Buying Your First-Home in Toronto
Owning a home may be your dream, but in order for it to be a happy and satisfying experience, you need to ensure that you are financially and mentally prepared for hurdles along the way.
This guide will inform you of some essential steps and things to know when buying a home in the Greater Toronto Area, including Vaughan and Etobicoke.
Make sure to read to the end for important information on the hidden costs of home-buying; something that many first-time buyers overlook.
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Renting vs. Home Ownership
The simplest and first question you should ask before buying a home is: "Why am I buying a home?"
Sure - everyone needs a place to live, but why not rent instead? The decision between renting and buying is not as easy as it may sound, since both have their pros and cons
For example, as a homeowner, you can reasonably expect the equity in your home to increase over time as your mortgage is paid down. That, combined with regular appreciation in property values, can be a rapid and rewarding way to increase your net worth. On the other hand, the person renting over the same amount of time will not build up equity, although they probably enjoyed lower living expenses and the opportunity to invest in other opportunities.
Furthermore, renting offers the freedom to pick up and move with less hassle, should a new job-opportunity or lifestyle change arise.
When comparing the costs of owning to renting, you have to add up all of the figures, including the cost of a home, the size of the down payment, utilities, immediate repairs, interest rates, and insurance, and compare them with how much you are currently spending on rent. Owning also comes with debt, and it's usually recommended that your monthly debt repayments not exceed 25% of your monthly income - so take that into consideration as well.
Of course, you also have to place a value on the enjoyment and satisfaction that you will derive from owning your own home.
There is a lot more that goes into buying a home, and you can learn more about this process below!
We know that you might have questions about buying your first home in Ontario, and we would be happy to answer them.
So, here's what you need to know when buying your first home:
1. Find A Good Agent.
You need a good agent who will work hard for you. Preferably a team of professionals, with local knowledge and expertise in a wide range of areas.
Ask any prospective agent about their record, and what guarantees they can offer you as a buyer.
Here are some further questions to ask your agent:
- What is your negotiating strategy?
- Do you have a reference list of past clients I can contact?
- What makes you different?
Of course, we recommend that you seriously consider working with us. We are the foremost experts in Toronto area real estate and we can offer you guarantees that no one else can. We will find you the right home at the best price. So contact the Lino Arci Team today!
Our extensive knowledge, experience, and professional contacts can help you complete the next steps in the home-buying process:
2. Define Objectives
The home-buying process can be overwhelming. The market is big, with many great homes that fit your budget. This is why you should have clear goals outlined before you buy. Need a backyard? A rec room? Two bedrooms or three? Make a list and keep it close at hand.
Some features to consider are:
- The neighbourhood
- Home size
- Number of bathrooms & bedrooms
- Available parking
- Nearby schools
- Commuting times
Keep the list handy, with clear distinctions between what you need and what you want. Judge each home by the list, instead of by details that could distract you from your goal. When you're alone with your agent, you can go over the pros and cons of each home. They should help you stay on track while still keeping a lookout for a great property.
3. Get Pre-Approved for a Loan
When diving into the real estate market for the first time, planning is key.
Getting your financing approved and in-order before you go house hunting is very important. Pre-approved financing saves you time, ensuring that you won't be looking for homes above or too far below what you can afford. It also strengthens your bargaining position, allowing you to make an offer quickly and with confidence.
The right real estate agent or team can set you up with the right lender. With your lender or agent, go over the following questions:
- Do you offer first-time buyer discounts?
- Is insurance required?
- What are the terms if I sell before the mortgage is paid, or if I can pay-off the mortgage early?
The real estate market is always evolving with ebbs and flows along the way. As a result, lenders offer a variety of mortgage options for a variety of needs. It's important that you know which is the right product for you and your situation.
Preparing for homeownership also requires you to take critical stock of your finances and your expectations. Remember that owning a home comes with more costs than just the monthly mortgage. Don't forget to factor in taxes, additional bills, community dues, and maintenance costs as well.
4. Retain Counsel
A lawyer is often your best defense against future legal troubles – always have one before you buy. Our team is equipped to recommend several in the area that we trust to help you.
It is important to find a lawyer with real estate experience. We can recommend several lawyers in the area who might be a good fit for you.
Also, make sure to interview them to ensure that you get someone you can work with. Ask about the services they provide and their fees. Services could include:
- Conducting a title search
- Overseeing the property transfer
- Ensuring a fair contract
The legalities of transferring land ownership can be dodgy, and a lawyer can be your best defense against future legal troubles. A good lawyer can charge several hundred to over a thousand dollars for their services, but the thousands of dollars saved in the long run makes this a good expense.
5. Making Offers
Preparing the paperwork and making the best offer on a home depends on the professionals you work with. A good agent should handle all the paperwork and all the negotiations to secure the best price possible for you.
Remember, the seller may reject or counter your offer, so even at this late date, avoid setting your heart on the home you hope to own. You'll probably have to write a deposit check to the seller's broker that proves the seriousness of your offer.
A home inspection is conducted by a professional to uncover any unforeseen, unknown, or hidden problems with the home you plan to buy. Such problems can drastically change your bargaining position and might sink the deal altogether. While this may sound bad, it's far better to discover such problems early, rather than when you've taken up residence at your new home.
In short, an inspection can save you money, worry, and time, as well as generally educating you about the home you're about to buy, so never skip the inspection!
There are many highly-qualified and helpful inspectors in the region, and there are many that we can heartily recommend.
A home inspector will check for signs of harmful materials like asbestos, lead paint, and mold. They'll also check for evidence of pests, faulty wiring, and leaks. A home inspector can even inform you of the best way to maintain and run the home you intend to buy, potentially saving you thousands in bills and repair costs in the event that you actually end up living there.
Not getting an inspection means that you could be stuck in a home with dangerous hazards and no recourse other than to pay for their removal.
Inspections will cost a few hundred dollars, but again, this is more than worth it in the end.
Watch the video on the left for more information on home inspections.
6. Final Walkthrough
Before closing the deal, a final walkthrough can ensure that you are not missing a thing. A good agent will also help you with this step, keeping the process simple while using their trained eye to identify any issues.
Typically, a final walkthrough is intended to confirm that all required changes to the home have been made (repairs, a new coat of paint, etc.), that no new problems have developed, and that there are no problems revealed by the sellers moving out.
As such, here are a few checks to conduct during a final walkthrough:
- Turn all the lights on and off.
- Turn on each of the faucets and check for leaks.
- Check that all windows and doors function properly.
- Flush the toilet.
- Check any surfaces that have been revealed by the removal of furniture.
- Check any integrated electronics, like heating systems or intercoms.
- Check for any junk or debris left behind by the sellers or contractors.
Common Mistakes to Avoid When Buying Your First Home
When you're looking to buy your first home, there are certain factors that can complicate the situation. It's very important for you to understand these before you get started.
So here are some of the most common and costly mistakes that homebuyers make when buying their first home.
1. Rose-colored glasses
Most of us dream of improving our lifestyles and home-ownership is often a big part of that. The problem is that there’s sometimes a discrepancy between our hearts and our bank accounts. You drive by a home that you fall in love with only to find that it’s already sold or that it’s more than that you are willing to pay.
Most homeowners get caught in this hit or miss strategy of house hunting when there’s a much easier way of going about the process.
For example, find out if your agent offers a Buyer Profile System or “House-hunting Service,” which takes the guesswork away and helps to put you in the home of your dreams. This type of program will cross-match your criteria and ALL available homes on the market and supply you with printed information on an on-going basis.
A program like this helps homeowners take off their rose-colored glasses and, affordably, move into the home of their dreams.
And there are some other ways to avoid this trap:
Try to view a wide variety of homes. This has numerous advantages, no the least of which is that you're just more likely to find the home that suits you best. You'll also learn more about what to expect from the market (improving your bargaining position).
Don't Fall For Staging
Home staging is usually undertaken by professionals and intended to get you to view a home in the best way possible. Just remember that most of what goes into home staging won't reflect what you're actually getting. That beautifully laid-out little reading nook? None of that furniture is likely to be there when you move in.
So rather focus on the aspects of the home that can't be staged or "dressed up", like the square footage, and the available rooms.
2. Failing to get a preapproved mortgage
Preapproval is a very simple process that many homeowners fail to take advantage of. While it doesn’t cost or obligate you to anything, pre-approval gives you a significant advantage when you put an offer on the home you want to purchase because you know exactly how much house you can afford, and you already have the green light from your lending institution.
With a preapproved mortgage, your offer will be viewed far more favorably by a seller – sometimes even if it’s a letter lower than another offer that’s contingent on financing. Don’t fail to take this important step. Learn more about getting a mortgage.
3. Not Researching The Area
When you're searching for your first home, it helps to know exactly what you're looking for. Start by researching neighbourhoods. Consider a variety of factors that matter to you, from price points to local schools and green spaces to transit options. When you're narrowing down your list of areas, try to be open-minded. While most home buyers have a few ideas of where they'd like to live, they're often surprised to learn that communities they've never considered before are a perfect fit.
4. Failing To Account For Closing Costs
From a financial perspective, the road to closing is less stressful when you know what to expect. There are a number of costs you'll pay at the end of your purchase, though these differ from one transaction to the next. In almost all cases, the most significant one will be land transfer taxes. The amount you pay will be calculated as a percentage of the overall price of your home (typically between 1 percent and 2.5 percent). You'll also have to pay legal costs, along with an assortment of others that may include inspection and appraisal fees.
We know you might have questions about the home buying process, which is why we have put some of them together right here. Have more questions? All you have to do is reach out.
How do I know if I’m ready to buy a home?
Buying your first home in Ontario is about more than simply being able to decorate it; it’s about maintaining your new residence over the years, and realizing that part of your income will now be routed into this investment.
It’s about willing to take measured risks – with realistic expectations of the rewards.
How much home can I afford?
It’s discouraging to find out that your salary will not stretch as far as the ideal home you want to own. However, sacrificing a huge part of your income just to pay the mortgage turn homeownership from a blessing to a burden. It's better to buy a modest home now and look at purchasing your "dream home" in a few years – when you’re prepared to make the move up. Learn more tips to find out how much you can afford!
When deciding on a budget, you should consider how much you'll have to put down for a down payment. It used to be common for homebuyers to put down 20% on a home, but as home prices rise, it's becoming more typical for people to put down 5%. Learn more about this on our blog!
What is a debt-to-income ratio?
Your overall debt should not be more than 40% of your income, and your housing debt should not be more than 32%. What 32% of your income will buy depends on where you want to live. In rural areas, for example, it can buy a very comfortable residence and ample acreage. In sought-after urban areas, it may not even buy a bachelor suite.
How do I know what to look for?
Buying a house in Ontario for the first time comes with a lot of questions: Do you like the idea of cleaning your own gutters? Do you shudder at the thought of lawn care? Would you rather just pay a fee every month and have everything done for you? The answers to all these questions can help you narrow down the search for the right type of property for you – along with the help of experts.
Closing costs are a list of charges your lawyer presents to you on the closing date of your home. Many people are surprised at the additional costs over and above the price of the home. According to the CMHC and Genworth Financial you should have at least 1.5% of the purchase price for closing costs in addition to the down payment (have around 2.5% to be on the safe side). The costs vary among provinces and cities.
Below you will find a brief explanation of these costs. Please note these are some of the closing costs you may encounter depending on your specific situation. Use this as a guideline then talk with your lawyer who can provide a more realistic estimate for your situation.
An appraisal provides the lender with a professional opinion of the market value of the property. This cost is normally the responsibility of the homeowner and it can cost between $100 - $300.
A professional inspection of the home, top to bottom, is for the benefit of the buyer. A home inspection can cost anywhere from $300 - $400 and is well worth the investment. When hiring a home inspector make sure the inspector has liability insurance just in case they overlook something.
Mortgage lenders require a certificate of fire insurance to be in place from the time you take possession of the home. The amount required is generally the amount of the mortgage or the replacement cost of the home. This cost can vary on the property size, amount of coverage, the insurance company and the municipality. The cost can vary anywhere from $250-$600 annually for most properties.
If your mortgage is insured, (CMHC or Genworth Financial), you will be required to pay the applicable taxes on the insurance premium on closing. While the insurance premium can be added to the mortgage amount, the tax must be paid at closing.
A recent survey of the property is usually required by lenders. If one is not available the cost can range between $600 - $900 for a new survey. In lieu of the survey, most lenders today will accept title insurance which can cost considerably less.
Lawyers and notaries charge fees for their services involved in drafting the title deed, preparing the mortgage, and conducting the various searches.
Disbursements are out-of-pocket expenses incurred during the process such as registrations, searches, and supplies.
Purchasers in most large Canadian centres can add Land Transfer Taxes to their list of closing costs.
Unless you live in Alberta, Saskatchewan, or rural Nova Scotia, land transfer taxes (or property purchase tax) are a basic fact of life. These taxes levied on properties that are changing hands, are the responsibility of the purchaser. Depending on where you live, taxes can range from half a percent to two percent of the total value of the property.
Many provinces have multi-tiered taxation systems that can prove complicated. If you purchase a property for $260,000 in Ontario, for example, 0.5% is charged on the first $55,000, 1% is charged on $55,000 - $250,000, while the $250,000 - $400,000 range is taxed at 1.5%. Your total tax bill? $2,375.00.
The following list shows Land Transfer Taxes by province.
- Land Transfer Tax
- Up to $55,000 X .5 % of total property value
- From $55,000 to $250,000 X 1 % of total property value
- From $250,000 to $400,000 X 1.5 % of total property value
- From $400,000 up X 2 % of total property value
- Property Purchase Tax
- Up to $200,000 X 1 % of total property value
- From $200,000 up X 2 % of total property value
- Land Transfer Tax
- Up to $30,000 N/A
- From $30,000 to $90,000 X .5 % of total property value
- From $90,000 to $150,000 X 1 % of total property value
- From $150,000 up X 1.5 % of total property value
- Transfer Tax
- Up to $50,000 X .5 % of total property value
- From $50,000 to $250,000 X 1 % of total property value
- From $250,000 up X 1.5 % of total property value
- Land Transfer Tax
- 1.5 per cent on total property value
Outside Halifax County
- Check with local municipality.
In most provinces, new homes are covered by a new home warranty program. The cost to the purchaser for this warranty is approximately $600 and should the builder default or fail to build to an agreed-upon standard the fund will finish or repair the deficiencies to a maximum amount. For more information on Ontario's new home warranty visit http://www.tarion.com.
HST is payable on the purchase of newly-constructed homes only. If you are purchasing a new home make sure you know who pays this, you or the builder. On the offer, the purchase price will say "Plus HST" or "HST Included" and who gets any HST rebates. Many builders have included this cost into the purchase price so the buyer does not have to come up with it at closing.
An estimate should be made for closing adjustments for bills the seller has prepaid such as property taxes, utility bills, and other charges. Any bills after the closing date are the responsibility of the purchaser. A lawyer will let you know what they are once the various searches have been completed.
Video: Extra Home-Buying Costs
This video provides an excellent run-down of some of the extra costs you may face when buying a home.
Additional home-buying costs & fees include:
- Appraisal fee
- Property tax
- Survey fee
- Property insurance
- Utility service charges
- Mortgage loan insurance
- Mortgage broker fee
- Moving costs
- Land transfer tax
Title insurance is growing in popularity in Canada. But what is it exactly? Should you get it? Do you need it? Whether title insurance is right for you is something you should discuss with your lawyer, as it depends on the circumstances of your transaction. This article will provide you with some background information about title insurance to help you make an informed decision.
Title to Property
"Title" is the legal term for ownership of property. Buyers want "good and marketable" title to a property - good title means title appropriate for the buyer's purposes; marketable title means title the buyer can convey to someone else. Prior to closing, public records are "searched" to determine the previous ownership of the property, as well as prior dealings related to it. The search might reveal, for example, existing mortgages, liens for outstanding taxes, utility charges, etc., registered against the property. At closing the buyer expects property that is free of such claims, so normally they must be cleared up before closing. For example, the seller's mortgage will be discharged and outstanding monetary expenses (such as taxes and utility charges) will be paid for (or adjusted for) at closing.
Sometimes problems (or defects) regarding title are not discovered before closing, or are not remedied before closing. Such defects can make the property less marketable when the buyer subsequently sells and, depending on the nature of the problem, can also cost money to remedy. For example, the survey might have failed to show that a dock and boathouse built on a river adjoining a vacation property was built without permission. The buyer of the property could be out-of-pocket if he is later forced to remove the dock and boathouse. Or, the property might have been conveyed to a previous owner fraudulently, in which case there is the risk that the real owner may come forward at some point and demand their rights with respect to the property.
Who is Protected With Title Insurance?
Title insurance policies can be issued in favour of a purchaser (on new/resale homes, condos and vacation properties), a lender, or both the purchaser and lender. Lenders will sometimes require title insurance as a condition of making the loan. Title insurance protects purchasers and/or lenders against loss or damage sustained if a claim that is covered under the terms of the policy is made.
Types of risks that are usually covered under a title insurance policy include: survey irregularities; forced removal of existing structures; claims due to fraud, forgery or duress; unregistered easements and rights-of-way; lack of pedestrian or vehicular access to the property; work orders; zoning and set back non-compliance or deficiencies; etc. For a risk to be covered, generally, it has to have existed as of the date of the policy. As with any type of insurance policy, certain types of risks might not be covered, for example, native land claims and environmental hazards are normally excluded. Be sure to discuss with your lawyer what risks are covered and what are excluded.
The insured purchaser is indemnified for actual loss of damage sustained up to the amount of the policy, which is based on the purchase price. As well, some policies have inflation coverage, which means that if the fair market value of the property increases, the policy amount will also increase (up to a set maximum).
How Long is the Insurance Coverage?
In the case of title insurance covering the purchaser, title insurance remains in effect as long as the insured purchaser has title to the land. Some policies also protect those who received title as a result of the purchaser's death, or certain family members (e.g., a spouse or children) to whom the property may have been transferred for a nominal consideration.
In the case of title insurance covering a lender, the policy remains in effect as long as the mortgage remains on title. A lender covered under a title insurance policy is insured in the event the lender realizes on its security and suffers actual loss or damage with respect to a risk covered under the policy. Lenders are usually covered up to the principal amount of the mortgage.
The premium for title insurance is paid once (at the time of purchase). Generally speaking, in Canada the purchaser of the property pays for the title insurance, though there can be situations where the seller pays for it. Some policies automatically cover both the purchaser and lender; others will cover both for a small additional fee.
Protection and Peace of Mind
Title insurance can help ensure that a closing is not delayed due to defects in title. And, if an issue relating to title arises with respect to a risk covered under the policy, the title insurance covers the legal fees and expenses associated with defending the insured's title and pays in the event of a loss.
Summary: How To Buy Your First-Home Successfully
- Know what you're looking for
- Know your financial limits (get pre-approved finance)
- Get an experienced REALTOR® working for you
We have helped first-time buyers secure the right homes for their needs, as well as their future goals. Reach out to us today, and we can help you determine where you can buy, where you should buy, and any of the other first-time homebuyer incentives and rules you should consider along the way.
Interested in purchasing your first home? Reach out today and we can walk you through the steps in the process.