The True Costs of Home Ownership

Before you decide to purchase a home in Toronto, it is important to examine the true costs of home ownership. These costs include your closing costs, ongoing carrying costs, and potential maintenance or major repairs.

You must calculate these costs as accurately as possible so you can determine if owning a home is the right move for you.

Can You Afford the Closing Costs?

While technically you can purchase a home with as little as a 5% down payment, there will be additional costs due on the day of closing or soon after that you must budget for. These additional expenses are known as closing costs. Reviewing our detailed list of Toronto Real Estate Closing Costs will help you prepare for these costs.

Are the Monthly Carrying Costs Affordable?

Being able to say you own your home is a fantastic feeling, but is being house-poor or at risk of losing your home worth it?

After ensuring you can afford to cover the closing costs of a home purchase, the next important expense to evaluate is if the monthly carrying costs of the home can fit comfortably into your budget and goals.

When working with our buyer clients we like to calculate the exact carrying costs for the home to make sure whatever is leftover each month is enough to cover your other expenses.

It’s important to consider EVERYTHING when running these numbers to make sure you’re not in the red every month after you become a home owner.

Go through your bank and credit card statements and list out everything you spend money on throughout the year. It all adds up and before jumping into home ownership you need to be sure you can afford what’s important to you and at the minimum know what sacrifices are required.

Some things to think of include: groceries, restaurants, memberships, phone bills, phone upgrades, clothing, gifts, furniture, car payments, gas, car insurance, snow tires, transit passes, parking tickets, pet food, medications, entertainment

You will also need to consider the costs of ongoing maintenance of your home. Did you buy the home with the intention of renovating something in the future? If so, did your budget allow you to save for this?

If the fridge breaks down, you need funds available to call in a technician or to have the broken appliance replaced. Broken window? Screen door not sliding? Basement flooding? When you own the home everything’s on you.

Even if something can be covered by insurance you may have a sizable deductible to pay.

When Does it Make Sense to Buy a Home?

If you have a stable job, a steady income, and enough savings to cover the costs of ownership, buying a home may be the right option for you.

Additionally, if you plan to stay in the same area for a long period of time, purchasing a home may be a good idea.

Should You Rent or Buy a Home?

Before you decide to buy a home, you should first consider whether renting is a better option.

Renting often comes with lesser monthly carrying costs, especially in the case of Toronto Condos, and allows you to move more easily if needed.

There are advantages to both renting or owning a home. Use the following chart to weigh the benefits and responsibilities of each to see which is right for you:

Can You Qualify For Financing?

Being able to afford a home and being able to qualify one are two different things. Once you know what you could afford, it’s time to speak with your bank, a lender, or your realtor for a recommendation to a reputable mortgage broker to help you get qualified and pre-approved for a mortgage.

A pre-approved mortgage lets you know how much you can afford, what your interest rate will be and what your monthly mortgage payments will look like.
Getting pre-approved will help you narrow your search down to a specific home type, size or neighbourhood.

Note: Getting pre-approved is not a guarantee of final approval for a mortgage. Once you find the home you want to buy, the property still has to be evaluated to ensure the price and condition of the home are acceptable to your lender. If the home doesn’t appraise for the price you’re planning on paying for it you may have to cover the appraisal gap, or be at risk of losing your deposit.

What if you don’t Qualify for a Large Enough Mortgage?

While we always recommend our clients choose a mortgage amount less than the maximum you can afford or get approved for. That being said, sometimes to buy a home that checks enough of the boxes for you to be confident in your decision to buy, you may have to stretch the budget.

If you must purchase a property more expensive than what your lender has pre-approved you for, you will need to increase the down payment to make up the difference.

Can You Stomach an Increased Interest Rate?

Whether you have a fixed or variable rate mortgage, in one way or another interest rate hikes could eventually push you over the edge of home affordability.

Following our 8 strategies to secure a lower mortgage rate may help you buy comfortably, but it’s important to prepare for the worst case scenario, interest rate hikes.

With a fixed rate mortgage, your interest rate will be locked in for a term with your lender. At the end of that term when you renew the mortgage you’ll be taking on whatever your lenders rate is at that time.

With a variable rate mortgage, your interest rate will adjust based on the Bank of Canada rate. Depending on market conditions, your mortgage payments can increase gradually over time instead of at time of renewal.

If rates have increased too much that you can no longer afford the higher monthly payments you may be forced to sell. If unexpected challenges affect your ability to make mortgage payments, contact your lender or broker as soon as possible.

Lenders can sometimes work with you to find a solution to any temporary financial setbacks.

Being forced to sell may put you at risk of losing money on your home. If the market has not appreciated enough since your purchase, or if you have not built enough equity over your home ownership duration to cover the costs of selling & arranging a new living situation.

Does the Perfect Home Exist Within Your Budget?

Figuring out the kind of home you’ll be excited to come home to is the next step of this journey. We’re not just finding a home for you to choose today, it needs to work 5 years to even 10 years in the future.

Oftentimes, our buyer clients have a checklist of what their dream home must have, while completely overlooking things that are most important for themselves.

Ask yourself these questions:

• • What do you want in a home?
  • What do you need in a home?

Location Specific:

• • Do you want to live downtown? in the suburbs?
  • Are there neighbourhoods you’re interested / not interested in?
  • What amenities do you need to be close to?
  • Do you need to be close to work/school/shopping/health services/public transit?
  • Are you close enough to your family/friends?

Home Specific:

• • What type of home are you interested in? Condo, Semi-Detached, Townhome, Detached?
  • How many bedrooms and bathrooms do you need?
  • Do you need a home office? Extra storage? Dishwasher? Parking spot? Any unique must-have features?
  • Does the view / floor level matter for a condo?
  • What styles do you like / not like?
  • Move in ready or open to doing some renovation?

Lifestyle:

• • Can you commit to living in a specific location for a few years?
  • What happens if your spouse moves in, or you have kids? Is there room to grow?
  • What happens when your kids move out?

After going through all of the above questions, work with your realtor to see if there are any properties that check all of the boxes while saying within your budget. If there are none, what sacrifices are you willing to make?

Conclusion

Now that you’ve taken the biggest questions and concerns related to purchasing a home into consideration, does taking the plunge into homeownership sound like the right plan for your current situation?