Even though house prices are rising, many Canadians still view buying property as a solid investment and most millennials are still looking to buy their first home to get onto the property ladder.
Despite the recent economic downturn causing many people to put property purchases on hold, an opportunity has also arisen for those with enough capital reserves and income due to historically low interest rates.
When buying a house you will need to find a reputable realtor, however, the process required to find the perfect house in Ontario starts long before that. Therefore, if you are looking to buy property in the province here is a step-by-step guide on how to do it without facing too many challenges.
Research the Market
The first step to take when planning to buy a new home is to research the local property market in the area you would like to live. There are many areas to choose from in Ontario and one popular choice is Brampton real estate due to its reputation as an affordable city with good weather and easy access to various amenities. When researching an area prospective homeowners usually take into consideration a range of factors including:
- The amount of time it takes to commute to school or work
- Public transportation options
- Local amenities
- Access to healthcare facilities
- Crime rates
- School rankings
- Living costs
Save for a Down Payment
Buying a new home anywhere is only possible if you are in a strong financial position as a down payment is required. Typically in Ontario houses valued at $500,000 or less come with a down payment of 5% whilst properties with a valuation between $500,000 and $1,000,000 require a down payment of 5% for the first $500,000 and 10% on the rest. Houses valued at over $1,000,000 need a down payment of 20%.
It is recommended to make a down payment of at least 20% of whatever the value of a property is, this will provide greater flexibility when choosing a new home as well as allowing you to save money on interest payments and mortgage insurance.
Build Your Credit Score
Before lenders provide the funding needed to buy a new home, they first need to check your ability to pay back a loan which is done by checking your credit rating. In Canada, someone applying for a mortgage must have a credit score of at least 600, and having a higher credit score will positively affect lending options and interest rates.
There are some proactive steps that anyone can take to improve their credit score, these include:
- Maintaining a low credit utilization rate
- Avoiding late payments for bills and loans
- Keeping a good credit history
Check What You Can Afford
When searching for a new home, it is a good idea to evaluate what you can afford, this will depend on:
- The size of the down payment
- Total debt service (TDS) ratio, calculated by adding up yearly housing and debt costs, and dividing them by gross income
- Gross debt service (GDS) ratio, calculated by dividing your yearly housing expenses by gross income
- Existing monthly costs being lower than after-tax income
The best way of deciding how much you can afford to spend on a new home is to create a budget to ensure your monthly income always far exceeds total expenses.
Estimate Closing Costs
Typically, the best way to calculate closing costs when buying a property in Ontario is to budget around 3-5% of the sale price with the two largest costs being land transfer tax and legal fees. Land transfer tax is calculated based on a marginal tax bracket system linked to the purchase price and legal fees can vary from $500 to $1500.
Other closing costs include:
- Property survey
- Home inspection
- Property appraisal
- Title insurance
- Government registration
- Estoppel certificate
Get Pre-Approved For a Mortgage
Being pre-approved for a mortgage allows potential home buyers to lock into an interest rate for up to 120 days and provides a good estimate on the type of mortgage they qualify for. Even though a pre-approval is a written contract between a potential home buyer and a lender, buyers can still shop around for other lenders who may provide better interest rates.
Find a Reputable Real Estate Agent
When looking to buy property, it is essential that you find a realtor with an excellent understanding of the local market to ensure you get the best deal. Highly recommended real estate agents will be able to advise home buyers on which homes are the most suitable in accordance with their desired criteria.
Finding a new home in Ontario can be a challenge, especially since property prices are usually on the increase, however it can be made much easier with some good preparation.