How to Buy a House in Toronto in 2024
What You Should Know
- Before starting your home search in Toronto, it's important to begin saving money for a down payment and working on improving your credit score as early as you can.
- When saving up to buy a home in Toronto, keep in mind that closing costs can range between 3% to 4% of the home’s purchase price.
- Consider how much space you need, including your household size, which may change what property types will suit you.
- Research the location where you want to live, which may include looking at schools, public transport options, as well as how close you'll be to stores, restaurants and other amenities.
If you’re looking to buy a house in Toronto, there are a few things to keep in mind so that you can be prepared for the process. This step-by-step guide to buying a house in Toronto will provide helpful advice on what to expect and how to go about finding the perfect home in Toronto for you.
It’s no surprise that Canada’s biggest city is also one of Canada’s most expensive cities to buy a home in. Toronto home prices can be well above the million dollar mark for some property types, especially detached and semi-detached homes, with some neighbourhoods being even more expensive compared to others.
While you don’t need to be a millionaire in order to live in Toronto, can you afford to buy a home in Toronto? Let’s take a look to see what income and down payment you would need in order to afford a home in Toronto.
10 Steps to Buying a Home in Toronto
Step 1: Saving for a Down Payment
Homes in Toronto and the Greater Toronto Area (GTA) are expensive, and you’ll need to save up for a hefty down payment. Since many homes in the GTA cost over $1 million, this means that the minimum down payment would be 20% for many homes that you are looking at. That’s because homes that cost over $1 million require a down payment of at least 20%.
Homes that are less than $1 million have lower down payment requirements, of just 5% of the home’s purchase price if it is under $500,000. If a home costs between $500,000 and $1 million, the minimum down payment is 5% of the portion that is below $500,000 and 10% of the portion that is above $500,000. For homes that cost more than $1 million, the minimum down payment is 20%.
If you’re looking to buy a detached home in Toronto, it’s likely that you would need to make a down payment of at least 20%. With the average detached home in Toronto being $ in , that would mean a down payment of at least $NaN! That’s quite a lot of money to have saved up and ready to go.
If you were to make a down payment of less than 20%, where the home price was less than $1 million, you will need to account for an additional cost: CMHC insurance or a similar mortgage default insurance premium. This would cost you between 2.8% to 4.0% of the total amount of your mortgage.
Based on an average Toronto home price of $, the minimum down payment for an average home in Toronto is $NaN. A detached home would have a minimum down payment of $NaN, semi-detached home would have a minimum down payment of $NaN, while a freehold townhouse would have a minimum down payment of $NaN. Condos, the cheapest home type, has a minimum down payment of $NaN. This means that you’ll need to have at least this amount of money in order to buy a home in Toronto and to qualify for a mortgage.
If you’re a first-time home buyer, you may be wondering how to save for a down payment. One option is to utilize the First Home Savings Account (FHSA), which combines the tax benefits of an RRSP and a TFSA. This gives you a tax deduction when you contribute and lets you withdraw the money tax-free in order to buy a home.
If you have already contributed the maximum amount to your FHSA, you may want to consider putting additional money into your TFSA or RRSP. One feature of the RRSP is the Home Buyers' Plan, which allows for a withdrawal to purchase your first home, but keep in mind that you will need to repay the amount back into your RRSP.
Down Payment Assistance in Toronto
If you're having difficulty saving enough money to buy a home, you can explore the down payment assistance programs available in Toronto. The main program available is the First-Time Home Buyers Incentive (FTHBI) from the federal government, which allows you to borrow 5% or 10% of the home's purchase price to use as a down payment.
However, there are restrictions with the FTHBI, such as the maximum annual income being $150,000 and the most that you can borrow being 4.5x your annual income. This means that your mortgage amount must be less than $675,000, which might not be enough to buy most types of homes in Toronto.
There are private, investor-funded down payment assistance programs available too as a shared equity mortgage. Providers in Toronto and the GTA are Lotly and Ourboro, which can provide a down payment of up to 15% of the home’s purchase price. You’ll still need to contribute at least 5% of the home’s purchase price as your portion of the down payment.
Step 2: Build Up Your Credit Score and Income
Buying a home involves borrowing a lot of money in the form of a mortgage, and so potential lenders will be taking a close look at your credit history and financials. When buying a home in Toronto, it’s important to have a credit score of at least 600. The higher your credit score, the better mortgage rates you'll qualify for and the more lenders you'll have to choose from.
If you’re not able to qualify for a mortgage from a traditional bank, you may instead have to go with a private mortgage lender or rethink buying a home in Toronto for now. Although private mortgage lenders typically don't have a minimum credit score requirement, the interest rates for private mortgages are much higher, potentially costing you thousands of extra dollars in interest charges.
Your finances include your income and debt. In addition to slimming down your debt, you’ll want to make sure that you have enough income in the first place to afford a mortgage. Besides looking at whether your monthly income is more than your monthly mortgage payment, banks and other mortgage lenders will conduct a mortgage stress test. This tests whether your mortgage payments will be low enough that it doesn’t take up a large chunk of your paycheck, so that you still have money for other living expenses, and whether you can afford your payments when interest rates rise.
Another thing to consider is your employment. Banks and mortgage lenders usually require borrowers to have been employed for at least two years. If you’re self-employed, this might mean having two years of consistent self-employment income.
Step 3: Check Your Mortgage Affordability
It’s easy to check your mortgage affordability online, and it’s something that you should do so that you know how much you can realistically afford. When looking at mortgage affordability, lenders will look at your gross debt service (GDS) and total debt service (TDS) ratios. These are debt service ratios that compare your gross monthly income with your monthly payments to things like your mortgage, housing costs, and debt payments.
The higher your debt service ratios, the worse it is. The limits that Toronto mortgage lenders have on these debt ratios will largely form how much you can afford to borrow. All things being equal, the higher your income, the more you can borrow. The more debt payments you have, the less that you can borrow. This can guide you to see where you can improve, whether it be by slashing your debt or making a larger down payment, and allows you to determine your maximum affordable home purchase price.
Your maximum affordable home purchase price is a good number to keep in mind when it comes time to look at properties, to ensure that you don’t exceed your budget.
Step 4: Locate a Neighbourhood
From bustling downtown to peaceful suburban streets, Toronto has something to offer for everyone. The City of Toronto has 158 neighbourhoods across 25 wards, while the cities and towns that make up the Greater Toronto Area (GTA) add even more options that are still close to Toronto.
When it comes to choosing a neighbourhood in Toronto, consider things that are important to you. That might be schools that your children might attend, the proximity of shops and restaurants, as well as public transit options in the area. Property types and age can play a role in your decision making, as well as demographics and crime.
At the bottom of this page, we’ve displayed neighbourhood stats on population, median household income, unemployment rate, most common home type, percentage of residents that are post-secondary educated, public transit users, and immigrants, as well as the median monthly shelter cost for owners and renters.
Comparing Toronto Neighbourhoods (2016 Census)
Map of the City of Toronto
Step 5: Estimate Closing Costs
Closing costs are fees associated with purchasing a home that you’ll need to pay for. This might include things like real estate lawyer fees, title insurance, and registration fees.
A big part of your closing costs will be land transfer tax, which in Toronto can range from 1% to 5% of the home’s purchase price. This is higher than buying a home in other areas of Ontario, as the City of Toronto also charges a municipal land transfer tax on top of the provincial land transfer tax charged by Ontario. You may get a rebate if you're a first-time home buyer.
Just like estimating your mortgage affordability, it’s a good idea to estimate your closing costs so that you don’t have any hidden surprises. This can amount to thousands of dollars that you may need to pay upfront. Your real estate agent may guide you through the closing costs associated with your transaction.
How Much Are Closing Costs in Toronto?
Closing costs in Toronto often range between 3% to 4% of your home’s purchase price. The largest cost you will face is land transfer tax, which for the average home in Toronto being well over $1 million, will already make up over 3% of your home’s purchase price.
Step 6: Get a Mortgage Pre-Approval
A mortgage pre-approval is something that you can get from mortgage lenders which tells you how much they are willing to let you borrow at a certain mortgage interest rate. A mortgage pre-approval is an important part of the home buying process as it gives buyers a better idea of what their budget is and helps them narrow down their property search to homes within their price range. It also shows sellers that buyers are serious about purchasing a home, which can give them added confidence in any offers they make.
You can usually lock in a mortgage rate through a mortgage pre-approval. This rate hold means that you have a certain number of days, often up to 120 days, where your pre-approved rate won’t change. This allows you to search for homes while being sure of your mortgage rate.
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Step 7: Find a Real Estate Agent
It’s usually a good idea to work with a real estate agent when buying a home. They can help guide you through the home buying process, show you potential homes, negotiate on your behalf, and more. There often isn’t any direct cost to using a real estate agent as a homebuyer either.
When looking for a real estate agent in Toronto, make sure to do your research. Find agents that have experience and a good understanding of the Toronto housing market, as well as a good track record. Check for references from past clients and read reviews. Once you have narrowed down your list of potential agents, interview each one to get a better feel for their experience and qualifications.
Step 8: Finding Your New Home
This step is usually the part that most home buyers think of when buying a home in Toronto: finding the right home! While the previous steps may seem dull in comparison, they are important to have in place for your home search to be successful.
Your real estate agent can show you potential listings, but you can also search for home listings yourself too. Consider what features and amenities you're looking for in a home, such as the number of bedrooms and bathrooms, size of the home, distance to work, and so on. Even though you have already located a neighbourhood, there might be things that you are willing to compromise on.
Once you have a shortlist of potential homes, it’s a good idea to have home inspections conducted. This will help you identify any potential issues with the home so that you can factor them into your decision.
Step 9: Making Offers
Making an offer on a home involves more than just the price. When it comes to making an offer on a home, talk to your real estate agent about how much you should offer and other details of the purchase agreement. There are often certain contingencies in place for closing, such as financing or inspection results, that can protect you from unexpected costs.
Putting a contingency in your offer is called making a conditional offer. Home inspections might also be conducted at this step.
Step 10: Closing Date
Once a seller has accepted your offer, you’re not done just yet! You will need to schedule a closing date for the sale with the seller. This is when you will officially get the keys to the home, but before then, a flurry of paperwork will need to be completed. This includes getting financing by getting approved for a mortgage, paying closing expenses, signing contracts, and other arrangements. Your real estate agent and real estate lawyer will guide you through this step.
Once all of the documents have been signed and funds are transferred, the keys to your new home will be handed over to you. You are now officially a homeowner in Toronto!
Toronto Neighbourhood Profiles and Statistics
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Disclaimer:
- Any analysis or commentary reflects the opinions of WOWA.ca analysts and should not be considered financial advice. Please consult a licensed professional before making any decisions.
- The calculators and content on this page are for general information only. WOWA does not guarantee the accuracy and is not responsible for any consequences of using the calculator.
- Financial institutions and brokerages may compensate us for connecting customers to them through payments for advertisements, clicks, and leads.
- Interest rates are sourced from financial institutions' websites or provided to us directly. Real estate data is sourced from the Canadian Real Estate Association (CREA) and regional boards' websites and documents.