some people, that can be worth guarantee I negotiate correctly. That’s worth 3%
thousands of dollars. For me, it’s not. I have for me. In order to put some limits on my biases,
my lawyer to make sure all the paper work is I will allow that it might not be worth it for you.
completed correctly, my home inspector to make

Saving Up Your you start climbing that down payment mountain.

I’m not as strict and cautious as that. Ideally, yes,
Down Payment you would be debt free and have a nice chunk
saved up as a rainy day emergency fund before
worrying about a house. On the other hand, if
If you’re looking at purchasing a home, you
you believe owning a house will really raise your
might have already saved up a down payment.
standard of living, I’m of the belief that one can
In that case, you can likely skip this chapter. On
handle having a couple different sources of debt,
the other hand, with fewer and fewer Canadians
provided that they live within their means. That
able to put down 20% of the purchase price of
means not borrowing the maximum mortgage
the home, a little more saving might be a good
the lender will give you and keeping your interest
thing.
costs low. If you have credit card debt or store
payment plan debt, there is really no debating
A lot of young folks won’t want to hear this,
that this should be paid off immediately. The
but it’s probably a good idea to pay off your
interest rates are just too high and it will never
consumer debt before looking at buying a home.
make sense to have a dollar waiting in a GIC or
Some experts feel that you should have your
High Interest Savings Account (HISA) when it
student debt and vehicle loan also paid off before
could be paying off debt at 20% interest.

Once you have paid off your high-interest debt Home Buyer’s Plan
and made a budget for how much you can
afford to be saving each month, the next step is This ability to borrow from your RRSP is called
determining the best way to save up. The good the Home Buyer’s Plan, and it’s the quickest way
news is that governments want to help you buy to save for a down payment if done properly.
a house. In addition to all sorts of federal and Some feel that it’s best to leave your retirement
provincial tax credits, there are even municipal savings alone, and save for a down payment
first-time homebuyer grants available in some separately. In a perfect world, everyone would
cities. This is where your province or city simply have both a growing retirement account and be
gives you money in order to buy a home there — able to save efficiently for a down payment. Very
typically with a few conditions. There is also tons few young Canadians live in a perfect world,
of eco-specific cash available if you purchase an though. The reason borrowing from your RRSP is
energy-efficient home. In addition to all of that, so effective, is that you can purchase your house
the government will let you borrow money from with pre-tax dollars instead of after-tax dollars.
your Registered Retirement Savings Plan (RRSP) What I mean by that, is when you put money into
in order to put a down payment on a house. your RRSP you usually get a tax refund, right?
That tax refund is your tax money that got taken
off of your paycheque before it was deposited in

your bank account. It is now being given back to the same rules apply to the other great savings
you (don’t worry, the government will still get their vehicle: the Tax-Free Savings Account (TFSA).
cut when you retire and take money out of your
RRSP). This plan does have its limitations. First, at the
moment you can only withdraw $25,000 from your
If you take that refund and buy a big screen TV, RRSP for the down payment. (There’s talk of this
you are no further ahead than if you just stuck limit being raised.) So, if both you and your partner
your after-tax money in your mattress. If, however, are both purchasing a home for the first time, you
you take that refund and put it right back into can each access $25,000, for a total of $50,000.
your RRSP (thus generating a tax refund for the This money isn’t falling from the sky, however.
following year) you will supercharge your savings With the Home Buyer’s Plan (HBP), what you’re
habit. basically doing is lending yourself money from your
RRSP. You’re required to pay it back in instalments
Besides that tax refund getting you to the finish line over the next 15 years, or face tax consequences.
quicker, the other nice thing about saving a down You’ll also want to pay it back just to catch up on
payment in an RRSP is that any interest or gains your retirement savings. For more information on
made within the account are tax-free. We’ll get the Home Buyer’s Plan check out our in-depth
to why that’s beneficial in just a second, because article.

than you’re allowed in any single year). This

makes the TFSA another superb option for
growing your down payment.
While the TFSA and RRSP have some things in

common, a nice tax refund is not one of them.
Using a TFSA While RRSP contributions are done with pre-tax
income (which defers taxes on your contribution
Many people either want to use their RRSP amount), TFSA contributions are done with after-
room for other things, or they require more than tax income. In other words, you pay tax on your
$25,000 for a down payment. This is where the income first, and then invest with it. The benefit
TFSA comes into play. You might have recently is that you won’t owe the provincial or federal
heard that the federal government has boosted governments a dime when the money comes out
the TFSA contribution limit to $10,000 each year. of your TFSA.
You also might be aware that, unlike its RRSP
cousin, the TFSA is much more flexible. It lets One might reasonably ask, “Why go through
you to put money in and take money out without the bother of opening a TFSA if you have to
penalties (as long as you never contribute more pay taxes anyway? What is the advantage in

using a TFSA over a simple savings or chequing 1.4% or so (depending

account?” A key advantage in both the TFSA on your tax bracket)
and RRSP is the fact that any income earned because you have to
within the accounts is tax-deferred. From a share some of your
retirement savings standpoint, this can be very earnings with the tax
powerful over the long-term man. Within a TFSA you
get to keep the full 2%
Let’s consider an example to illustrate. Suppose return. Within an RRSP
you have a three-year plan for saving a down you can also use the full 2% gain towards your
payment. You might want to save your initial down payment, assuming you use the HBP.
contributions in a three-year GIC. That way, your
money would come due right when you wanted Any money you take out of a TFSA will be added
to purchase a house. to your contribution room for the following year.
Consequently, you can always catch up again
If you invested that three-year GIC (currently if you want to use your TFSA for retirement
paying 2% interest) in a non-registered account, savings. You never sacrifice contribution room
you would have to pay tax on the gain. That when you save for a down payment in a TFSA.
means your interest is only compounding at

Investing Your If you are saving a down payment you will likely
want that money in the next one to five years.
Way Into Your Therefore, your best bet is a nice safe investment
that will allow your money to grow conservatively
First Home without the short-term risk of stocks or

commodities. GICs, government bonds, or high-
There are folks out there who believe that if they interest savings accounts held within your RRSP
use their best friend’s uncle’s stock trading tips, and/or TFSA are a great option.
they’ll build their down payment nest egg a lot

quicker. While theoretically possible, I wouldn’t Don’t Back Yourself Into a Corner
recommend it. Anyone who tells you they know
where the stock market will be five years from A quick note about saving for a down payment:
now is lying or has convinced themselves of a don’t forget about those pesky closing costs. I
falsehood. If you need your money in the next was put in a pinch when I purchased my house
five years it should not be in the stock market. because the closing costs added up faster than I
That includes ETFs and stock mutual funds as had anticipated. There are many seemingly small
well. expenses that come from all directions when
you purchase your first home, but they can sure

swallow up your budget in a hurry. Make sure

they don’t sneak up on you by saving a little
more than you think you will need.

Finding Your I don’t know you and I don’t know what you
want in a house. I’m sure many of Canada’s
Dream Home urbanites would look at the home I purchased

and have an inner moment of sympathy for my
seemingly lonely rural existence. On the other
hand, I look at a basic bungalow or a condo in
Vancouver or the GTA and I feel like the walls
are closing in around me. I’d probably suffocate
after three weeks of urban life. All this to say,
different people want different things – and that’s
OK. Consequently, I don’t want to waste time
telling you what kind of house you should get.
It’s probably worth reiterating at this point that I
I don’t know what will have better resale value
am not a real estate expert – although my wife
or what house type fits your personality best. I
does make me watch a lot of HGTV. What’s
do, however, know some good questions to ask
more, I’ve probably hunted for roughly 729
when you begin your quest for the perfect home,
houses at this point – not sure if that gives me
and some big picture concepts you might want
any street cred.
to consider.

Location, Location, Location Luxurious Trends in Home Buying
As someone with way too many episodes of My dad is one of the happiest people I know. He
House Hunters under his belt, I want to scream talks fondly about his childhood and loved the
at my TV screen when I see people dismiss family home that he was born and raised in. My
houses because of aesthetics such as paint grandparents’ house was about 1,200 sq. feet
colours and/or flooring options. You can change with a finished basement. It had one bathroom
these “personal” elements at any time. You can (there was also a “detached bathroom” if you
also add an addition or change the structure didn’t mind going outside). I’m sure Grandma
of your home if you have to. What you can’t would have laughed at the concept of a marble
change is the location. There’s a reason why countertop. She believed a fireplace was made
“location, location, location” is real estate’s most to warm the house, not “produce an inviting
popular cliché. How will a big commute affect feeling of cultural welcoming upon entry”. My
your lifestyle? What sort of schools and amenities point is, you may want to think about what’s truly
are nearby? Where you choose to buy will likely important to you before shelling out hundreds
affect your standard of living for years to come of thousands of dollars for luxuries you don’t
– don’t choose a house because you like the actually need. So many Canadians are crippling
crown moulding! their ability to save for retirement, travel the

world, or just keep their head above water by with housing lingo and knowing the differences
purchasing homes that add little to their overall between freehold condominium (condo),
happiness. Contrary to modern beliefs, there was townhouse, semi-detached, single detached,
a time when a couple with one child and a dog duplex, etc.
could be content with a home under 3,000 sq.
feet with walk-in closets and granite counters. Talk to Neighbours in the Area
What Type of Home Best Fits Your It might be a socially awkward to walk up to
Lifestyle? strangers and ask them if they like where they

live, but that’s a small price to pay for a first-
If you love the downtown life, perhaps a hand account of the pros and cons of living
detached home doesn’t make sense for you. somewhere. You can also check with friends (and
On the other hand, if you take great pleasure friends-of-friends) to try and get a trustworthy
in maintaining a vegetable garden, you won’t report on the area. You’re going to be spending
want to sacrifice that when home hunting, no a substantial chunk of your life in this place – it’s
matter what your price range. Before you go important to know what you’re getting into.
house buying, I recommend becoming familiar

Don’t Be In a Rush
One of my favourite quotes is, “It’s not what

you know, it’s what you can leverage.” In any
negotiation or sale, the amount of leverage a
person has – or doesn’t have – will drastically
affect the final outcome. If you passionately fall
for a home and can’t fathom walking away from remember that everything is negotiable.
it, you’ve now handed all the leverage to the Commissions, fees, interest rates, repairs, etc.
seller. I know the idea of a home is inherently They can all be lowered at times, simply by
emotional, but try your best to stick to your guns asking… and by not being afraid to walk away.
about what you want to spend. There are always
more houses coming on the market. This is More importantly, don’t fall into the classic trap
Canada, we have an enormous industry built on of being penny-wise and pound-foolish. That
this fact. happens when people make good financial
decisions everywhere else in their lives, but
Everything is Negotiable then accept a terrible deal when it comes to the

purchase of a home.
Just like everything else in life, when you jump
headfirst into your house-buying adventure

Checklist
If you’re an A-type personality and like keeping track of everything, CMHC has useful third-party
checklist here. It can aid in comparing houses and help keep your decision-making rational. I certainly
have nothing to add to this comprehensive list.

Conclusion Seeing all the mortgage options compared in

one place gives me the leverage I need to get the
best deal.
Hopefully by now you are slightly less lost than
when I began my home ownership journey. For
many people, owning a own home is realizing a
dream to many people. It’s a deeply ingrained
part of the Canadian psyche. Just be prepared to
marshal your endurance and stamina as you take
your first steps into the world of real estate. It can
be a trying, but rewarding experience if you are
If you want more information on housing and
ready to proactively smooth out bumps along the
real estate, check out some of our most popular
way.
articles on YoungandThrifty.ca
For the next house I purchase, I intend to kick

What to Consider When Buying a Condo
things off by checking out RateHub.ca. Getting
pre-approved for the ideal mortgage will leave How Much Space Do You Really Need?
me ready to take on the rest of the adventure.

How Much Home Can I Afford?
Rent vs. Buy Debate
Is It Worth It to Buy a Fixer-Upper?
The Cost of a Family Cottage or Cabin
How to Port a Mortgage
How to Rent Out Your Basement Suite
Who Needs Realtors When You Can List Your

Own Home?
Owning US Real Estate
Know Your Mortgage Penalty
Why I Chose a Credit Union for My Mortgage

Getting Your Foot in The Door

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Getting

So You Think You Want to Buy a House?.......... 5

The Nuts and Bolts of House Buying............... 13

What Can You Afford?..................................... 27

Closing Costs – Surprise!................................ 32

Executing Your Game Plan.............................. 36

Building Your Dream Team............................... 43

Saving Up Your Down Payment....................... 54

Investing Your Way Into Your First Home.......... 59

Finding Your Dream Home............................... 61

Kyle Prevost & Justin Bouchard - YoungAndThrifty.ca

Introduction a stock and bond, or even how interest rates

Kyle Prevost & Justin Bouchard - YoungAndThrifty.ca 1

Kyle Prevost & Justin Bouchard - YoungAndThrifty.ca 2

My goal is to provide folks with this information Disclaimer:

This eBook is not intended to replace full-service

I have decided not to charge anyone for this

Kyle Prevost & Justin Bouchard - YoungAndThrifty.ca 3

I have asked for your email so that I might

Thank you for your support. I hope the effort I

Kyle Prevost & Justin Bouchard - YoungAndThrifty.ca 4

Want to Buy a Most Canadians, however, are not aware of all

House? the facts in the rent vs. buy debate. Because

Yes, you read that correctly. I know, it’s a bit of an

Canadians (and Americans for that matter) have

Kyle Prevost & Justin Bouchard - YoungAndThrifty.ca 5

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6) Remember that when you purchase a home,

What Builds Wealth Faster – Real

The myths surrounding real estate

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now bought a house and “put down roots” had

Remember, rental contracts are almost always

The Good Stuff

Kyle Prevost & Justin Bouchard - YoungAndThrifty.ca 11

3) You can build “sweat equity” by pouring your

4) Owning gives you the peace of mind that no

Kyle Prevost & Justin Bouchard - YoungAndThrifty.ca 12

Kyle Prevost & Justin Bouchard - YoungAndThrifty.ca 13

Down Payment down payment, your mortgage will be referred

There was a brief period of time when borrowing

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Kyle Prevost & Justin Bouchard - YoungAndThrifty.ca 16

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Rates of Interest – Variable vs.

One of the most important decisions you’ll have

Kyle Prevost & Justin Bouchard - YoungAndThrifty.ca 19

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Kyle Prevost & Justin Bouchard - YoungAndThrifty.ca 21

Prepayment Terms you run into some cash through a promotion or

Kyle Prevost & Justin Bouchard - YoungAndThrifty.ca 22

Breaking Your Mortgage

“Man, interest rates are going through the