Contrary to popular belief, knowing how to buy a house in Toronto has a lot of moving parts. Whether you’re buying your first condo, moving to a larger house or buying an investment property, we have you covered with everything you need to know.
To learn how to buy a house in Toronto, click a section below:
Unless you’ve been living under a rock, you know that Toronto has become the second most expensive city to buy property (right behind Vancouver). Stating the obvious, unless you’re stacked with cash or have a rich relative, you’re going to need to finance your purchase with a financial lender.
Here’s what you need to know about financing:
The first step to buying a house in Toronto is knowing what you can (and cannot) afford. The pre-qualification process is easy and will help you determine how much a lender is willing to fork over. When you pre-qualify for a mortgage, the number a lender will give you is based your income, debt and the size of your down payment.
Before rushing out to find your dream home, you will want to take it one step further and get a pre-approval done, which will require proof of income and a credit history check. The pre-approvals are usually valid for 90 or 120 days and will include an interest rate guarantee.
While the mortgage pre-approval amount is what that lender is willing to give you, it is not guaranteed. Before doling out the cash, your new friends at the bank are going to want to make sure that the house your buying is worth the amount you’re willing to pay for it. Typically, they have their own people who will do an appraisal on the property.
With the pre-approval done, you can confidently start your search. Remember, just like any loan, the number that a lender is willing to give you isn’t what you necessarily NEED to spend. Use this number as a guide and make sure it fits into your overall budget and lifestyle.
While all mortgages serve the same purpose, they come in a few different shapes and sizes. In addition to knowing how much a lender is willing to give you, it is important to know how long you have to pay the loan back, how much your payments will be and the amount of interest you will pay.
Simply put, this is the amount of time you have to pay back your loan and what the size of the payments will be. Mortgage terms typically range from 6 months to 5 years with bi-weekly or monthly payments. The terms you agree to will impact the interest rate offered and ultimately what you can afford.
Amortization is the distribution of payments over time. Each repayment installment consists of both principal and interest.
Most of us aren’t in a position to pay the full principal upfront or even on a short term basis, so lenders will amortize the loan over a longer period of time (25 years is most common). While your payments are calculated based on that 25 year period, the actual loan itself is only as long as the term length (6 months to 5 years). At the end of the term, you will probably renew the mortgage with new terms. The new terms may vary, depending on your current financial situation and market conditions.
Some lenders have offered mortgage terms as long as 40 years. Although this will significantly lower your payments, it will greatly increase the amount of interest you pay. Alternatively, if you can pay down the loan quicker, you will save on interest.
For some of us, paying off our mortgage is priority. Mortgage payments, consisting of both the principal and interest (otherwise known as a blended mortgage), are paid bi-weekly or monthly. The payment is credited back to the loan, reducing the the overall balance owed. Since the interest you pay is calculated over time, the faster you can pay back the loan, the less interest you will pay. This can be achieved with more frequent payments (i.e. bi-weekly vs monthly) or lump sum payments. The options will vary depending on the details of your agreement. Your lender can help you choose the right strategy for you.
Dictated by the bank of Canada, interest rates will fluctuate depending a wide range of factors, including the value of the dollar, economic conditions, market conditions and the type of mortgage you have. There are two types of mortgages:
Fixed Rate Mortgage: is a fully amortized loan where the interest rate remains the same throughout the term of the loan (Hence the term “fixed”). As a result, the amount you pay during the term of your loan is a fixed, predictable amount. This allows you to plan and budget for the same cost of borrowing for each payment.
Variable Rate Mortgage: also known as an adjustable rate mortgage, is a loan where the interest on your loan is periodically adjusted. The adjustment reflects the cost to the lender of borrowing on the credit markets (Hey, they need to get the money from somewhere too).
There are different strategies for choosing one type of mortgage over the other. A fixed rate will ensure that your interest rate won’t go up during the term of the mortgage. However, should interest rates drop, you will be locked into paying a higher interest percentage until the end of your term.
With a variable mortgage, if the rates drop, your payments will stay the same, but a larger part of your payment will go towards the loan principal. Alternatively, if interest rates increase, a smaller portion of your payment will go to the principal.
Choosing a Lender
Below are the most common options for finding a mortgage lender:
Assuming you haven’t been keeping your money under your mattress, this is a great first place to start as your bank has access to you bank accounts, credit cards, loans, debts and income history. If you’ve been a good customer for a while, they will likely be in a position to offer you a competitive rate.
A Different Bank
Just because other banks don’t have access to your account history, doesn’t mean that they’re not interested in earning your business. It’s as easy as walking in the front door of a branch and asking to speak with a mortgage advisor who will take you through the pre-qualification/pre-approval process.
(And ideally, our main man Steve Harrison at mortgages.ca). Steve has direct access to several lenders at once. He does the heavy lifting by shopping around for you to find and negotiate the lowest rate on the market. Commission is paid by the lender (at no cost to you). We have been working with Steve for years and our clients can’t say enough good things about him. He’s always available and delivers exceptional service. If you call Steve, tell him the GetToronto team sent you for the very best experience.
Ask yourself: Can I really afford it?
Once you have that magic number from the bank, it doesn’t take long before you want to start looking at the top of your price range. While the bank may be willing to give you a mortgage that takes you to the next level of house, there are several other costs to consider. In addition to the cost of the home, there are closing costs, lawyer fees, land transfer tax, property tax, home insurance as well as potential renovations and repairs. It’s important to consider all the costs of owning a home before making an offer.
How GetToronto Can Help with Financing
We’ve been through the process millions of times (ok, not millions, but a lot) and we will make sure you have all the information you need to make an informed decision.
Owning a home costs more than just a mortgage. We will sit down with you to help figure out what all of your expenses will look like and what your budget should include.
Putting Together Your A-Team
Your A-team will consist of 4 key players:
2. Financial Lender
We can’t stress the importance of putting together the right team. While we’re always down for a great bargain, in real estate, you (usually) get what you pay for.
Start by finding a great Toronto Real Estate agent who works exclusively for you. From start to finish, your Realtor will educate you on the market, help find exactly what you are looking for and will guide you through each step of the process.
Ask your friends and family for recommendations. If you prefer to find your own team of experts there are several resources online available to help you.
It’s Go Time! Once you have your finances in order and know what you can afford, the next step is finding the perfect house or condo. Before you fall in love with your new home, there are few things we recommend:
Make a List (and check it twice)
It’s really important to have an idea of what is important to you, what is nice to have, and what doesn’t matter when buying a house in Toronto. What size of home do you want? How many bedrooms? Bathrooms? What about a backyard? Do you need to be close to transit or is parking a must-have?
Creating a list will allow you (and your partner) to get on the same page in terms of what’s important. Where there are many features to consider, your decision will likely fall into 4 buckets: price, location, size and finishes.
When searching for a house in Toronto, the name of the game is compromise. This process will help you figure out what is mandatory and where you can go without.
With 92% of people using the internet in some way to search for a home before they buy, you can imagine how many sites out there are trying to get your attention. Here is what we recommend:
Unlike the United States, which has nearly 900 Multiple Listing Service (MLS) systems to consider, Realtor.ca (owned by the Canadian Real Estate Association) is the most popular Go-To system in Canada. This offers buyers a convenient way to find most properties for sale in Toronto. While the data is often a couple days out of date, it’s a great place to explore what’s available on the market.
The GetToronto Search Tool
Our system pulls the most recent house and condo listings directly from the MLS every 2 hours and it includes a lot more information than you will find on realtor.ca. You will get access to a lot more information and you can even setup your own property match to have listings automatically sent to you.
Have a Realtor Send Listings
Alternatively, you can have a Realtor send you the listings. A good Realtor will be help you figure out what you’re looking for and weed out the properties that aren’t the right fit.
Searching in Person
While searching online is a great way to learn what’s out there, the only way you’re going to know if a property is for you is to see it in person. To make your experience as enjoyable as possible, here are a few tips to consider:
Know what you’re looking for
You’ve got your pre-approval and done your homework online. Now it’s time to take to the streets. While it’s fun to mosey around on a Sunday afternoon looking at open houses, if you’re serious about buying, you’re going to want to see properties that match your criteria. This will allow you to quickly get a sense of whether your criteria is realistic or if you might need to make a few compromises to get what you want.
Don’t Go Alone
Even if you’re buying on your own, it’s a great idea to take a friend or family. It gives you a chance to share your thoughts with someone and get a second perspective. If you’re looking with a Realtor, have them drive so you can pay attention to the unique features of the neighbourhood.
Stop and Smell The Roses
Get a feel for the neighbourhood. Toronto is one of the most diverse and multicultural cities in the world. It offers just about every type of living possible. Take the time to tour around the neighbourhood to get a sense of who lives there, how close you are to transit, schools, shopping, restaurants and amenities. While you might find the perfect property, you may quickly find that your neighbours aren’t so perfect; or that your spending more time commuting to work than you do at home. You’d be surprised how much ground you can cover on a 15-20 minute walk.
Keep it consistent
While you may be tempted to go out and see everything under the sun in your price range, we recommend planning your outings to stay in one neighbourhood at a time. This will allow you to easily compare what you’re look-ing at and get a better feel for the neighbourhood.
Unfortunately, not every property you see will have undergone the GetToronto Home Transformation. Some won’t be staged at all. You will need to remember that you aren’t buying the seller’s furniture; and a fresh coat of paint and new carpets can be negotiated into the price. See the space for what it is and visualize your furniture living there.
Take Notes & Compare
When on the hunt, after seeing half a dozen properties, you may find yourself remembering the living room of one property attached to the kitchen of another. Was it 3 or 4 bedrooms? Was that the property with the large tree in the back with stone patio or was it the wood deck?
Take notes on what you like and don’t like. Compare it against your wish list. Printing out the MLS listing for each house you’re seeing. If you’re working a Realtor, they will likely be doing this for you. A good Realtor will share their own opinion and pointing out the good along with the bad and the ugly.
You’ll know when you know
They say when you’re in love, you’ll know it. Buying a new home isn’t very different. When it comes down to it, you’re just going to know when you walk into your dream home. Everything will just feel right. Now it’s time to make an offer.
Making an Offer
You’ve found everything on your wish list, it’s in your price range and you’re ready to make an offer.
Offers are done in writing and can follow a few different processes that your Real-tor will walk you through depending on your situation. Depending on when and where you buy, the offer process can be involve a lot of back and forth – especially if you’re in a bidding war. You might need to make a few compromises, but a good Realtor will fight to get you everything want.
An offer is accepted when a price is agreed upon, all conditions are agreed on and a deposit has been delivered. A typical deposit is no less than 5% of the sale price and is held in escrow by the selling brokerage until closing. When a property closes, funds are released to each party and you get the keys to your new home!
Closing (and the costs)
The closing process starts once all conditions are met and you have a firm deal. The timeframe for closing can vary, but is typically 60 or 90 days.
Closing on your new home involves more than just a deposit. Below are a list of additional closing costs that you should budget for:
Balance of the Purchase Price
The balance of your house will need to be paid off (purchase price – your deposit). In most cases this is covered by your mortgage from the bank.
Mortgage Broker Commissions
If applicable, this is usually paid by the lender.
If required, the costs is between $1000-2000.
This is sometimes included in your legal fees. The cost is $250-400.
Legal Fee & Disbursements
Your lawyer will charge a fee for their services including drafting the title deed, preparing the mortgage and conducting various searches. Disbursements are out of pocket expenses incurred such as registrations, searches, supplies, etc., plus GST. The cost is approximately $1800 on a $500,000 purchase.
Ontario Land Transfer Tax
When a property closes and is transferred into your name, there is usually a tax charged. The cost will vary depending on price of the home, whether you’re a first time home buyer and which city you live in Ontario. The costs will vary. Use our Land Transfer Tax Calculator
Toronto Land Transfer Tax
Toronto charges an additional land transfer tax and the price will vary. Use our Land Transfer Tax Calculator
You should budget for insurance on your new home. Insurance costs include default mortgage insurance, homeowners insurance, mort-gage life insurance and title insurance.
Property Tax & Prepaid Utilities Adjustments
When buying a new home, your lawyer will confirm that all local taxes have been paid up to date. If paid, a tax certificate will be issued and any adjusts can be made (typically the buyer will compensate the seller for any pre-paid taxes). If they are not paid, the seller will be required to pay the taxes from the proceeds of the sale. If the seller has pre-paid all of their taxes for the year, be prepared for a large adjustment on closing. Your lawyer will confirm everything for you.
Typically only charged on new construction homes and condos.
Provincial Sales Tax
Only applicable on chattels purchased from the vendor. The price will vary.
Tarion Warranty Fees
This warranty only applies to new houses and condos, not resale. Click to estimate Tarion Fees
CMHC Insurance Premium
This is applicable if you put down less than a 20% deposit. Click to estimate CMHC Insurance
A must have when buying a new home, this report will verify the condition of a property prior to the deal firming up. Different reports will vary (depending on what’s done and who you use), but the report will ultimately tell you what repairs need to be done and the cost.