Complete Guide · 2026
Buying real estate in Canada — what nobody tells you upfront.
From minimum down payments to stress tests to the 25 closing costs that nobody warns first-time buyers about. A complete walkthrough of how home ownership actually works in Canada.
Quick Answer
Minimum down payment in Canada is 5% on the first $500K, 10% on $500K-$1.5M, and 20% on anything above $1.5M. Anything less than 20% requires CMHC mortgage insurance (1.8-4% of the loan). The mortgage stress test forces you to qualify at your contract rate + 2% (minimum 5.25%) so you can absorb future rate hikes. Total closing costs run 1.5-4% of the purchase price.
The minimum down payment, by price band
The down payment math in Canada is a 3-tier formula based on the purchase price. Most people assume “20% down” is the rule — it isn’t. It’s the threshold to avoid CMHC mortgage insurance.
| Purchase price band | Minimum down |
|---|---|
| $0 – $500,000 | 5% of price |
| $500,001 – $1,500,000 | 5% on first $500K + 10% on rest |
| $1,500,001+ | 20% minimum |
For a $700,000 home: $25,000 (5% on first $500K) + $20,000 (10% on next $200K) = $45,000 minimum down. Most first-time buyers in Toronto, Vancouver, and Calgary land in this 5-19% range, which means they pay CMHC mortgage default insurance on top of the mortgage.
What CMHC mortgage insurance actually costs
If your down payment is below 20%, the bank requires mortgage default insurance to protect themselves if you stop paying. The premium is added to your mortgage and amortized over the loan term — you don’t write a cheque, but you do pay interest on it for 25 years.
| Down payment | CMHC premium |
|---|---|
| 5% – 9.99% | 4.00% of loan |
| 10% – 14.99% | 3.10% |
| 15% – 19.99% | 2.80% |
| 20%+ | $0 (no insurance needed) |
For a $665,000 mortgage with 5% down, CMHC adds ~$26,600 to your loan. That extra principal costs you roughly $40,000 in interest over a 25-year amortization. Going from 5% to 20% down doesn’t just lower your payment — it eliminates this hidden cost.
The mortgage stress test, explained
Every Canadian mortgage applicant has to qualify at the higher of: (a) your contract rate + 2 percentage points, or (b) the Bank of Canada’s qualifying rate of 5.25%. So if your bank offers you 4.79%, you must prove you can afford payments at 6.79%. This buffer is what protects buyers from rate shocks at renewal.
The stress test reduces what you can afford by 15-20% versus what your contract rate suggests. It feels punitive but it has prevented thousands of foreclosures when rates spiked in 2022-2024.
The two key debt ratios: GDS and TDS
- GDS (Gross Debt Service) — your monthly housing costs (mortgage + property tax + heat + 50% of condo fees) divided by your gross monthly income. Lenders want this under 39%.
- TDS (Total Debt Service) — GDS plus all other monthly debt obligations (car loan, credit card minimums, student loans, alimony). Lenders want this under 44%.
If your TDS would exceed 44% even at your contract rate, you can’t get the mortgage at all. If it’s between 39-44% at the stressed rate, you’ll get approved but with limited flexibility.
Closing costs — the 25 things nobody warned you about
Beyond the down payment, you need 1.5-4% of the purchase price in cash on closing day. Here’s what makes up that number:
- Land transfer tax — 0.5-2% of purchase price (varies by province; Toronto adds a second municipal LTT)
- Legal fees — $1,500-$2,500 typical for a lawyer + disbursements
- Title insurance — $300-$500 one-time premium
- Home inspection — $400-$700 (pre-offer, not a closing cost technically)
- Appraisal fee — $300-$500 if your lender requires one
- CMHC premium PST — if you’re in ON/QC/SK/MB, you pay PST on the CMHC premium upfront (in cash)
- Property tax adjustment — reimbursing the seller for any property tax they already paid for time after closing
- Utility adjustments — gas, water, hydro pro-rated to closing date
- Moving costs — $500-$3,000 depending on distance and volume
- Home insurance — required to close; first month or year prepaid
First-Time Home Buyer Incentive programs
- FHSA (First Home Savings Account) — $8K/year, $40K lifetime. Tax-deductible going in, tax-free coming out.
- HBP (Home Buyers Plan) — withdraw up to $60K from your RRSP tax-free. Pay yourself back over 15 years.
- First-Time Home Buyers’ Tax Credit — $1,500 non-refundable federal tax credit ($10K × 15%) you claim on your tax return the year you buy.
- Land transfer tax rebates — first-timers in Ontario get up to $4,000 back; Toronto adds another $4,475; BC has its own structure.
- GST/HST New Housing Rebate — partial GST/HST refund on new-construction homes under $450K.
Fixed vs variable mortgage rates
Fixed: you lock the rate for your term (1-10 years; most pick 5). Variable: your rate floats with the Bank of Canada. Historically, variable has won by ~0.5% over multi-decade periods, but the volatility is real — a few people who took variable in 2021 saw their payments double by 2024. Pick fixed if you can’t sleep through 2% of rate movement; pick variable if you can and want the historical edge.
Property tax + ongoing carrying costs
Property tax in Canada averages 0.5-2.5% of assessed value per year, varying by city. Toronto: ~0.7%. Vancouver: ~0.3% (the lowest big-city rate). Halifax: ~1.4%. Winnipeg: ~2.6% (one of the highest). On a $700,000 home in Toronto: ~$4,900/year, paid monthly through your mortgage or separately.
Add ~$80-150/month for home insurance, plus utilities (~$200-300/month for a small house, more for older), plus maintenance budget (1-2% of home value per year is the standard rule). For a $700K home, that’s $7,000-$14,000/year of expected maintenance — a roof, furnace, or windows will hit you sooner or later.
Renting vs buying — when each actually wins
The popular take that “renting is throwing money away” is wrong. So is the popular take that “buying is always better long-term.” The truth depends on your local price-to-rent ratio, how long you’ll stay, and what you’d do with the cash difference.
- Buy if you’ll stay 5+ years, the local price-to-rent ratio is under ~25, and you’re disciplined about not over-extending.
- Rent if you’ll move within 5 years, your city’s price-to-rent is over 30 (Toronto, Vancouver), or you’d put the down-payment + difference into a diversified portfolio.
FAQ
Can a newcomer to Canada buy a home in the first year?
Yes — as long as you have a Social Insurance Number, employment income, and either Canadian credit history or a substantial down payment (35%+ is common for newcomers without credit). Several big banks have “newcomer mortgage programs” that lend at standard rates against international credit profiles.
What is the foreign buyer ban?
The Prohibition on the Purchase of Residential Property by Non-Canadians Act bans non-residents and non-PRs from buying residential property in Canada through at least 2027. Exemptions exist for international students, work-permit holders who’ve worked here 3+ years, and refugees. If you have PR or are a citizen, the law doesn’t affect you.
How does the 30-year amortization for first-time buyers work?
As of 2024, first-time buyers purchasing new-construction homes can use a 30-year amortization (up from 25). It lowers monthly payments by ~7% but increases total interest paid by ~15% over the loan. Useful for cashflow-tight first-time buyers; expensive long-term if you don’t accelerate payments later.
What’s the difference between pre-approval and pre-qualification?
Pre-qualification is a soft estimate based on what you tell them. Pre-approval is a hard underwriting check — the lender pulls your credit, reviews your documents, and commits to a specific amount and rate for 90-120 days. Realtors won’t take you seriously without pre-approval.
Should I use a mortgage broker or go directly to the bank?
Brokers shop your application across 30+ lenders and typically find rates 0.20-0.50% lower than your everyday bank’s posted rate. They’re paid by the lender (free to you for prime applications), and they have access to lenders the public can’t go to directly. Almost always worth using.