Buying a home is one of the most significant decisions you will make in your life, so it's essential to understand the process completely. It's easy to get lost in this procedure, so reading and being prepared before diving in is the best plan of action.
Read on to learn more about how to go about buying property in Ontario.
Initial Consultation With Realtor
Many future homeowners in Canada choose to work with a realtor when buying a home. They have the industry knowledge and expertise to help. It’s best not to opt to represent yourself if you’re a first-time homebuyer since this can be an overwhelming experience.
It’s crucial that you find a realtor you trust and who has your best interests at heart. Generally speaking, you’ll be looking for someone with insider knowledge of your favourite neighbourhoods and someone you have a good connection with. You can conduct interviews to find the one that suits you and your search best.
The first meeting is an excellent chance for the realtor to understand your goals, expectations, and vision for your home.
Your realtor will bring information to your meeting to align your expectations with what’s available and on the market. This helps expectations be more realistic and ensures everyone is on the same page.
Your realtor can also show you recently sold homes so you can get an understanding of the current market and the prices that houses go for.
Signing With a Realtor
When you choose to sign with a realtor, you can expect to sign a legally binding contract to say that this realtor is the only one who will be representing you. This is for your protection and the realtors’ too. It is called the Buyer’s Representation Agreement. This contract ensures that you cannot work with another realtor who could take their commission. Realtors work based on commission, so this is essentially their salary at stake since realtors spend a lot of their time, money and resources to find the perfect home for you.
You can negotiate if you read something in this contract that you don’t agree with. This is a law-binding, legal document that details the services the realtor will provide and any expectations the agent has of the buyer. This agreement is always signed before putting in an offer for a home.
The target area is the area or neighbourhood in which you hope to find a home for sale. When you choose your ideal location and search area, consider that although living in the suburbs can be cheaper and get you a larger home for your money, you may have to spend extra money commuting and time to travel to work each day.
Indeed, you’ll often find that urban homes are much smaller but are more expensive than suburban and rural homes due to their location. It’s essential to check that your ideal neighbourhood, property type and maximum purchase price are in sync. If you’re looking for more information on the pros and cons of an area, your realtor can help.
This is an excellent time to consider which amenities are the most important to you. Is living next to a playground important to you, or is it better to prioritize a large backyard or driveway? It’s common to target neighbourhoods with good public schools and other amenities, but this often drives prices up.
You may also want to think about how much traffic noise and pollution you’re willing to put up with. Local crime rates and proximity to noise will drive house prices down, so be aware of this when choosing a new home and don’t be blinded by low prices. It’s not in the seller’s interest to disclose this type of information, so make sure you do your research on the area.
It’s also important to consider your long-term goals concerning ideas of family, retirement, work, and lifestyle. This will change what you’re looking for entirely and will impact costs. Do think in the long term, as this isn’t a purchase you’ll want to change in a few months.
It’s a great idea to create a list of requirements that must be met in the search for a new home. This list is simply things you cannot live without and doesn’t include luxuries that might be nice to have.
Not sure what a must-have list would look like? It may include having a bedroom for each of your children and being close to your office. Consider how much storage you need and whether your new home will be future-proof or not. For example, if you’re planning on having kids in the immediate future, you should take this into account when considering the minimum number of bedrooms and necessary yard space.
A want list is a set of requirements that are bonuses or luxuries that you would enjoy but aren’t necessary. These aren’t deal-breaker items but could weigh on your final decisions.
For example, whether the house has a fireplace, finished basement or air-conditioning. This is a great system to identify which areas you can be flexible with and which cannot be compromised.
Find Homes For Sale
Now we get to the fun stuff — the process is to start finding homes for sale that fit your needs list and perhaps even some of your wants list. You should use the information from the initial conversation with your realtor to create a list of suitable homes that you may want to explore further and even request a showing.
A top tip is to create a list of the most important details of each house. This could include what amenities each place offers, its location, and its price. Some other details you may want to take into consideration for your summary lists are:
- The size of the lot
- The home type
- Age of the property
- Parking arrangements
- Bedroom number
Making a list stops you from comparing homes according to their price tag alone.
It’s also a great idea to factor in those extra costs associated with buying the type of home. For example, if a property is much older, there will be costs to keep it maintained. Or, if you’re going to live in an apartment, there might be annual or monthly fees which may go towards gardeners, cleaners or even repairs. You might even be moving to a much larger home and need to factor in higher energy bills.
Being shown a home is often the most exciting part of house buying. These visits allow buyers to grasp what it might be like to live there and how they feel inside the home.
It’s important to visit all the homes that correspond to the buying criteria. While the property is where you’ll live, it’s also a great idea to get a feel for the surrounding area, whether you feel safe and comfortable in the neighbourhood and if it has all the local amenities that you need. A top tip is to tour the local community alongside the viewing.
If you’ve settled on a home that corresponds to what you’re looking for, you now have the opportunity to make an offer to buy it.
This can be one of the most intimidating parts of the process, but you should turn to your agent for their experience and advice. Their job is to help you make an offer. The best offers are based on comparable sales dates and your realtor’s knowledge of current market trends – the aim is to find a middle ground between a strong offer that will be seriously considered and getting you a good deal.
Even with a realtor, it’s best to do some of your own research and ensure this is the right investment for you. Be sure to have a general idea of properties with similar listings and the price they go for. Although this can be an emotional experience (this is where you’ll be spending your life after all), it’s best to know all the facts and figures to go for a more rational approach.
Your agent will prepare all the necessary documents. If the bid is accepted, an agreement to purchase should be signed by both parties. This includes the conditions of the sale, deposit details and your offer and then is sent to the listing agent. The listing agent is the agent who represents the seller.
You shouldn’t be afraid to negotiate, although it can be awkward. This is a big purchase, and it has to be right for you from the deadlines, financial costs, and move-in dates.
Remember that if there’s a high demand for a property, other people might want to buy this home. In this case, you’re not the only one making offers.
While it’s common to stipulate changes or conditions, you might not want to squeeze the seller too much as your offer will then simply go ignored. It’s a bidding process, and while you won’t know what other bids are on the table, the listing agent isn’t allowed to falsify offers.
This system is safe and secure as every single offer has to be put through as a legal document, so there is a complete record of every bid made.
Some offers might be made with conditions attached. The buyer or seller can stipulate these conditions. Conditions aim to protect one party or pressure another into making a decision. These conditions might vary from being an all-cash offer (not mortgage dependent), a quick close of sale or even a quick fix of a door or leak.
Some conditions might include the following.
One of the most common conditions attached is whether you’re allowed to hire a home inspector to view the home. They might find problems with the house, such as:
- Structural problems
Any of these can severely decrease the value of the home. What’s more, requiring a home inspection can cause delays in closing the sale, it might even give prospective buyers cold feet, and the deal can fall through.
However, many of these problems can only be detected by a professional home inspector. It’s best to choose your own home inspector instead of relying on your realtor for a recommendation. This means that your home inspector is independent and doesn’t feel pressured for the transaction to go through.
When choosing a home inspector, pay attention to their background, reputation and certification. With a thorough home inspection, the following areas can be expected to be addressed:
- Roof and attic
- Windows and doors
- All exterior surfaces
- Building structure
- Property grounds
The closing date is a milestone moment in property hunting and the final obstacle you face before being able to enjoy your new home. This date is usually based on both parties’ timeframe for moving out/in and finding a new home or selling their current property.
This date is when a property sale should be finalized, with all document transfers and financial transfers made. These transfers must include mortgage insurance and appraisal costs.
It’s important to remember that closing costs in Ontario tend to be between 3-5% of the purchase price due to land taxes and lawyers’ fees, so it’s a good idea to include these in your budget.
There are some things you should do on closing day to make sure everything runs smoothly, including organizing your final visit and conducting your last inspection. This is also an excellent stage to investigate access restrictions and choose a date to move in.
With a move-in date, you should make sure that there isn’t a gap in your insurance. You can also arrange for your utilities to be connected, so you don’t run into any problems overpaying or having utilities shut off. It’s a good plan to change the locks when you move into a new home and plan for a complete house cleaning and any renovations you might need.
Another common condition is how many home visits may be allowed – it’s very common to visit a property several times before the closing date. This is your opportunity as a buyer to measure furniture, arrange for new appliances to be fitted or perform a home inspection.
It’s also common to arrange an agreement for how far in advance a home visit should be scheduled. For example, can the new buyer simply show up that day or give a week’s notice? These are things to be determined in advance to avoid problems.
Deciding on a budget is one of the most important aspects of home buying. This determines how much you are willing to spend on a property and whether you’re comfortable going over or if this is a set maximum amount. This will depend on how much your estimate of your pre-approval mortgage is.
It’s worth remembering that you might face additional costs when buying a home, including moving costs, storage costs or hidden costs like local taxes.
If you see your dream property, it’s worth considering whether you will push your budget further or even go way over it. If a property checks every one of your boxes, you may be willing to pay more on a mortgage while adjusting your lifestyle. Know the absolute limit of your budget that you’d reach for your dream house.
A more realistic approach is to know when entering the home buying process that you might not be able to afford your dream home. You might have to opt for a home that requires renovations to cut costs, choose another neighbourhood or settle for a smaller home.
Ensure that you align your expectations with how much homes cost in your desired area and home size, and be sure to only look at properties within your budget. If you view a house which is over budget and fall in love with it, you may be left disappointed or in financial difficulties.
Buyer Or Seller Market
A buyer’s market is when there are a lot of available houses to move into, and sellers find themselves struggling to sell their property. As a result, buyers can save a lot of money if they buy their home at this point.
On the other hand, if they sell the home in a seller’s market – this could be a very worthwhile sale. A seller’s market is when there aren’t many homes available, and buyers may have to pay extra for a home. This also means that sellers can demand high prices and stipulate strict conditions of sale.
Whether it’s a buyer’s or seller’s market will significantly determine whether you may save money or overspend.
Unless you’re buying your home with cash, usually, prospective homeowners will take a mortgage from a lender. Your budget for buying a home is based on your mortgage pre-approval.
When you have signed the documents confirming you want to buy the property, you must approach a mortgage company. After a mortgage has been approved, the instructions will be sent to your lawyer to deal with the paperwork.
Usually, a mortgage company or the insurance company will require that the seller provide a clean water certificate and certify that hazardous products are not used on any buildings on the property. It’s important to check all outbuildings on the property to ensure no hazardous materials or chemicals have been left behind.
Mortgage Broker vs. Lender
It’s easy to mix up a mortgage broker and lender – the broker doesn’t lend you the money but simply acts as a middle-man between you and the lender. Their service is based on giving you advice, finding the best rate and helping you to make a dossier of all the required documents. Brokers tend to be paid by commission for their service but sometimes will charge a fee.
On the other hand, a mortgage lender is a financial institution that lends you money for a mortgage. This might be a bank, private broker or credit union.
It’s a good idea to have your mortgage “pre-approved” before you start looking for a new home. Pre-approval means that you know how much money you can afford to pay back, your interest rate, and how much you pay each month. This is not a guarantee but may help you narrow your search.
The bank will first assess your finances and your credit score through this process, including your income, assets, and liabilities. From this, the bank will determine the amount suitable as a mortgage amount based on what they think you can pay back. This is decided with conditions of an interest rate and the amount of time you should pay it back within.
You should also do your own calculations of what you think you can afford each month by considering your salary and expenditures. Since banks and lenders don’t consider things like vacations, the cost of having kids, retirement savings and your individual lifestyle, that’s up to you. When budgeting, be sure to consider your own financial goals and then look for a house accordingly.
To qualify for a mortgage in today’s market, you’re expected to put some of your own cash on the table. There are some exceptional circumstances in which this is not the case, but these are extremely rare.
You’ll have to put some of your savings forward as the first initial payment, called a down payment. It’s defined as the amount of the property purchase that you supply yourself at the time of purchase.
The amount expected to be paid during the down payment is dependent on several factors. These include:
- Property type: whether it’s a house, condo or new build
- Intended use for the property: the amount depends on whether the property has been bought for residential, commercial or investment purposes
- Credit profile: if you have a strong credit score, this amount will be lower
- Income: how you earn your income and how much of this is shown on your tax return
- Closing costs: the estimated amount that these will add up to, including all taxes and fees
- Lender’s Guidelines: this depends on each specific lender
As a general rule, Canadians should expect a 5% down payment on a home if they want to live in an urban area in a home worth less than $500,000 plus 1.5% for closing costs. This changes as property prices increase.
It’s worth noting that vacant lots require a larger down payment. Also, if your down payment is less than 20% of the overall loan, then you need an extra form of insurance called mortgage default insurance.
For those with exceptional credit profiles, it is sometimes possible to borrow the 5% down payment off of another lender or even have a family member gift it so long as all the documentation is in place to prove this. If this is your first home, it’s also possible to partake in some of the Canadian government’s programs to help buy your home.
Interest rates are the rate that you should pay back your mortgage. The amount of interest on top of your loan is decided by the state of the economy more generally and how high or low risk the lender deems you to be. There are a variety of types of interest rates and these can change across the time you have the loan and the type of rate you choose.
A fixed-rate term simply means that the rate of interest doesn’t change throughout the whole repayment term. Usually, this means that it may be a higher interest rate to compensate for the fixed price.
Variable Rate Term
A variable-rate term means that the interest rate fluctuates alongside the economy. This is a higher risk option for interest rates as they can dramatically increase and decrease overnight.
When repaying your loan, you will be able to make payments either monthly or bi-weekly, which is twice a month or every two weeks. Often, you can expect to pay an annual lump sum, which is typically around 15% each year. It’s worth agreeing with your lender if you can increase your regular payments or overpay your mortgage without incurring extra charges. With every payment you make, you are reducing your loan amount and can shorten the overall lending term.
The principal is the original amount of money that was lent to you as a borrower. The lower this number is, the less interest you have to pay back.
Interest is the amount a lender charges you to borrow money. The charges are based on the interest rate and the amount you borrow in the first place. Usually, this is calculated as a percentage and is calculated against the repayment time.
There are only a few things left to complete once the seller accepts your offer in order to transfer ownership. At this stage, paperwork needs to be completed and all fees should be paid to realtors, and lawyers, as well as the Canadian government.
When buying a home in Canada, it’s necessary to pay aland transfer tax to the province and municipality that you’re buying in. First-time home buyers do get some discounts when it comes to paying these land transfer fees, but not all, so bear this in mind when you’re choosing your home. This tax is based upon a percentage of what you paid for the property.
Ontario Land Transfer Tax
In Ontario, the land transfer tax should be paid to the province every time the land itself changes ownership. Again, this tax rate is based upon the amount paid for the property itself.
Municipal Land Transfer Tax
A second land transfer tax is then owed to the municipality where the property is registered and follows a similar calculation to provincial land taxes.
A title is the legal ownership of a property and the rights that come with it. The transfer of this title is the process in which someone is removed or added from the property ownership.
A title transfer is performed by lawyers and can take anywhere between five and ten business days to complete. To complete this, all financial details, paperwork and mortgages should be completed before a title transfer can be processed. A title transfer typically costs around $600.
These rights can change from property to property, but an average set of rights includes rights of:
- Possession: this means that you now legally own the property
- Control: the owner may now use the property as he or she wishes
- Exclusion: the owner may choose who enters the property
- Enjoyment: within reason, the owner may enjoy the property
- Disposition: the new owner may sell or rent the property
While a lawyer is not required to buy a home in Canada, it’s a great idea to have one. When it comes to dealing with lawyers, the buyer and seller have their own lawyer, and the lawyers communicate with each other.
Having a good lawyer is just as important as having a good realtor. You need a legal professional on your side to review paperwork, register the deeds and handle all fund and fee transfers. Since buying a home is one of the most significant purchases you’ll ever make, it’s crucial that you have all your paperwork in order and your legal rights are all adhered to.
A top tip for choosing a lawyer is to check the provincial law society and to make sure that your lawyer specializes in property law. It’s good to have a friend or family member recommend a lawyer that they like or read online reviews. You may even ask your realtor who they have worked with in the past.
Buy Your New Home in Ontario
The decision to buy a home is one of the biggest you will make – be sure to follow all of these steps to make the process as smooth as possible. When in doubt, trust the professionals to help you set a budget, search for properties, and land you in your dream home.