Are you considering buying your first home in Toronto or elsewhere in Canada? First of all, congratulations. Owning a home is always an exciting part of life and this is a new milestone that you have set for yourself. But there are a few caveats you should consider before closing the deal.
First, always get pre-approval from the financial institution you are dealing with. By doing this, you know the home budget before you start researching it. In fact, many Toronto mortgage brokers ask for this first thing.
Second, keep all documents ready. There are many websites if you Google this topic. Keep everything handy and ready. This just makes things a lot easier for you.
Third, don’t rush to close the deal. Especially in a city like Toronto, I’m sure it’s pretty tight and every house for sale gets a few offers before it closes. Never for once have I heard of a property selling before its asking price. These are always multiple increases before the deal closes. Such is the market and the times. Still, be slow, calm, and make sure you’re comfortable before closing the deal.
Don’t rush in until you have thoroughly inspected the property and are within your budget. It can be a little ecstatic to review the budget, but remember you will have 25 years of mortgage repayments, so make sure you think twice before you do anything.
Are you looking to buy your first home? Here are real-life scenarios and practical tips for overall planning and execution when it comes to buying your first dream home in Canada.
5% down or save 20% and avoid CMHC?
For an average 1+Den or 2 bedroom condo in downtown Toronto, the cost is around $600,000.
A 20% down payment equals $120,000.
Do you think you are ready to invest and move into your first home or make the purchasing decision.
well, what happens if you can’t afford the 20% deposit? Let’s look at all the pros and cons here.
First of all, the minimum down payment to buy a house in Canada or Toronto is 5%, not 20% (there are additional insurance costs with CMHC of course).
So people use 5% lower down payments, or take financial help from family or already have a home that they bought a while ago for much less, or both members of the couple have well-paying jobs or some combination thereof.
Real Case Scenario for Buying Your First Home
In Ontario, where I live, the minimum down payment is 5% up to $500,000 and 10% for anything over that amount.
So, for a $600,000 mortgage, you’re looking at a down payment of around 6%.
By the way, anything over $1 million requires a minimum 20% down payment. High ratio mortgages (interest rate because they are insured by CMHC.
Right now, for most lenders, the interest rate is 1.99% versus 2.29%, so the difference isn’t as big as you think.
This leaves us with two options:
1. Opt for the 6% down payment on $600,000 at a mortgage rate of 1.99%, which equates to $2,583/month or
2. Save money for the 20% down payment and avoid the additional costs of CMHC insurance of $600,000 at 2.29% or $2,175/month.
It all depends on what you feel comfortable with.
You may also need to consider that $410/month isn’t such a bad premium to pay for living in your own place.
Instead of waiting to accumulate more money up to 20% down, you can always continue with the 5% down or whatever amount you can afford to move into the first home. Always remember that the value of your home, especially in Toronto, will return you much more than what you invest in the property today.
Always remember: never buy that luxury car, it’s not worth your money. Instead, never overthink buying your first home. You will never regret your decision.
If you wait years to get a larger down payment, it will only make the house more expensive…and a larger mortgage payment in the end. It’s definitely not worth chasing a 20% down payment that will grow much faster than you are able to save just to avoid paying a small price on mortgage insurance or CMHC. In fact, CMHC insurance protects you against uncertain life scenarios like unemployment or sudden death of earning family members.
As I’ve said before, you’ll need to pay for mortgage insurance with less than a 20% down payment, but don’t let that hold you back.
The extra $100 (or whatever it was, I can’t remember) is way less than the money you spend on rent that you’ll never see again. Paying rent is pointless. Rents in Toronto and the Greater Toronto Area are particularly high, accounting for almost 50% of your salary. So why not invest in property and pay a little more instead of waiting to buy one. It’s well worth the decision. Think about it.
Also, another important point to mention is that by the time you save 20% for your down payment, house prices will have increased and you will no longer have 20%.
Once you reach 20% equity, you no longer need to pay mortgage insurance.
What a lot of people do is smartly make a 5 or 10% down payment, pay a little more per month toward the mortgage, and after you’ve saved more money over a few more years, you can make lump sum payments on your mortgage to bring it up to 15% and then eventually 20% equity. This way, you can avoid paying CMHC insurance costs.
Top 10 Things to Look for Before Making Your First Home Purchase
1) Heating Furnace – Make sure to check how old is it? Is it high efficiency? etc. You may need or want to replace it depending on the inspection report.
2) Plumbing – What type of plumbing is it? This can impact home insurance rates and older pipes could break down and cause problems. Any signs of water damage around pipes, under sinks, etc. So be extremely careful with plumbing-related issues. Never ignore them before buying the house.
3) Shingles – The first question you can ask is: are the shingles new or very old? If they are very old, it may mean that the previous owners did not take care of the house properly. Additionally, there could be water damage to the roof.
4.) If you are considering purchasing a townhome or semi-detached, basement water damage is likely for older homes and that probably means water is getting in. So be sure to check this in the home inspection report.
5) Gas Bills – You can probably call your local electric or gas utility and they will be able to give you details of the gas bills for the property you are interested in purchasing. Some home sellers may also be willing to provide it if they are courteous and kind. High gas bills can mean improper or faulty electrical appliances, furnace or insulation.
6.) Electrical Panel – Amps are important, especially if you are perhaps looking to add a spa, etc. 100 amps is perfectly normal for most places. So pay attention to that.
7) Wiring – Make sure the wiring is copper or aluminum? If you can see the wires in the basement or going into the panel, that will tell you. Aluminum wiring is not ideal but is not a deal breaker. There are often a few extra steps, as most light fixtures, etc. use copper connections.
8.) Windows – Make sure the windows are not made of cheap plastic and that they close properly.
9) Property – If you are purchasing a home that has had multiple previous owners, be sure to notify the home inspector. It becomes very difficult to ensure that everything is okay when the house has already belonged to several owners in the past. Make sure you have that much before you close the deal.
10) Garden Yard and Home Location – You will always want water to drain away from the house as much as possible. If the surrounding yard is higher than the base of the house, water will flow toward your house and down to your foundation, which is really bad and can be expensive to repair later. So make sure the water is out of your house.
Bonus: Old Appliances – Old homes often have old appliances lying around in the basement and sometimes they are too big to remove and can cost you a lot of money after a few years. If you see them and know you don’t want them, make sure you indicate in the offer that you want them gone.
Before closing the deal, be sure to have the house thoroughly inspected by private building inspectors, which can cost around $500 in Toronto. Trust me when I say this, it’s so much more worth it. Don’t think about saving a cent here. After all, you’re spending hundreds of thousands of dollars to buy the house.
Also make sure you follow legal procedures and paperwork correctly. Don’t rush here or skip any steps for later.
Make sure everything is okay first. Also, have good relationships with home sellers, you never know when you might need to call them back. Be sure to ask them about their plans after selling the house. If they want to leave the country and return to their home country, make sure you can still contact them, otherwise you will have no recourse if something goes wrong.
Conclusion
When you buy a house and spend hundreds of dollars, you need to make sure you do as many things as possible.
There may be little things here and there that you might not notice, but overall, spend some quality time, hire home inspectors, and do things right before closing the deal and making payment.
After all, it’s your money and you earned it. Don’t be at the mercy of others, instead take control of your affairs and decide.
We also looked at the practical scenarios of a 5% drop or
The final choice is yours, make sure you decide and plan things the way you want. After all, it’s a life we all have and we have to live it our way.
Let me know your thoughts and comments below, share this article on social media and help spread the word. Thanks for reading!
