Buying a home is a big decision. In some ways, it is a simple process, but it also happens to be the biggest purchase you will make in your lifetime and requires a long commitment. Take it one step at a time, and it will be one of the most enjoyable and exciting experiences of your life.
See below for a quick overview of the 5 Steps For Buying A Home in Toronto.
STEP 1: ARE YOU READY TO BUY?
Buying a home is a great way to invest in your future. The money you pay as a homeowner is paying down your mortgage and building your equity. If you are planning on being in the same place for the next 5 to 10 years, it usually makes more sense financially to buy rather than rent.
Conversely, money you pay when renting is paying someone else’s mortgage, but in certain situations, it makes more sense. Read below to see what is what suitable for your circumstances.
=> BUY vs RENT: Pros and Cons
If you are ready to become a home owner, contact an experienced REALTOR® that you are comfortable working with. They will explain the entire home-buying process and answer any questions that you have.
Remember, as a home-buyer, the REALTOR® does not charge you anything. ALL REALTOR® SERVICES ARE FREE!
STEP 2: GET YOUR FINANCES READY: OBTAIN A PRE-APPROVAL & ESTABLISH YOUR BUDGET
So you’re ready to buy a home! The best place to start is getting your finances in order. Ugh, we know...BORING! But you want to make sure you go into it completely prepared.
There are 2 important questions that will ultimately determine your home budget:
ONE TIME COST: How much have you saved? This will go towards your downpayment and closing costs.
ONGOING EXPENSES: What are the monthly costs you can afford towards a house? These will go towards your monthly mortgage payments, property tax, maintenance fees, utilities etc.
Once you have figured out the above, you can move to the following steps...
1. Pre-Approval: Your mortgage broker will require your financial information such as salary, savings and credit score before giving you a mortgage pre-approval. This establishes what home price you can afford, what your interest rate will be, and what your monthly mortgage payments will look like. You can now narrow down your search to a specific home price, type, size, or neighbourhood.
2. Your Personal Budget: A mortgage pre-approval gives you the maximum amount that the bank will loan you, but it does not mean you have to push yourself to that amount. It is also important to set your own limit that you will be comfortable with. It is easy to get carried away with a home search and end up stretching yourself too thin.
The following Ontario Mortgage Calculator will help you see what your monthly expenses will look like in a variety of scenarios. This will help establish your budget.
=> Ontario Mortgage Calculator
FIRST TIME HOME BUYER BENEFITS
If you are a First-Time Home Buyer, you are also eligible for several benefits and rebates that will be super-useful
1. Land Transfer Tax Rebate - this could be a rebate of as much as $8475. Calculate your Land Transfer Tax and Rebate here
=> Land Transfer Tax & Rebate Calculator
2. First Time Home Buyer Tax Credit - up to $5000 tax credit for closing costs such as Lawyer Fees and Home Inspections
3. RRSP Home Buyers' Plan - withdraw up to $35000 from your Registered Retirement Savings Plan. This is a 15 year interest free loan. If you have a spouse, you each are entitled to the above amount (so double the amount = $70000).
4. First-Time Home Buyer Mortgage Incentive - The government will pay 5-10% of your downpayment as a 25 year interest-free loan. However, they will also own the same amount of equity in the home. That means they will net that percentage of profit or loss if and when you sell the home. This program is only available to candidates with household income below $120000. Also, the maximum purchase price can only be 4 times the household income.
OTHER HOME BUYER CONSIDERATIONS
The following applies to all Home Buyers, including First-Time Buyers
1. CMHC Purchase Plus Improvements - the cost of any renovations and improvements can be added on to your mortgage (instead of going out of your pocket or requiring a secondary loan)
2. CMHC Mortgage Insurance - if your downpayment is less than 20%, then you have to purchase mortgage insurance. This is a one-time cost that is added on to your mortgage.
=> Mortgage Insurance Calculator
STEP 3: THE EXCITING PART! START YOUR HOME SEARCH
Establish your must-haves, your nice-to-haves, and your absolutely-nots.
Some important factors to think about:
- Pre-Construction or Resale
- Condo or House?
- Proximity to Public Transit
- Family Situation: Marriage or Children coming up?
Your REALTOR® will use your preferences and send you available listings on the market. You also have the option of performing interactive user friendly searches on the link posted below.
Once you narrow down the list, the REALTOR® will arrange for showings, so you can visit and walk through these homes. Sounds fun!
STEP 4: FIND YOUR BEST CHOICE & PUT AN OFFER
This is where your REALTOR®'s expertise will show up. Your REALTOR® has extensive knowledge about the market, so they will point out advantages and drawbacks of each property. Ultimately, you will make an informed decision on whether you want to purchase a specific home.
Your REALTOR® will then draw up an offer to the seller and their agent. The offer has many important legalities and conditions attached. Don't worry, your REALTOR® will keep you well-informed and explain all the details prior to you making such a big decision. Some important items to consider:
THE PRICE: We can negotiate a lower or higher price than what the seller is asking. This depends on several things such as
- Neighbouring Property Prices
- Number of Competing Buyers
- Days Property Has Been On The Market
- Urgency For The Seller
CONDITIONS: You can put certain conditions to back out of the offer depending on the following
1. Financing: You have a pre-approval but you will now wait for a bank to give you a confirmed mortgage before proceeding
2. Home Inspection: You will hire a home inspector to do a thorough check of the property to make sure everything is in working order.
The seller now accepts, declines or gives a counter-offer. Ultimately, both parties will try to come up to an agreement.
If things don't work out, then we go back to searching for other homes.
STEP 5: SEALING THE DEAL - CLOSING
This is where you finalize everything. Closing date is when the title of the property is transferred from the seller to the buyer. You must be ready with the finances for the following scenarios and expenses.
1. Downpayment (anywhere from 5% to 20% of the purchase price)
2. Municipal and Provincial Land Transfer Tax (1-2.5% - varies by location)
3. Title Insurance - $500
4. Real Estate Lawyer Fees - $1000
5. Home Inspection Fees - $500
6. Moving Costs - $500
NOTE: The above costs are approximate.
Buying a home can be an overwhelming process, but having an experienced REALTOR® that you are comfortable with is integral to the process. If you take things one step at a time, it can be a very fun and exciting process!
Now that you have a general idea of what to expect, it is best to sit down with a REALTOR® and fine-tune the process to your personal circumstances and preferences. Happy House-Hunting!