The 2023 Ontario Home Buyer's Guide

The 2023 Ontario Home Buyer’s Guide

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Buying a home can be a major life choice for many people. And it’s a procedure that can bring about anxiety and doubt. To some extent, this is expected! The only way to successfully deal with all of this unpredictability and maintain a positive attitude is to have a firm grasp on the purchasing process. This article will outline the most important stages in purchasing a home in Ontario and should help allay some of your fears. Purchase considerations and expenses are included.

It’s essential to carefully consider if purchasing a home is the best option for you before you dive into the process and make a serious commitment to the journey. Examples of this are:

  • Buying a home vs. renting an equivalent one
  • realizing the wild coaster of emotions that can accompany the home-buying process, and
  • You’ve been diligently putting away money for a down payment and planning for the expenses that will arise along the way.

First, set aside money for a deposit.

The first and most crucial step on the path to home ownership is being in a stable enough financial situation to save up for a down payment. Ontario requires a 5% down payment on purchases under $500,000. Minimum down payments for homes between $500,000 and $1,000,000 are 5% on the first $500,000 and 10% on the remaining $500,000 or $10,000. To sum up, a 20% down payment is required for homes priced at over $1,000,000 USD. Our down payment estimator is a useful tool for estimating how much of a down payment you might need.

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Having a sizable down payment, of at least 20%, will give you more options when it comes to purchasing a home. You’ll save a ton of cash in interest and mortgage insurance premiums over the course of the loan’s life. The latter can be particularly expensive, with the following CMHC surcharges typically in effect:

The average selling price in Toronto is expected to surpass $1,000,000 in 2021, and prices in the rest of Ontario will rise at about the same rate, making it increasingly important to begin saving for a down payment as soon as possible. If this is your first time purchasing a house, you’re in luck because both the federal and provincial governments offer programs to aid first-time buyers.

  • You can use as much as $35,000 of your RRSP as a down payment thanks to the Home Buyers Plan.
  • Canada’s First-Time Home Buyer Incentive provides up to $25,000 in down payment assistance and asset sharing from the federal government, and
  • You can save up to $4,475 on your Toronto purchase thanks to the city’s generous refund on top of Ontario’s provincial rebate of up to $4,000 on Land Transfer Taxes.

Having a steady income and improving your credit score is the second step.

With your credit score serving as a major factor in how likely a lender is to grant you a mortgage, improving it is essential. A credit score of at least 600 is typically needed to qualify for a protected mortgage loan. If you want to qualify for an insured mortgage, you’ll need a credit score of at least 600. However, a better credit score can also affect your mortgage interest rate, lending options, and the mortgage lenders who are willing to provide a loan.

Prior to even thinking about purchasing a home, you should begin working to better your credit score by taking measures such as:

  • Staying ahead of payment schedules,
  • Maintaining a low credit usage rate (current debt as a percentage of available credit)
  • Keeping a spotless financial record, and
  • You should try to restrict the number of times your credit report is pulled.

Having a reliable source of income, in addition to a high credit score, can greatly facilitate the mortgage application process. Costly upkeep and repairs, annual property taxes, and homeowner’s insurance premiums are just some of the responsibilities that come with house ownership. You’ll be better prepared to deal with life’s curveballs if your revenue is sufficient to deal with them as they arise. In reality, a letter of employment may be required by your lender before they will approve your loan. If you’re self-employed or on contract, your income may be more volatile, so it’s especially essential to save for unexpected expenses in advance. You should also consider getting a quote and buying homeowners insurance online.

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Step 3: Assessing Your Financial Capacity

Along with the first two steps, your down payment amount, credit score, and income all play a role in determining how much house you can buy. The cost of a home can be affected by a variety of variables.

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  • The size of your initial investment,
  • The Total Debt Service (TDS) Ratio is the sum of all of your yearly housing and debt payments as a percentage of your gross income.
  • The ratio of your annual housing costs to your gross revenue is called the Gross Debt Service (GDS) ratio.
  • There is enough money each month to cover expenditures without spending more than what is left over after taxes.

The affordability tool streamlines the process of determining your maximum budget. Finding a house you are happy in requires knowing not only how much you can spend, but also how much you are willing to spend. Last but not least, when determining how much money to spend, making a budget can help you stay on track and keep up with your monthly housing costs once you move into your home.

Determine a store to make a purchase at (Step 4).

After settling on a budget and maximum housing price, the next step is to choose a neighborhood in which to look for a house. Many people who are looking to purchase a new home prioritize issues like proximity to work, public transportation, local conveniences, safety, and quality of local schools.

Having a desirable school district nearby is an important consideration for many first-time homebuyers and young families. Even though proximity to a good school is crucial, it is essential to remember that living near some elite institutions may come at a steep price.

Making the most of your everyday commute is a key consideration when deciding where to set up shop. If you’re looking for more square footage without breaking the bank, choosing a neighborhood on the outskirts of town could be the way to go. You should give careful consideration to the neighborhood you settle on because living further away from the metropolis may reduce your access to public transportation.

However, despite their smaller size, urban homes tend to be more costly than their suburban and rural counterparts. Looking at the cost per square foot is a simple method to quickly evaluate multiple options and identify the places where you can get the most square footage for your money.

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Estimating Final Expenses 5

Budgeting between 3 and 5 percent of the home’s purchase price for closing expenses is a safe bet when purchasing a home in Ontario. Land transfer tax and legal fees are the most expensive parts of the finishing process. See Land Transfer Tax Calculator to determine an approximate Land Transfer Tax amount.

Having a general idea of what you might be looking at in terms of closing expenses will help you plan accordingly and avoid going over your allotted budget.

Step Six: Get Pre-Approved for a Mortgage and Shop Around for the Best Interest Rate

Pre-approval for a mortgage can give you peace of mind by locking in an interest rate for up to 120 days and an idea of how much house you can afford before you even start searching. The pre-approval letter is essentially a compact between you and the lending institution. Getting pre-approved doesn’t prevent you from comparing prices, though. Further, a pre-approval provides you with valuable insight into the potential terms of your mortgage, such as the maximum loan amount, the interest rate you may be offered, and the estimated monthly payment.

Finding the mortgage provider with the lowest rate can help you save a significant amount of money over the course of a loan’s life.

Say you spend $600,000 on a home. You avoided having to pay mortgage insurance because you put down $120,000 (20%). You got pre-approved for a $480,000 5-year mortgage with a 3.2% interest rate and a 25-year repayment. What this amounts to over the course of the loan’s term is a whopping $71,110 in interest charges.

Nonetheless, mortgage rates dropped between the time you applied for pre-approval and when you actually required the money. Similar mortgages with the same period had 2.6% interest rates. If you had shopped around for a comparable rate and selected it, you would have saved $5,753.30 in interest payments. You overpaid by $13,580 because you didn’t look around for a better deal. The lesson here is to always shop around for the lowest price.

Seventh, locate a reliable real estate agent.

It’s crucial to find a real estate agent who is a good match for your needs and who has a deep knowledge of the market you’re interested in. Having a seasoned agent on your side can be a huge help, especially for first-time buyers, who are navigating unfamiliar territory. WOWA’s real estate agent matcher simplifies the hunt for an agent by presenting you with profiles of highly rated agents, from which you can contact them directly to see if they’re a good fit. Furthermore, we have compiled a list of the best real estate brokers and representatives in Toronto.

Step 8: Explore Affordable Housing Options

It’s tempting to widen your search and increase your budget, but sticking to your original parameters will help you find a house that’s perfect for you financially and emotionally. Your real estate agent will begin your search online at sites like your area’s MLS Page and show you what they discover.

Making a list of features that are must-haves and those that are nice-to-haves can help you narrow down your search for a particular property. It will help you zero in on what you’re looking for while also giving you some leeway. Keep in mind that your hunt for a new home can be an ongoing process, so if you find that a particular home’s features or neighborhood is too expensive or oversaturated, you can always try again.

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Put in a bid: Step 9

You may be particularly curious about how to buy a home in Toronto, Ontario’s most competitive housing market, given the historically low housing supply and interest rates and the Bank of Canada’s decision to keep policy rates so low. This means that the first offer you receive on a home is probably not going to be the last one you consider. Demand is making the home-buying process competitive even in Ontario’s least expensive and quietest housing areas. Therefore, it’s crucial that we act promptly.

A real estate representative is a good resource for guidance when determining the terms of an offer, such as the asking price and closing date.

Final Phase: Set a Closing Date!

Take a deep inhale and enjoy the moment as you reach this thrilling and nerve-wracking day. Purchasing a new house is a huge step in life. Thanks to your preparation in Step 5 and the use of WOWA’s closing cost estimator, you should be able to avoid any unpleasant financial surprises at closing. You are officially the owner of the property once the real estate representative hands you the keys.

Other essentials to think about as you move in are:

  • Painting and other pre-move-in repairs
  • A deep cleansing,
  • Locks are being changed,
  • Educating those who provide services, and
  • Informing close ones of the news

Conclusion

Having knowledgeable and helpful contacts along the road is crucial, despite the fact that the entire process can feel challenging and stressful at times. You can trust the process because you have people like your real estate representative, mortgage broker, and loved ones rooting for you every step of the way. As long as you stay the course and do things like save for a down payment, figure out where you want to buy, get pre-approved, locate an agent, submit an offer, and close, everything will work out in the end.

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