Moving Up or Starting Out in the Toronto Market?

In Canada, the minimum down payment you need depends on the price of the home.   For homes priced at $500,000 or less the minimum down payment is 5% of the purchase price. For homes priced between $500,000 and $1 million the minimum down payment is 5% of the first $500,000, plus 10% of any amount above $500,000.  For example, if the home costs $750,000, your minimum down payment would be $25,000 (5% of $500,000) + $25,000 (10% of $250,000) = $50,000.

For homes priced at $1 million or more the minimum down payment is 20% of the purchase price. For example, if the home costs $1.2 million, your minimum down payment would be $240,000.

How down payment affects mortgage type: The down payment amount determines if you have a conventional mortgage or a high-ratio mortgage. If your down payment is less than 20%, you'll need to purchase mortgage loan insurance, also known as CMHC insurance. This protects the lender in case you default on your mortgage. The cost of this insurance is added to your mortgage amount.  

Closing Costs: In addition to the down payment, you'll also need to factor in closing costs, which can include legal fees, home inspection fees, land transfer taxes, and more. These costs can add up to 4% of the purchase price.  

First-Time Home Buyer Incentives: Government programs and incentives available to help first-time home buyers with their down payment. These can include tax credits, savings plans, and shared equity programs.

When you're ready to make an offer on a home in Toronto, it's essential to understand the role of the deposit. This crucial step demonstrates your commitment to the seller and can significantly strengthen your offer in a competitive market.

Why Deposits Matter: Think of the deposit as a good-faith gesture. It shows the seller that you're not just window-shopping but are genuinely interested in purchasing their property. This financial commitment gives them confidence that you're a serious buyer, increasing the likelihood of your offer being accepted.

Payment Methods: Traditionally, certified cheques were the go-to for deposits. However, Toronto's real estate landscape is evolving, and bank drafts or even e-transfers are often accepted, making the process more convenient for buyers.

How Much to Offer: The deposit amount is typically a percentage of the purchase price and it's negotiable. While 5% is a common starting point in Toronto, the final amount can vary based on the property's value, market conditions, and competition from other buyers.

Be Prepared: Having readily available funds for the deposit is crucial. While the exact amount will depend on your offer, ensuring you have sufficient liquid cash to demonstrate your financial readiness to the seller. The deposit is held in trust and applied towards your down payment if your offer is accepted. Your realtor can provide valuable guidance on determining an appropriate deposit amount and navigating the payment process.

Tips for First-Time Homebuyers: Get Pre-Approved for a Mortgage: This will give you a clear idea of your budget and show sellers that you're a serious buyer. 

While the purchase price is a primary factor in determining your minimum down payment, other aspects of your financial profile can also come into play. Lenders consider various factors to assess your risk level, which can influence the down payment required for your mortgage.

Here are some key factors that can affect your down payment:

• Employment Status: If you're self-employed, lenders may require a larger down payment due to the perceived variability of your income. Be prepared to provide thorough documentation of your earnings history.

• Credit History: A strong credit score demonstrates financial responsibility and can help you secure a mortgage with a lower down payment. Conversely, a lower credit score may require a larger down payment to offset the lender's risk.

• Length of Time in the Country: Newcomers to Canada may need a higher down payment, as lenders may have limited credit history to assess. However, some lenders specialize in mortgages for newcomers, so it's worth exploring your options.

• Property Type: The type of property you're purchasing can also influence the down payment. For example, lenders may require a higher down payment for investment properties or non-traditional homes.

• Down Payment Source: Lenders prefer down payments from your own savings or investments. If you're receiving a gift or loan for your down payment, you must provide documentation and meet specific requirements.

• These are just some of the factors that can affect your down payment.

• It's essential to speak with a mortgage professional to get a personalized

It's easy to get these two terms mixed up, but they represent very different stages in the mortgage process. 

Mortgage Pre-Qualification

• Informal Estimate: This is a quick and informal estimate of how much you can borrow.

• Based on Self-Reported Information: You provide basic financial information (income, debts, assets) to the lender, but they don't verify it.  

• No Credit Check: A pre-qualification doesn't involve a credit check, so it doesn't affect your credit score.

• Not a Guarantee: This is NOT a guarantee of approval; it's simply a preliminary assessment.

Mortgage Pre-Approval

• Formal Assessment: This is a more formal assessment of your borrowing capacity.  

• Requires Documentation: You'll need to provide documentation to verify your income, debts, and assets (pay stubs, tax returns, bank statements, etc.).  

• Includes Credit Check: The lender will conduct a hard credit check, which can slightly impact your credit score.  

• Conditional Commitment: This is a conditional commitment from the lender to lend you a specific amount, subject to certain conditions (e.g., appraisal of the property, confirmation of employment).  

• More Weight with Sellers: A pre-approval carries more weight with sellers as it shows you're a serious and qualified buyer.  

Which Should You Get?

• Start with Pre-Qualification: If you're just starting to explore the idea of buying a home, a pre-qualification can be a helpful first step.

Get Pre-Approved When Serious: Once you're serious about buying, get pre-approved. This will give you a more accurate budget and make your offers more competitive.

Buying a property with friends can be a great way to enter the housing market if you can't afford to do it alone, but it's important to go in with your eyes open and a clear plan. Here's a breakdown of the pros and cons, along with some key considerations:

Pros:

• Affordability: Pooling your resources with friends can make homeownership more attainable, allowing you to share the down payment, mortgage payments, and other expenses. 

• Larger Property: You might be able to afford a larger or better-located property than you could on your own. 

• Building Equity: You'll start building equity instead of paying rent.  

• Shared Responsibilities: You can share the responsibilities of homeownership, such as maintenance, repairs, and yard work. 

Cons:

• Potential for Conflict: Disagreements about finances, chores, lifestyle choices, or future plans can strain friendships.

• Legal and Financial Complexity: You'll need a clear legal agreement outlining ownership, responsibilities, and what happens if someone wants to sell or move out.  

• Selling Challenges: Selling the property can be more complicated when multiple owners are involved.

Key Considerations:

• Choose the Right Friends: This is crucial! Make sure you have compatible lifestyles, financial situations, and long-term goals.

• Get Everything in Writing: A co-ownership agreement is essential to protect everyone's interests. It should cover:

  • Ownership percentages

  • Financial contributions and responsibilities

  • Decision-making processes

  • Dispute resolution

  • Exit strategies (what happens if someone wants to sell or move out)

• Communicate Openly and Honestly: Establish clear communication channels from the start to address any issues or concerns that arise.

• Financial Planning: Create a budget that includes all expenses (mortgage, taxes, utilities, maintenance) and how they'll be shared. 

Option 1 (Focus on Affordability):

• Homeownership: More achievable than you think. Partner up! (Simple, positive, and emphasizes the solution)

• Dream of owning a home? Team up with friends and make it a reality. (Focuses on the dream and the practical solution)

Option 2 (Focus on Shared Living):

• Shared housing, shared investment. Own a home with friends. (Highlights both the living arrangement and the financial benefit)

• Live better, together. Co-own a home with friends. (Emphasizes the community aspect)

Option 3 (Focus on the Business Aspect):

• Invest in real estate, together. Co-ownership made easy. (More formal, emphasizes the investment angle)

• Smart real estate investing starts with partnership. Own a home with friends. (Positions co-ownership as a strategic move)

Option 4 (More Direct/Intriguing):

• Own a home, even if you can't afford it alone. Partner up! (Directly addresses the affordability challenge)

• The future of homeownership is shared. Explore co-owning with friends. (Forward-thinking and encourages exploration)

Option 5 (Short & Catchy):

• Co-own your dream home. (Simple, memorable, and focuses on the positive outcome)

• Homeownership, together. (Emphasizes the collaborative aspect)