Buying your first home is always an exciting experience no matter your age or where you’re at in life. When buying a house in Ontario for the first time, you might be a little overwhelmed or underprepared for all the steps and you’ll have to navigate before even closing a deal.
Every province in Canada will have its own regulations for buying a home, so we’re going to break down the most efficient ways to prepare you for buying your home in Ontario. Here are some tips for first time home buyers in Ontario that apply to new developments along with older properties.
Things to Know When Buying Your First Home in Ontario
The downpayment is how much money you’re able to put down on a property upfront. While the usual down payment is around 5-10% the higher the downpayment you put down on a home is, the better the mortgage rate you’ll likely receive. Ideally, before you buy a home you should start saving as much as you can so you could put down a decent deposit.
This is a pre-qualification for a mortgage. This is when a moneylender approves a buyer for the specific amount of money they’re seeking. It means they’ve checked out financial documents. You can get pre-approved while you’re still looking for a home so that way you know what you can really afford and it’ll save time when putting an offer together on a property that you love.
The pre-approval process consists of five different steps:
Proof of Income
Show proof of consistent income for the past two years that prove you will be able to keep up your payments and show an estimate of how much you will be able to afford.
Proof of Assets
Proof of assets will show the lender that you have enough cash and revenue to make the down payment, and make the mortgage payments, and cover closing costs.
You need to have good credit. Good credit reinforces and proves to the moneylender that you are responsible with your money and will be trusted enough to repay the loan in the time period given.
Proof of Employment
Be able to provide proof of employment to reinforce stability and reliability. The moneylender might ask for pay stubs or employer references. They will also take note of any recent job changes and how many times you’ve switched employment in the past few years.
These cover basic identity documents like driver’s licenses and your social insurance number. This also allows them to pull a full credit report.
Compare Mortgage Rates
So it’s time to get your mortgage rate. Most people go straight to their bank’s home branch thinking that they’ll get the best deal. But just like the home you’re buying, don’t be afraid to shop around. Just like any other major purchase you buy, you should be comparing different rates to see what best suits your needs and your current lifestyle. The smallest decreases in mortgage rates can have significant reductions on your monthly mortgage payments.
Consider using a Mortgage Broker
If you feel like researching rates is too out of your league, consider using a mortgage broker. A mortgage broker acts as a go-between for the client and the money lender to negotiate the loan and a fair rate. Due to their expertise in their field, the broker will have superior knowledge of current rates and trends and utilize that information to get you a good deal.
One thing to note is the brokers typically have a fee for their services. This could either end up being paid by you or the lender. Make sure to discuss payment before proceeding to work with a broker.
So your offer on your home was accepted, congratulations! But before you get too excited, don’t forget about closing costs. Many first time home buyers aren’t aware of what closing costs entail. So here’s another tip for first time home buyers in Ontario when it comes to closing costs.
Closing costs consist of several different fees the buyer will need to payout as the deal comes to a close.
Land Transfer Tax
This is a standard Canadian tax that applies to all provinces. The land transfer tax is when you acquire land, you need to pay money to the province as that land is now being transferred to your name. Different provinces might offer different rates, but in Ontario, the amount owed is a percentage based on the price of your home. For example, if the property you’re buying is between $400,000 to 2,000,000 then you pay 2% of your purchase price as the land transfer tax.
Additionally, Toronto has a municipal Land Transfer Tax that a buyer would need to be in addition to the provincial LTT.
Title Insurance is an insurance policy that protects both residential and commercial owners, as well as money lenders against any loss of property title or ownership. While Title Insurance is not a requirement in Ontario, many lenders ask for this extra cost to protect their loans and assets.
It’s always advisable to have a lawyer review the legal documents acquired during a real estate deal. The initial offer, the offer of acceptance, mortgage approval, etc. Expects to spend a couple of hundred dollars at minimum to cover legal fees.
Last but not least: commission fees. If you used the services of a real estate agent, you’re going to need to pay their commission rate. Typical agents will set their rates so you need to clarify what they’re charging before agreeing to have them represent your interests. The average rate for an agent to charge is around 2%.
Enjoy this first-time home buyer in Ontario guide as you navigate the exciting experience of becoming a homeowner for the first time. Even if you are not currently in a position to buy a property, keep these tips in mind so that when the time comes, the home buying process will be smooth and you’ll be completely prepared.