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How to buy a house in Toronto

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Buying your own home is an exciting rite of passage, and it’s one of the biggest purchases you’re likely to make in your entire life. When it comes to buying a house in Toronto, it’s easy to see the allure. Close proximity to some of the best sports, cultural, and business activities in the province make this city a house hunter’s dream.

You’re also not too far from major airports, world-class hospitals, and the beautiful Lake Ontario. Like other big cities across Canada, the purchase price of homes in Toronto continues to rise. Despite the number of home sales being down in 2022, the average price of a home in Toronto was still more than $1 million, and up from the previous year. Population growth has slowed slightly over the years, but growth is still happening.

Toronto is a great place to live, so it’s not surprising that people want to call the city home. Public transit makes it easy to get around the city and the Greater Toronto Area (GTA) without the need for a vehicle, and city services are quite competitive to other major centres.

Home prices in Toronto

According to the Toronto Regional Real Estate Board (TRREB), the average price for a home in Toronto in 2022 was $1,189,917. That’s not to say your purchase price won’t be a little more or less, depending on the requirements you give your real estate agent when house hunting, or the unique features of the property. The table below shows the fluctuations in average home prices in Toronto over the last three years.

Year Toronto Home Sales Average Price
2022 75,082 $1,189,917
2021 121,712 $1,095,475
2020 95,066 $929,636

Down payment needed to buy a home in Toronto

When buying a house in Toronto, a down payment is essential. The lender you’ve secured financing from (aka your mortgage lender) will deduct your down payment from the purchase price of your home. The balance left is what makes up your mortgage amount. Keep in mind that any deposit you give to the seller during the homebuying process as part of your agreement of purchase and sale counts toward your down payment.

How much of a down payment you need for a house in Toronto will depend on the price you’re buying the home for. If your down payment is less than 20% of the purchase price, you must also purchase mortgage loan insurance.

For homes worth $500,000 or less (a rarity in Toronto’s real estate market), the minimum down payment is 5% of the purchase price. For homes worth $500,000 to $999,999, the minimum down payment required is 5% of the first $500,000, plus 10% for the portion above $500,000. So, if the home costs $1 million or more, you’ll need a down payment of 20% of the purchase price.

Property and land transfer taxes in Toronto

Other costs to consider when house hunting in the Toronto real estate market include property and land transfer taxes.

Based on Toronto’s 2022 property tax rate of 0.631933% and an average home price of $1 million, annual taxes would amount to $6,319.33. This isn’t the whole story, however.

Property taxes are also based on the most recent value assessment of your home, conducted by the Municipal Property Assessment Corporation (MPAC). This assessment is typically done every four years. Due to disruptions caused by the COVID-19 pandemic, assessments are on hold until 2024.

You should also consider land transfer taxes in your closing costs. On top of the Provincial Land Transfer Tax (PLTT), buyers in Toronto must also pay the Toronto Land Transfer Tax (TLTT). If you’re a first-time homebuyer, you may be eligible for a land transfer tax rebate. Speak with your real estate lawyer to confirm if you qualify as a first-time homebuyer.

Is buying a home in Toronto within my budget?

The first step when house hunting in Toronto is to see if you can even afford a home. This will involve speaking with a financial planner or advisor, and evaluating your income and current monthly housing expenses.

Mortgage lenders use two main ratios when deciding if borrowers can afford to buy a home: Gross Debt Service (GDS) and Total Debt Service (TDS). GDS is the percentage of your monthly household income that covers your housing costs, and TDS is the percentage of your monthly household income that covers your housing costs and any other debts.

The Canada Mortgage and Housing Corporation (CMHC) recommends a person’s GDS not exceed 39%, and that TDS not exceed 44%.

Even if you can afford to enter the Toronto housing market, if your new home puts you toward the upper ends of these numbers, you risk becoming house poor in the process. If you’re spending all your take-home pay on your housing, you won’t be able to afford any of life’s other expenses, which will put you in a precarious financial position — not to mention you won’t be able to enjoy all the perks that living in Toronto has to offer.

How to become an attractive buyer in Toronto

There are a couple of steps you can take to become an attractive buyer in Toronto.

The first is to improve your credit score. With a strong credit score, mortgage lenders are more likely to approve your application for financing, especially if you’re a first-time buyer.

The next step to becoming an attractive buyer is to have a stable income. When it comes to Toronto house buying, a lender wants to know you’re in a financial position to make mortgage payments. Bouncing between jobs makes you appear more of a risk to a lender than if you can demonstrate a steady source of income.

Secure a mortgage pre-approval for a home in Toronto

Next, find out how much mortgage you can get pre-approved for. Working with a mortgage broker can help you secure the best mortgage rates.

Most mortgage pre-approvals last from 60 to 130 days, and allow you to lock in an interest rate as well as know the maximum amount of a mortgage you could qualify for.

When comparing mortgage rates, it’s important to discuss fixed vs. variable mortgages with your lender. Interest rates and penalties vary between the two, but one may be a better option for your situation than another. With a fixed-rate mortgage, your interest rate stays the same over the term of your mortgage. With a variable-rate mortgage, the interest rate you pay on your mortgage will rise and fall alongside your lender’s prime interest rate, which is determined by the Bank of Canada’s policy moves.

Start browsing open houses and real estate listings in Toronto

Once you know what you can afford, start browsing Toronto open houses and real estate listings that are within your budget. It might take months to find your dream home, or you could find the right home in no time at all.

Find the right team to help you buy a home in Toronto

Buying a house in Toronto isn’t a one-person job. You’ll want to make sure you have the right people on your side. That might include a mortgage broker, a real estate agent, a financial planner, and a real estate lawyer.

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A mortgage broker in Toronto can help you secure financing by helping you compare rates and terms from various lenders. They don’t typically charge a fee for their services, but are paid a commission by the mortgage lender. Online mortgage brokers can help streamline the process.

A real estate agent/realtor helps facilitate the purchase or sale of property. If you’re buying, they help find and show you properties of interest, prepare your offer of purchase, and present your offer to the sellers. The right real estate agent knows the local market in Toronto and can advise you accordingly.

A financial planner/advisor can help you see the big picture when it comes to making the most of your real estate investment. They’ll present you with a snapshot of what you realistically can and can’t afford to ensure homeownership won’t put you in a risky financial position.

A real estate lawyer will review all documents associated with your transaction, arrange for title insurance, and search for any liens against the property, among other things. A real estate lawyer in Toronto, specifically, will know the ins and outs of the local market and how to help the purchase go smoothly. Their legal fees should be budgeted into your closing costs.

Get a home inspection and appraisal

Before purchasing what you think is the right property, make sure you take the proper steps to ensure the house is in sound condition, and any issues you come across are addressed. A home inspection can help protect your real estate investment by identifying unexpected costs for repairs. Your lender may require a home appraisal as part of the process of setting up your mortgage, but it’s also helpful in determining how much a home should sell for.

Submitting an offer for a house in Toronto

Once you’ve found your new home, the final step is to put in an offer. You’ll work with your real estate agent to come up with a fair price and closing date, then submit to the sellers. Then all that’s left is to see whether they accept or want to negotiate further.

Frequently asked questions

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