August 30th 2021
Buying A House in Ontario in 2021
By Lucas Samuels
In June of 2021, Ottawa and other Ontario cities reported the single largest monthly increase of housing loans in Canada. Canadians added $18 billion of new mortgage debt, pushing the country’s total housing debt to $2 trillion. The Bank of Canada has warned Canadians about taking out so much home debt as it could cause a significant housing market hiccup. This has left many real estate investors and soon-to-be homebuyers rethinking their overall plans for 2021 and 2022.
When buying your dream house in Ontario in 2021, it’s best to be informed and have some understanding of the market. Once you better understand the market dynamics and the resources available to you, buying a home will be much easier.
Before you buy
The first thing anyone should do when preparing to buy a house is save money for the down payment (learn how to prepare for a down payment and save on costs when looking for a home here). But the down payment is just one factor to consider, which is why we’re sharing guidelines to keep in mind before buying a home below.
Every new homeowner should keep their credit score in mind. Building your credit score is a critical part of getting a mortgage as it shows lenders you can be trusted to make your payments. Having a high credit score can also reduce the interest rate on your mortgage and allow you to borrow more money from lenders.
Another essential aspect to consider is having a stable-enough income to afford the monthly property taxes and housing payments that you’ll have to pay on top of your mortgage. Property taxes are different everywhere, so be sure to research what the taxes are like in the specific area where you’re looking to buy.
When setting your budget, be realistic about your savings and yearly income. It’s not enough to simply save money for a down payment; you also have to make sure you can afford the type of house you want. There are two ratios to think about when considering affordability: the Total Debt Service Ratio (TDS) and the Gross Debt Service Ratio (GDS).
The Total Debt Service Ratio is the ratio of your annual housing expenses plus your debt expenses, divided by your gross income. The Gross Debt Service Ratio is the percentage of your total annual mortgage payment and house expenses, divided by your gross income. These ratios help provide you with a deeper understanding of your funds when buying a house so you can set a more accurate budget. But they aren’t exactly simple to calculate. Thankfully, a real estate expert or affordability calculator can make it easier.
Another thing that a lot of Canadians overlook is the actual location of the house they’d like to purchase. Sometimes you plan to find the perfect home, but it just isn’t in the right spot. That’s why before you buy a house you should consider factors like:
- Neighborhood amenities
- Commute time
- School rankings
- Public transit
Different areas also have different taxes and fees, meaning you can potentially save money if you take the time and look into multiple locations.
Shopping for a house
Now that you’ve done some number crunching and found the right location with the best rates, it’s time to start shopping around for a house. The first thing you can do to help with any home offer is register for a mortgage pre-approval. Mortgage pre-approval allows you to lock in an interest rate for 60 to 130 days. If the rate increases during that period, this can ensure you have the lowest rate for several months.
The pre-approved mortgage acts as a contract with your lender, but the contract does not entirely bind you. For example, if you find great rates in one location but need more time to look at another, you can get the pre-approval and lock in rates at one location with your lender while simultaneously shopping for better rates elsewhere.
While it has many benefits, a mortgage pre-approval is also a lot of work to put together. That’s why, when shopping around for new homes in Ontario in 2021, we always recommend having a real estate agent by your side.
A real estate expert can give you clarity in the hazy housing market. Real estate agents are up to date with the latest rates and have the tools to organize and calculate the best budgets for you. Look for real estate agents that are local to the area you are shopping for homes in. You can also use resources like Properly to easily match with an experienced local agent.
Get out there and start looking
After taking the time to organize your finances and personal information, seek out the best rates and rebates, and find the right real estate agent, you’ll be ready to buy your dream home.
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