August 27th 2021
10 Steps to Buying a Home in Ontario
By Jessica van Rooyen
Buying a home is a huge milestone that involves tons of research, preparation, and planning. But for most first-time homebuyers, the details of the process are a bit of a mystery — and sifting through all the information online can be overwhelming. So consider this the ultimate overview of the Ontario home buying process.
These are the 10 steps you need to know about before buying a home:
- Start Saving for a Down Payment
- Build Your Credit Score
- Determine What You Can Afford
- Pick a Location Where To Buy
- Calculate the Closing Costs
- Get Pre-approved for a Mortgage
- Find a Real Estate Agent
- Start Searching for Properties in Your Price Range
- Make an Offer
- Plan for the Closing Date
Step #1: Start saving for a down payment
Few things are more frustrating than finding the home you love and realizing you can’t buy it because it requires an immediate large down payment. The average down payment in Ontario is at least 5% (for a home priced at 500k or less). That means if buying a $500,000 property, you’ll need $25,000 for the down payment. Ideally though, you’ll put down 20% (or $100,000 on a $500,000 house) to get the best mortgage rates.
Make a plan to save for your down payment by including it in your monthly savings goal. Start saving as early as you can. Create a budget, and put at least 20% of every paycheque into a separate savings account dedicated to your down payment. If you can't afford the typical 5%, work on increasing your income or consider saving for longer.
If buying your first home, a few incentives are available from the Government of Canada and Ontario to assist with purchasing a property. These include grants, rebates, and tax credits.
Step #2: Build your credit score
A homebuyer has to be aware of their credit score because it can help you access the best mortgage rates in Ontario. If you want to get a good deal on your mortgage rate, it’s important that your credit score remains high. Higher scores have a better chance of receiving low-interest rates.
Start to work on building your credit score as soon as you can. Get a credit card and make small purchases (such as gas or groceries) on the card each month — and pay your bill in full every month. This will establish a good payment history with lenders and prevent negative marks from appearing on your credit report.
Step #3: Determine what you can afford
When it comes to buying a home, you should have a price range in mind. Make sure that you’ll be financially stable when buying a home and don't stretch yourself too thin by purchasing a house that you can’t afford.
When buying a home in Ontario, your mortgage lender will make sure you can afford your monthly payments. To get a good estimate of how much you can reasonably spend on a house, all you need to do is fill out a mortgage application. The bank will offer a loan based on your income and the amount saved for your down payment.
It's important to be realistic about what you can afford and ensure you have enough saved for a down payment. If you want to speed up the process of getting approved for financing, find out how much you can afford to spend before applying. This will help avoid disappointment if your mortgage application is rejected due to insufficient savings.
Step #4: Pick a location
Before deciding which house to buy, take some time to figure out where exactly you want to live. Look at multiple houses in various neighbourhoods until you find an area that fits your needs (note that the most expensive homes are found in Toronto and the GTA).
Step #5: Calculate the closing costs
When you buy a home, the cost of the property is just one of many fees you’ll have to pay. Often people forget about the closing costs — including land transfer tax, lawyer fees, inspection fees, and more. These charges can add thousands of dollars to the price of a home.
The closing costs aren’t part of the purchase price, but they still need to be considered when calculating how much you can afford to spend. Speak with your real estate agent and lawyer about closing costs to understand how much the closing costs will be, exactly. Don't forget to factor in the cost of moving as well.
Step #6: Get pre-approved for a mortgage
Getting pre-approved ensures that you’ll get an adequate mortgage loan from a bank or other institution. You should contact several lenders, such as CIBC, Bank of Montreal, Scotiabank, and RBC Royal Bank of Canada, to name a few. They’ll determine the amount you can borrow based on your income. By pre-qualifying, you’ll know exactly what your loan amount will be, which will help you set your budget. You’ll also have to decide which type of mortgage you’d like, such as a fixed rate mortgage or a variable rate mortgage.
Step #7: Find a real estate agent
Find a real estate agent that you trust to guide you through the process. Good agents can be extremely beneficial in identifying factors that could prevent you from buying a home. They’re also an invaluable resource for understanding the market.
So, how do you pick a good real estate agent?
A good real estate agent will take the time to get to know you as a person and be willing to work with you through specialized needs. They can also recommend property inspectors or home experts — like roofing or heating specialists.
Your agent can also help you set your max budget and will understand that you’re not willing to go above that price point.
Step #8: Start searching for properties in your price range
Keep in mind, the home search process can take a while, so try not to get discouraged.
Once you’ve narrowed down your search to a handful of favourites, visit each property and take notes about what you read in the property listing. If you notice something wrong with it, make sure to discuss your concerns with your real estate agent.
If you’ve found a place that meets most, but not all, of your criteria, think about whether or not you’re willing to compromise on certain items on your must-have list. If you wanted a detached home but fell in love with a townhome instead, it’s important to know that townhomes may come with shared walls or common backyard space.
One of the most important things you should do when searching for a property is to conduct a thorough inspection. Look for possible problems, repairs, or signs of what needs to be fixed before moving in.
When you find a house that you are interested in, your real estate agent will give you a home appraisal to verify the worth of the property. This figure may be higher or lower than what the seller's price is. The home appraisal process determines the value of a home by comparing it to similar homes nearby and other factors such as the condition of the neighbourhood, schools, community services, and more.
Step #9: Make an Offer
Your agent will help you understand the current market price of a property and come up with an offer. Some companies like Properly even have the ability to calculate a free Instant Estimate on a property so you know how to position your offer. Some sellers will accept an offer as it is, while others may negotiate further. But make sure that your offer is realistic so you won't be surprised if they turn it down or counteroffer.
Don't feel discouraged if your first offer doesn't succeed. Instead, adjust your offer to better match the seller's expectations. If it still doesn't work, negotiate other aspects of a sale, such as adding more money for closing costs or repairs.
Step #10: Plan for the closing date
Once the offer has been accepted, set a closing date (the date at which all negotiations are completed and all obligations are fulfilled). Make sure you have enough time to handle all the paperwork that has to be filed, pack your belongings prior to the closing date. If you're not fully prepared, the sale might not go through, which could lead to an escrow closing (and more costs).
Here’s a closing date checklist to ensure that you’re sufficiently prepared for the big day:
- Verify all the conditions in the Purchase and Sale Agreement have been met
- Inspections should be done by the move-in date any time you are buying a house in Ontario
- Start packing!
Ready to get started?
Moving is a big deal and can be stressful at times. But the better prepared you are, the smoother the experience will be.
If you’re ready to buy a home, you should know that it may take up to four months to complete the entire process. Try to have an idea of what you're looking for and how much money you’re willing to spend. It's important to know if you can afford the down payment and ongoing costs associated with buying a home. It's also important that you understand both the buyer and seller’s contractual obligations (your agent and lawyer are your best resources when it comes to this).