We feel the pain first-time buyers experience when they realize buying a home is out of reach. However, we’re here to help first-time buyers realize the opposite: that home ownership is actually achievable with the right strategy.
Here, we share tips on buying an affordable home in Toronto and discuss every little detail that will help you achieve your dreams.
If you’re single, home ownership probably feels like something only couples can afford. However, although you might not have a spouse or partner, you can still partner up with a friend so you can both become homeowners. Known as “co-ownership,” this is an excellent option if you go into it with your eyes wide open. And we mean wide open.
Some considerations when entering co-ownership include:
- Credit scores: You want to go into co-ownership with someone with a good credit score. Otherwise, they can hold you back from getting a mortgage and the best interest rate.
- Ownership shares: Be sure to have an agreement on the ownership shares defining whether it is even Steven with equal shares and equal access to the entire home or a different arrangement based on things like one of you investing a larger chunk of change to own more of the house or get dibs on the best bedroom.
- Understand what happens when selling: Selling a co-owned home becomes complicated when you want to sell and your co-owner doesn’t. Outlining the conditions of a possible sale or falling out between you is essential to avoid complications down the road.
- The mortgage: Not all lenders will consider providing a mortgage in a co-ownership situation. Approaching a broker makes it easier to find a lender with this type of mortgage. It also increases your odds of getting the best rates and ensures you understand the ins and outs of co-ownership.
- Home maintenance: Another scenario is differences in your idea of home maintenance. Whether it’s something minor like who mows the lawn or something significant like disagreements on investing in a new roof, you need to agree on how you’ll tackle home maintenance. You both have to keep things logical, putting the value and integrity of the home first.
- Compatible lifestyles: What if one of you finds the love of their life and has them over all the time? What if they want that person to move in? What if you like to party all night, and your roomie needs quiet and downtime? These are important considerations as they impact your happiness and the success of your decision to live together. Compatibility with your co-owner is just as important as compatibility with a life partner!
- Formalize financial responsibilities: Things like how you’ll split up the bills, who will be responsible for paying the bills, where you share responsibilities, and where you can go solo are all very important in co-ownership. It goes beyond paying and splitting the mortgage and encompasses everything from the streaming platforms you want to unexpected emergencies like a burst pipe. Having an agreement on finances is critical for co-ownership to succeed.
Looking for more tips on buying a home in Toronto? Read these posts next:
- Can You Skip Buying a Starter Home?
- Should You Buy a Toronto Tear Down?
- How to Buy a Home After a Divorce?
Become a Landlord
Another option is to look for a property with an existing suite you can rent or taking in a roomie. A property with a current tenant who loves their home and pays their rent is a godsend. However, these options come with a downside in that these properties can be more expensive, and that, well, you need to become a landlord. You’ll also have someone living in your house. Even if it’s an entirely separate unit, it still poses privacy issues. You can also renovate a secondary suite, but if you already have problems affording a home, this idea is less likely to provide much of a break affordability-wise.
Find the Latest Up-and-Coming Neighbourhood
It’s becoming harder to find the latest up-and-coming areas in Toronto as so many have already experienced gentrification. However, there are still opportunities hidden across the GTA that can present affordable housing and the chance to see a very handsome return on investment in the future. Being one of the first in these areas takes some finesse with a savvy real estate agent who knows where to look. But if you succeed, you’ll get a deal and have bragging rights for recognizing a diamond in the rough.
Buy a Fixer-Upper
This is the HGTV dream: finding that crazy bad house on the best street you can afford. This isn’t for everyone, but it can be one of the best ways to spread your dollar further and get the home you really want. However, this requires a keen eye to avoid structural issues that will devastate your renovation budget. In these situations, you’re also competing against people like you, which means you can run up against buyers willing to waive the inspection to get the house. You don’t want to sacrifice the inspection, as once you start your renovations, you can end up in a money-pit situation that leaves you with an unlivable home you can’t afford to repair. Working with an experienced real estate agent can help you spot red flags that tell you to walk away.
Bank of Mom and Dad
Even when times are tight, you might find Mom and Dad willing to either gift you money towards a down payment or invest with you to purchase a home. In fact, they might even consider paying for renovations to create an in-law suite and help carry the mortgage burden. This often makes for an awkward conversation. For example, assuming your parents’ seemingly picture-perfect lifestyle means they have money to spare might be an unfortunate way of discovering your parents are up to their eyeballs in debt!
Save a Bigger Down Payment
The more of a down payment you have, the better home you can afford, and the less mortgage you’ll need to carry. Speaking to a real estate agent to discuss the areas you hope to buy and determining the ideal home price that allows you to put at least 20% down will make a big difference in your mortgage payments. You’ll also avoid paying the mandatory insurance to cover potential mortgage defaults. You should also speak to your bank about opening a first home savings account (FHSA). This account allows you to save for your first home tax-free up to $8,000 per year and $40,000 over a lifetime.
Get more homebuying in Toronto advice right here:
- The Truth About Timing the Market
- Is it a Good Idea to Buy a Home without Seeing it IRL?
- 10 Signs a Home is The One
Speak to Your Lender
Talking financial strategy with a financial planner or mortgage lender can help you discover clever ways to reduce your mortgage payments and interest rates. They will look at your down payment, provide a mortgage pre-approval (if you qualify), and look at the best approach for your mortgage. For example, are you better off with a penalty-free open, higher-interest mortgage to help pay down your mortgage sooner, or is it better to have a lower-interest rate closed mortgage that limits flexibility but reduces your monthly payments? Even something as simple as choosing a less conventional mortgage payment schedule can accelerate your payments and help you pay your mortgage faster. So, a financial conversation is always the best way to find solutions that help make homeownership a possibility.
Leverage Government Home Ownership Programs
There are several government homeownership programs you can leverage to help make buying a home more affordable, including:
The First-Time Home Buyer Incentive
This incentive helps build a higher down payment so you can have a smaller mortgage and lower monthly payments. It’s available through the Government of Canada and provides the following towards your down payment:
- 5% or 10% for a first-time buyer’s purchase of a newly constructed home
- 5% for a first-time buyer’s purchase of a resale (existing) home
- 5% for a first-time buyer’s purchase of a new or resale mobile/manufactured home
You need a qualified annual income of $120,000 or less, and the insured mortgage and the incentive amount cannot exceed four times your qualified annual income. However, this is an equity setup where the government basically owns a share of your home. As a result, you must repay the government based on the percentage they lend you and the home’s current market value at the time of repayment. The loan is due after 25 years or when you sell, but you can repay at any time before that to help reduce how much you’ll owe.
Home Buyers’ Amount
You can claim up to $10,000 for purchasing a qualifying home if you (or your spouse or common-law partner) acquired a qualifying home and have not previously owned a home inside or outside Canada.
GST/HST New Housing Rebate
If you purchase a new or substantially renovated mobile or floating home, you may be eligible for a new housing rebate for some of the GST/HST paid.
Home Buyers’ Plan (HBP)
The Home Buyers’ Plan (HBP) allows you to withdraw tax-free funds from your Registered Retirement Savings Plans (RRSPs) as part of your down payment. You then have 15 years to pay the money back.
Speak to a Real Estate Agent
Consulting with a real estate agent to talk homeownership strategy can also help put things in perspective. Although you might feel home ownership is completely out of your reach, an honest conversation can provide hope that you can find a homeownership strategy that works.
You can start by calling The Christine Cowern Team at 416.291.7372 or emailing us at email@example.com with any questions about finding an affordable home in the GTA. We’d love to work with you!