Canadian home buying — questions answered

The mortgage stress test is a federal rule that requires all borrowers at regulated lenders to prove they can afford their mortgage at a higher rate than the one they're actually getting. Specifically, you must qualify at the higher of your contract rate plus 2%, or a minimum floor rate set by the federal government. The floor rate has been 5.25% since 2021 — [verify current figures with a licensed agent or at realtor.ca].

What this means in practice: if a lender offers you a 5-year fixed rate of 4.9%, you'll be tested at 6.9% (4.9% + 2%). If rates have risen and you're getting 6.5%, you'd be tested at 8.5%. At the qualifying rate, lenders calculate whether your monthly mortgage payment fits within the GDS (39%) and TDS (44%) ratio limits. Because the stress test rate is higher than the actual rate, it reduces the maximum mortgage you can qualify for — typically by 20–25% compared to qualifying at the contract rate alone.

The stress test applies to all new mortgages, renewals with a new lender, and refinances at federally regulated lenders (banks). It does not apply when you renew with your existing lender and keep the same terms, or when you borrow from provincially regulated lenders like some credit unions. Use the affordability calculator on this site to see how the stress test affects your maximum purchase price.

More than just the down payment. The full amount you need to save before buying has four components: the down payment itself, closing costs, an emergency reserve, and any immediate renovation or move-in costs.

The minimum down payment in Canada depends on the purchase price. On homes up to $500,000, the minimum is 5%. On homes between $500,000 and $1.5 million, it's 5% on the first $500,000 and 10% on the remainder. Homes over $1.5 million require 20% down. These rules updated on December 15, 2024.

Closing costs typically add 1.5–3% of the purchase price on top of the down payment. In Ontario this includes land transfer tax (use the LTT calculator for an exact figure), legal fees ($1,500–$2,500), title insurance ($300–$600), and the home inspection ($400–$600). Toronto buyers add a second municipal land transfer tax. First-time buyers in Ontario get a rebate of up to $4,000 on provincial LTT and up to $4,475 on Toronto's municipal LTT, which helps but rarely eliminates the cost entirely.

Beyond closing: plan for 3–6 months of carrying costs as an emergency reserve, plus any upfront work the home needs. A move-ready $700,000 home and a cosmetically tired $700,000 home require very different cash positions. Know what you're buying before you know what you need.

The First Home Savings Account (FHSA) is a registered account introduced in 2023 specifically for first-time home buyers in Canada. It combines the best features of an RRSP and a TFSA: contributions are tax-deductible (you get a tax refund like an RRSP), the money grows tax-free inside the account, and withdrawals for a qualifying home purchase are completely tax-free (unlike the RRSP Home Buyers' Plan, which must be repaid). The annual contribution limit is $8,000 and the lifetime limit is $40,000. You can carry forward unused contribution room to future years, up to $8,000 per year in catch-up contributions.

The RRSP Home Buyers' Plan (HBP) is a separate program that lets first-time buyers withdraw from their existing RRSP for a home purchase. Since April 2024, the withdrawal limit increased from $35,000 to $60,000 per person. A couple can withdraw $120,000 combined. Unlike the FHSA, HBP withdrawals must be repaid into your RRSP over 15 years — if you miss a repayment, that year's unpaid amount is added to your taxable income.

The two programs can be used together, which is the most common strategy for first-time buyers with both accounts. If you have an FHSA with $32,000 saved and can access $60,000 from your RRSP HBP, you have $92,000 available for your down payment — all of it tax-free if coming from the FHSA, and deferred tax if from the RRSP. For a couple, the combined maximum from both programs could exceed $200,000. The FHSA is the better program structurally because withdrawals don't have to be repaid. Open one as soon as you're eligible, even if home purchase is years away, because the $8,000 annual limit is time-sensitive.

Land transfer tax is one of the largest closing costs buyers face, and one of the most underestimated. It's calculated as a percentage of the purchase price using marginal brackets — similar to income tax — so the rate increases on each portion of the price above the threshold.

In Ontario, the brackets start at 0.5% on the first $55,000 and rise to 2.5% on amounts over $2 million. On a $750,000 purchase, the Ontario LTT works out to approximately $11,475. If that property is in the City of Toronto, the buyer also pays Toronto's Municipal Land Transfer Tax, calculated on the same brackets, adding another $11,475 for a combined total of approximately $22,950. First-time buyers in Ontario get a rebate of up to $4,000 on the Ontario tax; first-time buyers in Toronto get an additional rebate of up to $4,475 on the municipal tax.

The picture varies dramatically by province. Alberta has no provincial land transfer tax — buyers pay only a land title transfer fee of roughly $500–$1,000. BC charges 1% on the first $200,000 and 2% up to $3 million, which on a $1 million Vancouver home works out to $18,000. Quebec's "Welcome Tax" uses different brackets and thresholds. Use the land transfer tax calculator on this site to get an exact figure for your province and price point.

From the decision to buy to moving in, the typical timeline in Canada runs 3–6 months, though it varies considerably depending on market conditions, how quickly you find the right property, and how long the closing period is.

Getting pre-approved takes 3–7 business days if you have your documents ready: two years of CRA Notice of Assessment, recent pay stubs and T4s, bank statements showing your down payment, and identification. After pre-approval, the search phase varies most: in a hot market with limited inventory, finding the right property at the right price might take several months and multiple failed offers. In a slower market, you might find something in your first two weeks of looking.

Once your offer is accepted, the conditional period is typically 5–10 business days (for financing and inspection conditions). After conditions are waived and the sale is firm, the closing period is usually 30–90 days, though it's negotiable. Buyers often choose 60–90 days to give themselves time to arrange financing, give notice to a landlord, and prepare for the move. The closing itself — the actual day the keys change hands — happens in 4–6 hours once your lawyer confirms funds have been received and title has been transferred.

You're not legally required to use a buyer's agent in Canada, but most buyers do because the agent's compensation comes from the seller's commission — meaning you get professional representation without paying directly out of pocket. The agent who represents you as a buyer has a fiduciary duty to you and must act in your interest, not the seller's.

What a good buyer's agent does: sets up MLS searches that match your criteria, arranges showings, identifies issues at viewings that you might miss, advises on offer strategy and pricing in competitive situations, drafts the Agreement of Purchase and Sale, negotiates on your behalf during the conditional period, and coordinates with lawyers, inspectors, and mortgage brokers on your timeline. In a competitive market, they also give you access to information about why a property is priced the way it is, how long it's been sitting, and what the seller's situation is.

When a buyer's agent is not strictly necessary: if you're buying a new development directly from a builder (where the builder's salespeople handle the transaction), or if you're buying from a private seller (for sale by owner) and are comfortable handling the legal process yourself. In both cases, you'll still want a real estate lawyer to handle the actual closing and title work. Whether you use an agent or not, never skip the lawyer — title transfer and mortgage registration require legal representation in Canada.

Title insurance is a one-time insurance policy that protects against losses arising from defects in the title to your property — things that happened in the past that weren't apparent when you bought. It's purchased at closing and remains in effect for as long as you own the property, with no ongoing premiums.

What title insurance covers: unknown liens or encumbrances on the property (a previous owner's unpaid debt registered against the title), survey discrepancies or encroachments (a fence or structure that crosses the property line), errors in public records, forged documents in the chain of title, and fraud. It also covers your lender's interest through a lender policy (which your lender requires), and your own interest through an owner policy (which is optional but strongly recommended).

A lender policy typically costs $150–$300. An owner policy costs an additional $150–$250 depending on the purchase price. The protection an owner policy provides relative to its cost makes it one of the most clearly worthwhile purchases in a real estate transaction. Title insurance has largely replaced the traditional real property survey as a closing requirement in most Ontario transactions, though surveys remain important for certain transactions — particularly in rural areas or when you're planning to build or subdivide.

It depends on when and why you back out. During the conditional period — after your offer is accepted but while you still have active conditions (financing, inspection) — you can exit the deal if your conditions aren't met. If you can't get mortgage financing approved, or the home inspection reveals a serious defect you're not willing to accept, you exercise your condition and the deal ends. Your deposit is returned, and you walk away with no further liability. This is what conditions are for.

Once you waive all conditions and the sale is firm, backing out is a different situation entirely. A firm sale is a binding legal contract. If you refuse to close without a legitimate legal reason (fraud by the seller, material misrepresentation, title defect), you're in breach of contract. The consequences: your deposit — typically 5% of the purchase price — is likely forfeited and kept by the seller. The seller can also sue you for additional losses, including any difference between your agreed price and the price they eventually get from another buyer, carrying costs during the time the property sat unsold, legal fees, and other damages. On a $800,000 property, this exposure can reach tens of thousands of dollars beyond the deposit.

The practical takeaway: take conditions seriously. Never waive a financing condition unless your lender has given you a formal commitment on the specific property, not just a pre-approval. Never waive an inspection condition unless you understand and accept the risk of the property's current condition. The pressure to go firm (condition-free) in competitive markets is real, but so are the consequences if your circumstances change before closing.