BUYING
Financing
It's a Journey
Buying a home is an exciting adventure! Homes come in all sizes, styles, and price ranges, and starting with a clear understanding of what you can afford ensures a smoother, more enjoyable experience. Let’s break it down so you can feel confident and prepared every step of the way.
Understanding Affordability
Two key Rules
First Affordability Rule: Your Housing Costs
Lenders, such as banks and trust companies, generally recommend that you spend no more than 32% of your gross monthly income on housing costs. These costs include property taxes, heating, and, if applicable, 50% of condominium fees. This guideline, known as the Gross Debt Service (GDS) ratio, ensures your housing expenses remain manageable.
Second Affordability Rule: Your Total Debt Load
To keep your finances balanced, your total monthly debt—covering housing costs, car loans, credit card payments, and other obligations—shouldn’t exceed 40% of your gross monthly income. This is referred to as the Total Debt Service (TDS) ratio, and it helps lenders determine your overall financial health.
Pre-Approvals
Why Pre-Approval Matters
Getting pre-approved for a mortgage is a smart first step in your home search. Pre-approval gives you and your agent a clear understanding of your budget and often includes written confirmation of a fixed interest rate for a specific period.
Reach out to your mortgage broker or agent to start this process. A mortgage broker works independently from lenders, giving them the ability to shop around and find the best product and rate for your needs—typically at no cost to you.
Mortgages
Conventional Mortgages: The Standard Option
A conventional mortgage allows you to borrow up to 80% of the purchase price of a home. Typically, the repayment period, or amortization, is 25 years. The term of the mortgage—the length of time your interest rate is fixed—can range from six months to five years.
High-Ratio Mortgages: Making Homeownership Accessible
Saving for a down payment is one of the biggest hurdles in buying a home, especially for first-time buyers. With mortgage loan insurance, you can purchase a home with as little as 5% down. This insurance, required by most Canadian lenders, protects the lender and is paid as a premium. The premium, calculated as a percentage of the mortgage principal, can either be paid upfront or added to your mortgage payments.
First Time Home Buyers
Using Your RRSP to Purchase a Home
Did you know you can use your Registered Retirement Savings Plan (RRSP) to help with your down payment? Through Canada’s Home Buyers' Plan, each participant can borrow up to $25,000 from their RRSP, with couples able to combine their funds for a total of $50,000. Best of all, you have up to 15 years to repay this amount to your RRSP, interest-free, while retaining its tax advantages.
Property Ownership Costs and Considerations
Costs
Owning a home comes with several financial and practical considerations, and understanding these details can help you feel prepared and confident in your journey. Here’s an overview of expected costs and services related to homeownership:
Taxes
Property Taxes
Property taxes are typically paid in eight installments throughout the calendar year. Sometimes, your mortgage company may handle this, adding the amount to your monthly mortgage payment. Depending on your property’s size and location, annual property taxes can range greatly from thousands or more and are reassessed regularly to ensure accuracy.
HVAC
Heating Source
Your home’s heating system will likely use natural gas, oil, or electricity with costs depending on factors such as your home’s size, insulation, exposure, and usage. Efficient systems and energy-saving habits can help manage expenses. Solar and heat pump technology are auxiliary energy sources.
Hydro
Electricity
Electricity costs vary widely based on the size of your home, the number of occupants, and energy-saving upgrades such as Energy Star appliances. Bills are typically issued every two months, but many homeowners opt for equal billing to pay monthly.
Insurance
Home Insurance
Home insurance is a must for all homeowners and is required by lenders before releasing funds for closing. Premiums, starting around $450 to $1200 annually, are based on your home’s replacement cost and provide essential peace of mind.
City Utilities
Water & Solid Waste Management
Most Toronto properties are on water meters, with charges based on usage. Water bills, issued about three times a year, also include a fee for Solid Waste Management. This fee covers services like garbage collection, recycling, green bins, and landfill management, contributing to a cleaner and more sustainable city.
Due Diligence Costs
Inspection
Home Inspection
A home inspection is highly recommended for most residential properties and is often a condition of the purchase offer. Your agent can help you choose a reliable inspector. Inspections typically cost $350 to $500, depending on the size and value of the home, and provide valuable insight into the property’s condition.
Appraisal
Appraisal Fees
When applying for a mortgage, lenders may require a property appraisal to confirm its value aligns with the purchase price and market trends. Appraisal fees generally range from $250 to $350.
Survey
Land Survey
For freehold properties, you may request the seller provide a land survey showing property boundaries and the building’s footprint. If unavailable, you can hire a surveyor to create one, with costs ranging from $2,000 to $5,000.
Termites?
Termite Inspection
In areas where termites are a known issue, a termite inspection may be worth considering alongside a home inspection. This additional step typically costs $200 to $300 and ensures you’re fully informed about the property’s condition.
Title
Title Insurance
Title insurance in Ontario, Canada, is a one-time purchase that offers peace of mind by protecting homeowners and lenders from potential issues with property ownership. It covers risks like title fraud, survey errors, unpaid liens, or encroachments that could impact your legal ownership or use of the property. With no ongoing fees and coverage that lasts as long as you own the home, it’s a simple, cost-effective way to safeguard your investment and confidently enjoy your new property.
Contact Us
Let’s Make Your
Dream a Reality!
From understanding affordability to securing the right mortgage, these steps are designed to make your home-buying process smooth and successful. By planning ahead and knowing your options, you’re well on your way to finding a home that fits your lifestyle and budget.
Welcome to the first step of an exciting journey! If you have any questions, don’t hesitate to reach out—we’re here to help.