Are you looking for a place to call home in Ontario? This is a crucial life decision, and it should not be taken lightly. Make sure you have the information, resources, and professionals to help and assist you along the path. Purchasing a house might be difficult, but it can also be quite exciting!
If this is your first time purchasing a property in Ontario, there are some important things to consider. Mortgage Maestro gives you a step-by-step guide along with multiple mortgage options while buying a home.
We have compiled a list of seven crucial tips that help you navigate the home buying process in Ontario.
1. Down Payment
Before beginning your real estate search, you should accumulate enough money for a down payment. A down payment is the portion of your house’s cost you pay upfront. As a rule of thumb, the more money you pay as a down payment, the easier it is to get a mortgage.
For purchasing a house or property under $500,000 in Ontario, you must put in at least a 5% down payment. The following is a breakdown of how much down payment you’ll need in different scenarios:
|Purchase price of house/property||Minimum down payment required|
|Up to $500,000||5%|
|$500,000 – $999,999||5% of the first $500,000, then 10%|
|$1,000,000 and above||20%|
A down payment is all the more relevant in today’s market when the average sale price of a property in Ontario is expected to rise beyond $1 million. That said, there are initiatives in place by the federal government to assist first-time buyers.
2. Good Credit Score With Stable Income
A credit score is essentially a rating (usually between 300 to 800) that lenders use to determine how risky it is to give credit to you. Generally, the poorer your credit score, the lower your chances of getting a loan. Before filing a mortgage application, you should check your credit score to determine where you fall in the bracket.
For an insured mortgage, you need a credit score above 600. A higher credit score can affect your mortgage interest rate, the types of loans, and the mortgage lenders who are willing to give you a loan.
To be eligible for a mortgage in any province in Canada, including Ontario, you must be able to demonstrate that you make enough money to pay all of your bills. In addition to a strong credit score, a stable income source makes the process of approving a mortgage easy.
3. Check Your Affordability
Your affordability goes a long way in making the home-buying process easy. When you go to a lender for a mortgage loan, they’ll figure out how much they can give you. This is the point where you have an honest talk about how much money you can afford to borrow.
Lenders will use the following ratios to determine your affordability:
- Gross Debt Service Ratio (GDS): This ratio divides your monthly housing expenditures by your monthly gross income, including mortgage payments and taxes.
- Total Debt Service Ratio (TDS): This ratio divides your annual housing-related expenses and debt by your gross income.
Pro Tip: Your GDS should not exceed 32%, whereas the maximum acceptable TDS ratio is 44%.
4. Where To Buy?
You may start looking for homes now that you’ve sorted out your finances. Feel free to skim through a few listings online, but you should engage a realtor since they will be able to walk you through the entire home-buying process.
- If you’re a first-time homebuyer, always hire a real estate agent
- Talk to a real estate agent who specializes in the type of home you’re looking for
- Make a list of must-have features you want in the new house
Pro Tip: Factors like commute time, public transportation, local amenities, security need to be on your priority list.
5. Estimating Closing Costs
You are also required to pay closing fees, depending on where you buy in Canada. When purchasing a home in Ontario, a fair estimate for closing costs is between 3-5% of the purchase price. Land transfer tax and legal fees are the two significant components of closing fees.
Other components that make up your closing costs include:
- Property survey
- Home inspection
- Property appraisal fee
- Title insurance
- Government registration fee
- Estoppel certification fee
6. Getting A Preapproved Mortgage
Now that you’ve saved your down payment, prepared your paperwork, and selected a mortgage broker, it’s time to get a preapproved mortgage.
Pre-approval for a mortgage is free and does not bind you to a specific lender. However, when it comes to getting preapproved for a mortgage, we advise not to ignore it.
There are several positives to getting preapproved for a mortgage. One of them is that your bank will lock in the prevailing lending rate for up to four months – your lender will keep the same rate regardless of whether the rate goes up or down during those four months.
7. Make An Offer And Close The Deal
First, you’ll make a buying offer. Things will move quickly after you get a preapproved mortgage you like, so don’t be alarmed! If the home market in your area is dynamic, you may not be the only one who has made an offer.
When your offer is accepted, you’ll pay a deposit to the buyer, arrange for your mortgage financing to be finalized through your mortgage broker, and schedule a home inspection.
Happy Home Hunting In Ontario!
Even though the tips mentioned above are exhaustive, consider them only a tiny part of what it takes to buy a home in Ontario, Canada. If at any stage you feel overwhelmed, seek expert help from mortgage brokers or real estate agents that provide valuable information on how to buy a house in Ontario.