Buying Your First Home in Canada as a Newcomer: A Complete Guide

Can Newcomers Buy a Home in Canada?

Yes, newcomers to Canada can absolutely buy a home. If you are a permanent resident or Canadian citizen, you have the same rights as any other Canadian when it comes to purchasing property. Even some temporary residents may be able to buy, although there are additional rules under the Prohibition on the Purchase of Residential Property by Non-Canadians Act that you should be aware of. Buying a home is one of the largest financial decisions you will make, and understanding the Canadian real estate process is essential for making informed choices.

The Canadian housing market varies dramatically by region. A detached home in Vancouver or Toronto can cost well over one million dollars, while similar properties in cities like Winnipeg, Edmonton, or Halifax may be available for a fraction of that price. As a newcomer, understanding these regional differences is critical to making a smart purchase. Before you begin looking at homes, you need to understand the financial groundwork involved, starting with mortgage pre-approval.

Understanding Mortgage Pre-Approval

A mortgage pre-approval is the first concrete step toward buying a home. When you get pre-approved, a lender reviews your financial situation, including your income, debts, credit history, and down payment savings, and tells you the maximum amount they would lend you. This is not a guarantee of a loan, but it gives you a clear budget for house hunting and shows sellers that you are a serious buyer.

For newcomers, some Canadian banks offer special newcomer mortgage programs. These programs are designed for people who may not have an extensive Canadian credit history. Major banks like RBC, TD, Scotiabank, and BMO all have newcomer-specific mortgage products that may allow for alternative proof of financial stability, such as international credit history or proof of employment in Canada.

To get pre-approved, you will typically need to provide your identification documents, proof of income (employment letter, pay stubs, or a Notice of Assessment from the Canada Revenue Agency), proof of your down payment, and information about your debts and monthly expenses. The lender will also check your credit score. Pre-approval is usually valid for 90 to 120 days, during which the interest rate is locked in.

Down Payment Requirements: 5% to 20%

In Canada, the minimum down payment depends on the purchase price of the home. For homes priced at $500,000 or less, the minimum down payment is 5% of the purchase price. For homes priced between $500,000 and $1,499,999, you need 5% of the first $500,000 and 10% of the remaining amount. For homes priced at $1,500,000 or more, the minimum down payment is 20%. These rules apply to owner-occupied properties.

For example, if you are buying a home for $400,000, your minimum down payment would be $20,000 (5%). If you are buying a home for $700,000, your minimum down payment would be $45,000 (5% of $500,000 plus 10% of $200,000). Saving for a down payment is often the biggest hurdle for first-time buyers, and there are several government programs designed to help.

The First Home Savings Account (FHSA)

The First Home Savings Account (FHSA) is a registered savings plan that allows first-time home buyers to save up to $8,000 per year, with a lifetime contribution limit of $40,000. Contributions are tax-deductible, similar to an RRSP, and withdrawals for a qualifying home purchase are tax-free, similar to a TFSA. This makes the FHSA one of the most powerful savings tools available to first-time buyers in Canada.

To open an FHSA, you must be a Canadian resident, at least 18 years old, and a first-time home buyer (meaning you have not owned a home in which you lived at any point during the year the account is opened or the preceding four calendar years). Newcomers who meet these criteria should open an FHSA as soon as possible to start benefiting from the tax advantages. You can also combine the FHSA with the Home Buyers' Plan (HBP), which allows you to withdraw up to $60,000 from your RRSP for a home purchase.

CMHC Mortgage Insurance

If your down payment is less than 20% of the purchase price, you are required to purchase mortgage default insurance, commonly known as CMHC insurance. This insurance protects the lender, not you, in case you default on your mortgage. It is provided by the Canada Mortgage and Housing Corporation (CMHC), Sagen, or Canada Guaranty.

The cost of mortgage insurance is a percentage of the mortgage amount and ranges from 2.8% to 4.0%, depending on the size of your down payment. For example, with a 5% down payment on a $400,000 home, your mortgage would be $380,000, and the insurance premium would be approximately $15,200 (4.0%). This amount is typically added to your mortgage, so you pay it off over the life of the loan rather than upfront.

Understanding Closing Costs

Many first-time buyers are surprised by closing costs, which are the additional expenses beyond the purchase price that you must pay when the sale is finalized. Closing costs in Canada typically range from 1.5% to 4% of the purchase price. For a $500,000 home, you should budget between $7,500 and $20,000 for closing costs in addition to your down payment.

Common Closing Costs

Land transfer tax is one of the largest closing costs. Most provinces charge a land transfer tax based on the purchase price, and in Toronto, there is an additional municipal land transfer tax. However, many provinces offer rebates or exemptions for first-time buyers. Legal fees for a real estate lawyer typically range from $1,000 to $2,500. A home inspection costs between $300 and $600 and is strongly recommended to identify any problems with the property before you buy. Title insurance, which protects against issues with the property title, costs between $200 and $400. Property tax adjustments, moving costs, and utility connection fees are additional expenses to plan for.

If you are buying in British Columbia, you will also pay the Property Transfer Tax, which is 1% on the first $200,000, 2% on the portion between $200,000 and $2,000,000, and 3% on amounts above that. First-time buyers may qualify for the BC First Time Home Buyers' Program, which can eliminate or reduce this tax on properties up to $835,000.

Working with a Real Estate Agent

In Canada, it is standard practice for home buyers to work with a licensed real estate agent. The agent who helps you buy a home is called a buyer's agent, and their commission has traditionally been paid by the seller. However, recent changes in the industry may affect how commissions are structured, so it is important to discuss fees with your agent upfront.

A good buyer's agent will help you search for properties that match your needs and budget, arrange viewings, advise you on fair market value, prepare and submit offers, negotiate on your behalf, and guide you through the closing process. When choosing an agent, look for someone who has experience working with newcomers and understands the specific challenges you may face, such as limited credit history or unfamiliar processes.

Making an Offer and Conditions

When you find a home you want to buy, your agent will help you prepare an offer. In Canada, offers typically include conditions (also called subjects) that must be met before the sale is finalized. Common conditions include a satisfactory home inspection, mortgage financing approval, and a satisfactory property appraisal. These conditions protect you as the buyer, and you should be cautious about waiving them, especially in competitive markets where sellers may pressure buyers to submit unconditional offers.

The Home Buying Process Step by Step

The typical home buying process in Canada follows these steps. First, get your finances in order by building your credit, saving for a down payment, and getting mortgage pre-approved. Second, hire a real estate agent who understands your needs. Third, start viewing properties within your budget. Fourth, make an offer when you find the right home. Fifth, complete your conditions, including the home inspection and securing final mortgage approval. Sixth, hire a real estate lawyer to handle the legal transfer. Seventh, do a final walkthrough of the property before closing. Eighth, on closing day, your lawyer will transfer the funds, and you will receive the keys to your new home.

The entire process, from starting your home search to closing, typically takes two to six months, depending on market conditions and your readiness. Be patient and thorough. Rushing into a purchase without proper due diligence can lead to costly mistakes.

Resources for Newcomer Home Buyers

There are many resources available to help newcomers navigate the home buying process in Canada. The CMHC home buying guide provides comprehensive information about the buying process. Settlement organizations in your area, such as local newcomer support agencies, may offer home buying workshops and financial literacy programs. Many cities also have first-time buyer programs with grants or incentives.

WelcomeAide is here to support you through every step of your settlement journey. Use our AI Newcomer Navigator to ask questions about home buying, explore our blog for more newcomer guides, or learn about our mission. You can also discover how to get involved in supporting newcomer communities across Canada.