Home ownership may feel like a fleeting dream for most Canadian Millennials, especially with all the recent reports outlining the trouble for young first time buyers. Between mortgage stress tests, competitive housing markets in urban centres, and rising interest rates – home ownership can be difficult, but not impossible.

If home ownership is a goal of yours, you absolutely can make it happen. But, when the time comes, you’ll need to be prepared. Whether you plan to purchase a home in 5 years, or in 5 months, we’ve created a simple breakdown that’ll help you secure a mortgage, and hopefully put you at ease as you prepare to be a homeowner.

5-7 years before house purchase

Start saving in your TFSA or RRSP

As a first time home-buyer, the Registered Retirement Savings Plans (RRSP) is the way to go. Unlike a typical high-interest savings account, the RRSP and TFSA (Tax-Free Savings Account) are actually investment vehicles. You can house investments like stocks, bonds, GICs, and cash in them, either as individual investments, or as exchange-traded funds (ETFs) or mutual funds. As your investments grow and compound over time, you can use your earnings towards a down payment for your first home.

Canadians can take advantage of the First Time Home Buyers’ Plan (HBP), a program that allows you to withdraw up to $25,000 in a calendar year from your RRSP to buy or build a qualifying home.

Build your credit score

When securing a mortgage, institutions will run a credit check to see how you manage your finances. If you’re drowning in consumer debt or have multiple missed payments on bills, acquiring a mortgage may be more difficult. You can build up your credit score by paying back loans and bills on time.

For those without a credit score, they can increase their chances of getting approved for a mortgage by showing a strong income, long term full time employment, a strong down payment amount, and other history of payments made on time and in full. Every mortgage lender is different, so be sure to work with a licensed mortgage broker to see what your options are based on your unique situation.

1-2 years before house purchase

Look at areas you want to live in and start researching house prices

If you’re eyeing a neighbourhood, walk around it and get a feel for it. What’s the vibe of the area? Pick up any flyers of houses for sale to get a sense of the prices in the neighbourhood. You can also start looking for house prices on Realtor.ca, a site where REALTORS® post properties for sale. Once you get a sense of prices, plan how much you will need for a down payment, closing costs, taxes, maintenance, and utilities and bills. A financial coach can help you anticipate these costs and research what you’re capable of affording before you sign that dotted line.  

Evaluate your finances and life situation

Where do you see yourself in 5 years? Do you want to have kids? Do you want to live with a partner? Do you want to commute to work? Do you want to live close to your family and friends? If you’re purchasing a principal residence (a home you plan to live in), consider how your life will look in 2, 5, and 10 years. Is a house purchase right for you?

1 year before house purchase

Gather information for a mortgage pre-approval

Once you’ve determined some of your life goals and values, and you’ve secured at least 5% for a downpayment (on a house under $500,000), you’re eligible for a pre-approval letter from a mortgage lender. We actually recommend having at least 15% to 20% saved for your down payment. This way you can avoid having to pay the additional 3-4% in mortgage insurance on top of your mortgage and interest payments.

For the pre-approval, you’ll need to collect a letter of employment, income tax statements, and a record of your finances to present to the mortgage lender. All these pieces of information prove that you’ll be able to make your mortgage and interest payments on time and in full.

Connect with a financial institution to get pre-approval

You can get a mortgage from a bank, a credit union or a monoline mortgage company, Mortgages can have various conditions including fixed vs. variable interest rates, open vs. closed, and varying terms. We recommend working with a licensed mortgage broker to help you navigate all the many facets involved in securing a mortgage at the best rate. Mortgage brokers shop the market from different lenders and get paid a commission from the lender itself. You don’t have to pay them out of pocket for this service. It’s a no-brainer!

Whether you’re ready to jump into the market now, or need a couple years, or even decades, before you buy. Understanding how to set yourself up right from the beginning, before even applying for a mortgage, will help you approach the process of shopping for your first home with clarity and confidence.

JOIN THE CONVERSATION: Have you gone through the process of applying for a mortgage for your first home? What was your experience? What do you wish you’d changed, or known before you dove in? COMMENT BELOW!


Want to learn more about how to effectively save up a down payment?  Book your FREE 30-min consultation today