Buying your first home is exciting, but it can also be overwhelming. Mortgage rules, down payments, legal documents and competing offers can make the process complicated. One of the best things a first-time buyer can do is assemble the right team before beginning the search.
Your Mortgage Agent
Your Mortgage Agent should be one of your first calls. They review your income, credit, debts and down payment to determine what you can comfortably afford. They can also explain mortgage options, arrange a pre-approval and compare products from multiple lenders.
Your Realtor
Once you know your purchasing range, your Realtor helps you find the right property. They arrange showings, review comparable sales, help determine an appropriate offer and negotiate on your behalf. They also help structure important conditions such as financing and home inspection.
Your Real Estate Lawyer
Your lawyer handles the legal side of the purchase. They review the Agreement of Purchase and Sale, complete title searches, arrange title insurance, prepare mortgage documents, transfer funds and register ownership of your new home.
FHSA and Home Buyers’ Plan
First-time buyers should also explore two powerful programs.
The First Home Savings Account (FHSA) allows eligible buyers to make tax-deductible contributions and make qualifying withdrawals tax-free toward their first home. Annual contribution room begins at $8,000, with a $40,000 lifetime contribution limit.
The Home Buyers’ Plan (HBP) currently allows eligible buyers to withdraw up to $60,000 from their RRSP toward a qualifying home. The FHSA and HBP can also be used together when eligibility requirements are met.
Conventional vs. High-Ratio Mortgages
A conventional mortgage generally means you have at least a 20% down payment.
For example, on a $600,000 home, a 20% down payment would be:
$600,000 × 20% = $120,000
Your base mortgage would therefore be $480,000, and mortgage default insurance would normally not be required.
A high-ratio mortgage applies when your down payment is less than 20%, meaning mortgage default insurance is normally required.
For homes costing $500,000 or less, the minimum down payment is 5%. On a $450,000 home, that means just $22,500 down.
For homes priced above $500,000 but below $1.5 million, the minimum is 5% of the first $500,000 plus 10% of the amount above $500,000.
For example, on a $700,000 home:
5% of $500,000 = $25,000
10% of remaining $200,000 = $20,000
Minimum down payment = $45,000.
Interestingly, insured high-ratio mortgages can sometimes receive lower mortgage rates than conventional uninsured mortgages because mortgage insurance reduces the lender’s risk. Buyers must, however, consider the cost of the insurance premium.
Buying your first home is a major milestone. Having a Mortgage Agent, Realtor and Lawyer working together can make the journey considerably easier.
I also have a fabulous First-Time Home Buyers Guide that walks buyers through the process step-by-step. If you or someone you know is considering buying their first home, reach out and I would be happy to send you a complimentary copy.
Todd Smith – Your Mortgage Coach
Dominion Lending Centres – Yellow Brick Mortgage Group Ltd.
705-238-9278
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