What it’s like to be a first-time home buyer in Ontario—for real

During the COVID-19 pandemic, a perfect storm of low supply and high demand made prices surge. Lockdown measures sent many people in search of larger properties in which they could comfortably work from home. The Bank of Canada, fearing a recession, slashed already low interest rates to 0.25%, making it easier for people to take on larger mortgages. The result? Prices leaped not only in the hottest markets, such as those in the Greater Toronto Area, but also across smaller cities in the province.

There are now early signs that the Canadian housing market may be starting to cool. Although housing inventory remains far below the norm, an increase in the cost of borrowing is expected to soften demand. Whether a home buyer plans to get a variable-rate mortgage or a fixed-rate mortgage, they can expect to pay more as interest rates climb. 

Watch: What is mortgage affordability?

There’s no doubt that being a first-time home buyer in Ontario is more challenging than ever. In its 2022 budget, unveiled in April, the Canadian federal government announced new initiatives aimed at making home ownership more affordable. It will be some time before we know if these measures will have their intended impact. In the meantime, we’ve pulled together a guide for those looking to get a toehold on the property ladder. 

What you’ll need to buy a home in Ontario

The first thing you’ll likely ask yourself as a first-time home buyer in Ontario is how much you need to save for a down payment. While some financial experts recommend putting down 20%, that’s not a realistic expectation for everyone. Instead, you have the option of paying the minimum down payment, meaning as little as 5% for homes under $500,000, which could help you enter the market faster. 

In some cases, it might be to your advantage to buy once you have the minimum that’s required for the down payment. “First-time buyers should look to enter the market as soon as possible so as to not have price inflation prevent them further and also to benefit from the equity growth created by the rising prices,” says Sadiq Boodoo, principal broker at Approved Financial Services in Whitby, Ont. 

In other words, a little FOMO may not be a bad thing—as long as you can still comfortably afford the monthly mortgage payments. Remember, the smaller your down payment, the larger your regular mortgage payments will be. And with interest rates on the rise, it’s important to create an extra cushion in your budget. 

Keep in mind that if your down payment is less than 20%, you’ll also have to purchase mortgage default insurance, which protects the lender if you’re unable to make your payments. On the positive side, paying for insurance means you will likely get a better interest rate, because it’s the government, not the lender, that takes on the risk of default. 

Help for first-time home buyers

Recognizing the challenges facing first-time home buyers, the federal and provincial governments have rolled out programs and tax rebates designed to make it easier to buy a home. New measures were announced in April, as part of the federal government’s effort to make housing more affordable, especially for new buyers. As a first-time buyer in Ontario, you may be eligible for: 

The Home Buyers’ Plan

This program allows you to withdraw up to $35,000 from your registered retirement savings plan (RRSP) to put toward a down payment; a couple can withdraw up to a total of $70,000. You have to repay yourself annually over 15 years; otherwise, the money is treated as taxable income.

First Time Home Buyer Incentive

This program acts as a second, interest-free loan that covers 5% or 10% of the purchase price of your home. In lieu of interest, you pay the government back the same percentage of your home when you sell, or after 25 years. Eligibility depends on your household income, mortgage amount and location of purchase. In April, the federal government announced it will extend the program until March 31, 2025. It also said it is “exploring options to make the program more flexible and responsive to the needs of first-time home buyers, including single-led households.” (Note: The First Time Home Buyer Incentive was discontinued in March 2024.)

Watch: What is the First-Time Home Buyer Incentive

Land transfer tax rebate

First-time home buyers may be eligible to get a rebate of up to $4,000 for any land-transfer tax paid on the first $368,000 of qualifying homes. To claim the refund, you must be a legal adult who has never owned a home or an interest in a home (even one you inherited or were gifted by a family member). First-time buyers in the city of Toronto are eligible for an additional rebate of $4,475.

The Home Buyers’ Tax Credit

This tax credit is available to Canadians who have purchased a home after not owning a home for four years or more. Buyers who meet the eligibility criteria can claim up to $5,000 on their taxes (for a rebate of $750). People who bought their home after Jan. 1, 2022 will be able to claim twice that amount—up to $10,000—according to the federal government’s 2022 budget. With the additional credit amount, home buyers could be eligible for a rebate of up to $1,500. 

What’s on the horizon

In addition to the programs above, which are already available, more help is on the way next year.

The first home savings account (FHSA)

This is a new kind of registered account that’s expected to become available in 2023. Introduced as part of the federal government’s 2022 efforts to help first-time buyers enter the market, the first home savings account (FHSA) makes saving for a down payment easier. Account deposits and withdrawals are tax-free, and individuals can contribute a maximum of $8,000 per year to the account, up to a lifetime maximum of $40,000. The funds must be used to purchase a home within 15 years; otherwise, the money must be transferred to an RRSP or a registered retirement income fund (RRIF), or withdrawn as taxable income. 

Best place to buy in Ontario for first-time buyers

Many first-time home buyers choose to settle in the GTA. According to Boodoo, the biggest pros of buying in the area is that your home is likely to go up in value thanks to steady demand from immigration and people who want to live in proximity to work.

The downside is that since the average price of a GTA home is now edging on $1.3 million, you’ll have to have at least $260,000 to meet the 20% minimum down payment. You will also need a high household income in order to cover the payments that come with a mortgage of that size. And you will pay twice as much land transfer tax if you choose to buy in the city of Toronto than you would if you settled elsewhere. (Before you start looking, consider how much money you need to earn to afford buying in Toronto.)

There are plenty of smaller and more affordable cities to choose from outside of the GTA. Unfortunately, that list shrank significantly during the pandemic—and remained that way. 

If you have a small down payment and are eager to jump on the property train, consider an area that is fast growing but where the average home price is still under half a million dollars, Boodoo says. “There are smaller markets such as further east and north of the GTA where prices can still be affordable for the first-time buyer.” 

Here’s a sample of medium-sized cities in Ontario where it’s still possible to buy with a down payment of around $25,000 or less, according to data from the Canadian Real Estate Association. 

How to save for a down payment in Ontario

It’s no easy task to save the down payment required to afford your first home. But don’t feel defeated—you can succeed with the right plan.

First, set a goal to reach so you can determine how much to save monthly. For example, if you need $100,000 within three years for a down payment on a condo then you know you’ll need to transfer $2,778 a month into a dedicated savings account to make that a reality.

The trick, of course, is finding that room in your budget. 

After all your expenses are added up, what’s left to put into a down payment fund? If it’s not enough to reach your savings goal, then you either have to cut something out or make more money. Consider moving back into your parents house for a year or two, selling your car or cutting out entertainment costs. Alternatively, you can try to increase your income with a side hustle, asking for a raise or looking for a higher paying job.

If it’s still not enough, think creatively. Perhaps you’re in a position to ask your parents for an early inheritance in the form of a down payment gift, if they themselves have benefitted from rising home prices in Ontario over the last few decades. Or maybe look into co-ownership with a friend or another couple, or even plan to rent out rooms in your future property.

Ultimately, as a first-time home buyer in Ontario, you’ll need a combination of perseverance, luck and outside-the-box thinking. But with the right plan and mindset, you can still make good on your goal of home ownership. 

More on real estate: 

• Top 10 mistakes first-time home buyers make
• Home-financing tips for 5 types of buyers
• 7 smart strategies for first-time home buyers
• When does it make sense to sell real estate in a larger city and buy in a smaller one?

About Danielle Kubes

Danielle Kubes is a freelance journalist living in Toronto. She has a master’s degree in journalism from Toronto Metropolitan University.

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