Congratulations! If you’re reading this article, you’re probably planning to purchase a house in Toronto, Canada. But, as you can probably tell by now, buying a house is not as easy as it seems.
Here’s the thing, buying a home is a huge commitment, so the process may seem daunting. Interest rates, no matter how low, add up in time and put a constant pressure on your income. There are also a lot of responsibilities that come with home ownership. It’s no wonder some people say that becoming a homeowner is one of the most emotionally charged things they’ve done in their lives.
But let’s not get ahead of ourselves. There are several steps you have to go through before becoming a homeowner. Read on if you want to find out what to look for when buying a house and how to buy a house in Toronto.
What You Should Consider When Buying A House
The first thing you should consider before deciding to be a homeowner is whether it’s a good idea or not. Buying a house may seem free of downsides at a first glance. After all, owning your own house would enable you to put an end to ever-growing rents and it can also help you build equity.
But the reality is that being a homeowner is not without its disadvantages. For example, routine home maintenance and repairs can quickly add up and make a dent in your savings.
Once you own a home, your ability to relocate may be limited. Not to mention that you may find yourself buying a property that may not be large enough for your household in five or ten years.
So, here are some things you should consider before making this important decision.
Employment Status and Job Security
Financial institutions are not in the habit of loaning money to everyone who asks. They check your employment history for the past two years to make sure that you have a reliable source of income.
But even if you do have a reliable job that would convince anyone to approve your mortgage, you should ask yourself whether you see yourself working there in the future.
Are you satisfied with your current position? Does your current position offer growth opportunities? Can you do the work for years or even decades until you pay off your mortgage? Keep in mind that once you become a homeowner you can’t crash on your friend’s couch for a couple of months if you need to get back on your feet. Your mortgage payments will be due each month.
Do you have enough money saved to cover the initial costs of buying a home? Some people wrongfully assume that they only need to save enough money to cover the down payment.
But the truth is that your initial costs will be higher. You’ll have to cover the closing costs to finalize your mortgage, which usually vary between 2 - 5% of the loan’s value.
You may also want to save up for some immediate repairs, upgrades, or furnishings. And let’s not forget the costs of moving all your stuff from one place to another, which can be up to $1,500 or more for larger homes.
Local Market Indicators
Local housing market indicators can help you decide whether this is a good time to become a homeowner in Toronto. Indicators such as homeownership affordability, rental affordability, housing supply, home sales, home prices, mortgage delinquency, and others can help you understand how the local market looks like, whether being a homeowner is better than being a renter, and more.
Calculate How Much House You Can Afford
You should also calculate how much you can spend on a house in order to determine how large a house you can afford.
To do this, you should first determine how much of your income you spend on a monthly basis. Once you know how much is left in your bank account at the end of each month, calculate how much money you can allocate to your housing expenses.
Can you afford to put 20% of your monthly income toward your housing payment? How about 30%?
Introduce the values into a mortgage calculator and find out what mortgage you can afford and the home you can buy with it.
Get a Mortgage Preapproval
Now that you’ve estimated your ability to pay off a mortgage and become a homeowner, you can go to a financial institution and get preapproved for a mortgage. The preapproval application letter helps you determine how much money you can afford to borrow, which enables you to make a solid offer on a home you like.
Make an Offer on A House
You’ve got your mortgage preapproval letter, now you’re ready to make an offer. Find a real estate agent to help you identify homes that meet your criteria. Keep in mind that VIP Platinum agents like Condo Shopper can access exclusive listings. We can also offer huge discounts, rebates, incentives, and more.
Once you find the ideal home for your household, you can make your offer. In Toronto, you have to submit the offer in writing. The offer letter lists details about you, the offer you’re making, a deadline the seller should answer you by, and more. Your real estate agent will help you make the offer.
When making an offer, you also have to make a money deposit that represents 1 - 2% of the purchase price.
Your lending financial institution may not require a home inspection, so this is an optional step in the house buying process. However, doing a home inspection is always a good idea. The home inspector will go through the home and look for different problems, such as the quality of the electrical systems, leaks, working status of the appliances, health hazards (such as mold), and more.
Ask for Repairs Or Credits
Asking for repairs is one of the last steps to buying a house. All the problems identified by the home inspector become yours once the sale closes, so you should negotiate with the seller to fix them before you go through with the sale.
Do a Final Walkthrough
You should always do a final walkthrough of the home, even if you’re convinced that you’re going to buy it. The final walkthrough enables you to see if the seller fixed the things you asked for and cleared the property.
Make sure that everything works and that the seller didn’t forget any belongings.