You made it! You are taking steps in the right direction and you are “Maximizing” your buying skills. You might be a first time buyer, a repeat buyer, or an investment buyer. There is a lot to know and this is the place to get started!
Toronto Transfer Tax increased for properties above $3 million
A new graduated Municipal Land Transfer Tax (MLTT) rate was established for residential properties valued at $3M and above. A 3.5% tax will be applied to homes up to $4M, a 4.5% tax on homes up to $5M, a 5.5% tax on homes up to $10M, a 6.5% tax on homes up to $20M, and, finally, homes over $20M would be hit with a 7.5% tax. The new MLTT rates, which are payable by a purchaser when they register their new property, will come into effect on January 1, 2024.
First Home Savings Account
What is an FHSA?
Work towards your goal of buying your first home with a First Home Savings Account (FHSA). The FHSA is a new registered plan that can help you save for your first home tax-free. If you’re at least 18 (and no less than the age of majority in your province), have a Social Insurance Number (SIN) and have not owned a home where you lived this year or at any time in the preceding four calendar years, you may be eligible to open an FHSA.
Reasons to Invest in an FHSA:
1. Use it to save up to $40,000 for your first home
2. Contribute tax-free for up to 15 years
3. Unused contribution room can be carried over to the next year, up to a maximum of $8,000
4. Potentially reduce your tax bill and carry forward undeducted contributions indefinitely
5. Pay no taxes on any investment earnings
6. Complements the Home Buyers’ Plan (HBP)
Home Buyers Plan
What is the Home Buyers’ Plan?
The federal government’s Home Buyers’ Plan (HBP) is a program for first-time home buyers in Canada. Through it, you can withdraw existing funds from your Registered Retirement Savings Plans (RRSPs) to buy or build a home, either for yourself or for a family member with a disability.
What you need to know
The Home Buyers’ Plan allows first time home buyers to use a portion of the money they’ve contributed toward their RRSP for a down payment on a home – the withdrawn money will need to be paid back over 15 years into an RRSP account. If you do not make your annual HBP minimum payment, the minimum amount is added to your taxable income for that year.
In 2019, the withdrawal limit was increased to $35,000 per individual. This means that, where both spouses have an RRSP, a couple can withdraw up to $70,000 with this plan.
Normally, funds withdrawn from a Registered Retirement Savings Plan (RRSP) are included in your overall income and are subject to tax. However, withdrawals from an RRSP that meet all applicable HBP conditions are not considered income and are not taxed at the time of HBP withdrawal. This is because at least 1/15 of the total amount is due every year and any shortfall in this repayment is added towards RRSP income and becomes taxable.
First-Time Home Buyer Incentive
What is the First-Time Home Buyer Incentive?
The First-Time Home Buyer Incentive, offered by the Canada Mortgage and Housing Corporation (CMHC), helps first-time buyers increase their down payment. It has two objectives:
1. Make home ownership more accessible for first-time buyers.
2. Encourage developers to build homes to ensure that housing stock can meet the increased demand that the incentive will create
How much is the First-Time Home Buyer Incentive?
The incentive amounts to 5% of the property’s value for an existing home and 5% or 10% for a new home. The incentive is an interest-free loan. It must be reimbursed when the property is sold or within 25 years of purchase. The amount repaid will be based on the value of the property at that time.
A clear example
A couple wants to buy a new condo for $400,000. They saved $20,000 for a 5% down payment and receive a $40,000 incentive (10% of the condo’s value). Their mortgage therefore equals $340,000, to be paid in monthly instalments of $1,745. Without this incentive, they would have paid $1,973, or an extra $228 per month. When they decide to repay the incentive, the couple will have to pay 10% of the condo’s market value.
First-Time Home Buyers’ Credit
This program is through the Government of Canada and it provides a 15 per cent income tax credit towards closing cards for eligible applicants. The credit applies to a maximum of $5,000 in closing costs which would result in a credit of $750. The FTHBC must be claimed in the year the home is purchased. Claimants are only eligible if both they and their partner have not owned or lived a home for the year they buy and four preceding years.
Land Transfer Tax Rebates
What is land transfer tax?
When buying a home, many people overlook the significant cost of land transfer tax. Almost always, the land transfer tax forms the largest portion of your closing costs. If you are a First Time Home Buyer in Toronto, you may be in luck! LLT rebates to help you save money on the purchase of your first home. There is an Ontario Provincial Rebate and there is a City of Toronto Rebate. As a first time home buyer, this rebate program takes the bite out of the Land Transfer Taxes!
Prohibition on Residential property purchases for foreign buyers
As of January 01, 2023 there will be a 2 year ban on non-Canadians buying residential properties in Canada. We will see how this affects the housing market. This may compound the slow down of condo pre-construction sales with interest rates reaching levels we have not seen in many years. Current interest rates have made the purchasing community weary of investments. There are exemptions to the new law. Click here for more information.
As of January 01, 2023 the Government of Canada will enact a new law that will try to slow down property flipping. The goal here is to slow down the appreciation of a property. The tax will focus on flippers who basically buy properties and resell them within a year at an escalated price. The government is planning to tax the profits of the property sale as a business tax instead of a capital gains tax where an individual only pays tax on 50% of the profit. Most flippers I know spend a minimum of a year or two renovating the property they purchased to resell. Renovators usually improve a property substantially and by doing so the home resell will be more valuable.
FAQ – There are always a ton of buyer questions but let’s start with these. Feel free to contact me with any other questions you have.
1. What’s the difference between a deposit and downpayment?
A downpayment is a partial payment for a purchased property in existing funds (money). In Canada a property over $1 million legally will have to pay a 20% downpayment. 20% of $1 million is $200,000, so you will need a downpayment of $200,000 to purchase a $1 million dollar home. The rest would be financed by a lending institution in the form of a mortgage, if you qualify for that amount. A deposit is part of your downpayment! It is an upfront payment made when an Agreement of Purchase and Sale has been agreed to for a particular property.
2. Why do I need a deposit?
A deposit is required because it demonstrates the buyer’s commitment to purchase the property. In Toronto it is normal to see a 5% deposit with a successful Agreement of Purchase and Sale.
3. What’s the difference between a Mortgage Broker and a Bank?
A Mortgage Broker acts as an intermediary between a lender and their client. Mortgage Brokers generally can get better mortgage rates and conditions than a traditional bank.
4. Why do I need mortgage approval?
You need to know what you can afford before you go and buy a home. It is a time-saving step that will let you know exactly what you can afford.
5. What’s a status certificate?
All condominiums have a document called a “Status Certificate.” This document basically describes the building’s financial health: it lists everything such as any pending lawsuits, and also any upcoming capital improvement projects (big dollar improvements to a building). A condo purchase requires a review of a status certificate by your lawyer.
6. Why do I need a lawyer?
What is the cost? You need a Real Estate Lawyer to finalize the transfer of title once the property purchase is firm. The lawyer will ensure the Title to the property is complete and that all closing adjustments are carried out. You get what you pay for: do not cheap out on a lawyer! Good lawyers usually charge in the $1500-$2000 range.
7. What’s a Buyer’s market?
A buyer’s market is where there is an overabundance of properties for sale and not enough buyers to fulfill the purchase of those properties.
8. What’s a Seller’s market?
A seller’s market is where there is a lack of housing inventory for sale and an excess of buyers in the market looking for properties. In Toronto we know this scenario all too well! In the last 20 years this has created bidding wars, escalated property values, and created buyer fatigue in Toronto.
9. What’s a Balanced market?
A balanced market is when supply and demand are at a constant and one does not outweigh the other. Generally, in a balanced market prices are more stable and competition between buyers is less.
10. What’s a Title search?
Every property has a “Title.” This is a legal description of the property and its location. Your lawyer will ensure the “Title” of the purchased property is correct before you take ownership of the property.
First Time Buyer – “You Have to Start Somewhere”
Buying your first property is a big step and a big commitment with lots of money involved. Some of it will be yours and some of it will be borrowed from a bank. Yes, you will pay interest on the money you borrowed for many years, but this is how you climb the buying ladder. This buying ladder doesn’t just start with your first property purchase: it continues throughout your life and the investment you make today will be there when you start planning your retirement. Your future home isn’t just a place to live: it is also your lifetime investment and your guarantee that you will have a nest egg to rely upon when you retire. But for now, let’s focus on your first purchase and climbing the buying ladder to your first home.
Where to start?
1. The first step
is to dream of your first home. For many, it’s a sense of independence and the beginning of a journey. Start looking around at the possibilities out there. The easiest way to find your dream home is through easy-to-use apps or websites.
2. The second step
is to be realistic with your dreams. Can I afford the penthouse at the Shangri-La? Maybe not, and that’s ok. It’s best to temper your dreams with reality. This is where you will find a balanced and realistic approach to achieving your dream of buying your first home.
3. The third step
is usually one of the bigger steps, which is finding out what you can afford. The only way to do this is to approach your bank or Mortgage Broker and get a commitment letter (mortgage pre-approval letter) from them stating what you can afford and what a lending institution will lend to you. Why is this a big step? Because you are committing yourself to the process of buying a home.
A Mortgage Broker acts as an intermediary between the lender and the client. Why are Mortgage Brokers useful? They can usually get better mortgage rates than your bank. They shop your mortgage around to different banks to see who will offer the best rate. This is a win-win for you. The bank ultimately pays the mortgage broker so there is no cost to you. However, some clients will prefer to stay with their traditional bank because of trust and an existing relationship.
Closing costs are on top of the price you paid for the house. Some of your closing costs will be land transfer taxes, lawyer’s fees, and associated fees with the bank such as property appraisal. All these costs add up and are not generally included in your mortgage!
Land Transfer Taxes: There is a Ontario Land Transfer Tax and if you are within the City of Toronto there is a City Land Transfer Tax. These combined taxes are substantial to any property purchase. Click here for Land Transfer Tax Calculator.
First-Time Buyer Land Transfer Tax Rebate: The good news is there is a rebate for the Land Transfer Tax up to $8,475 when you purchase your first property.
Mortgage and Land Transfer Tax Calculators
First-Time Home Buyer Incentive: This program is designed to help get you into the housing market. The government of Canada will contribute (shared-equity mortgage) up to 5% for resale homes and 5% to 10% for newly constructed homes. Find out if you qualify here: First Time Homebuyer Incentive. Make sure you find out if you qualify for this program, because many buyers do not qualify!
Home Buyers Plan (HBP): This plan will let you withdraw funds from your RRSP investments so you can use these funds as a downpayment for your new home. Currently, the withdrawal limit is $35,000 as of March 19, 2019. Find out more here: Home Buyers Plan
First Time Home Buyer Tax Credit: This is a non-refundable tax credit of up to $10,000 that will result in a $1,500 in tax savings for eligible home buyers. Find out more here: First Time Home Buyers Credit
What is the difference between a fixed and variable mortgage? This YouTube video by Rate Hub explains the difference between these different mortgage types. Click here.
How much of a downpayment do I need? Downpayment’s can vary for purchased properties. In Canada any property over $1 million will need a 20% downpayment. For properties under $1 million it will depend on how much a bank will lend you and what you can afford for a downpayment. Some downpayment’s for properties are as low as 5%. It’s best to review this with your lending institution or Mortgage Broker.
4. The fourth step
is to figure out where you want to live. Is it going to be close to work, or maybe where all the action is in the downtown core? It’s important to discover where you want to live and why you want to live there. Once you have this answer you are ready to decide the type of home that will be the best fit for you.
5. The fifth step
is to figure out what type of home you want and can afford. This is where the second step comes in handy: balance out your dreams with reality. The third step, what you can afford, is usually the biggest dose of reality. If you know your affordability is $700,000 you will probably be focusing on a condo, such as a 1 bedroom or 1+1 bedroom in the downtown core. A parking space will cost anywhere from $50k to $70k depending on the building you want to live in.
Considerations for purchasing a Condo: Rooms/Washrooms | Location – Amenities: be realistic! Will you ever use the pool? You will be paying for it! | Security/Concierge services | Age of building | Building size | Condo size | Balcony/Terrace | Parking | Visitor parking | Status certificate | View: make sure this is a “forever view” that will not be obstructed by and a new building | Utility costs | Schools
Considerations for purchasing a freehold property (house): Rooms/washrooms | Location: neighbourhood, neighbours, schools | Age of building | Property size | back yard/front yard | Parking: owned/shared/right of way | Street parking | Home inspection | Termite inspection | Utility costs
6. The sixth step
is to connect with a Real Estate Agent. Realtors have a lot of experience and training and are there to help you to get to the top of the buying ladder with the successful purchase of your new home. Are all Realtors of the same quality? I would say no, in a big way. There are a lot of part-time Realtors who do this as a hobby to make extra income. They are not there for you because they are not committing themselves to the business of Real Estate. An experienced Realtor needs to be committed to the profession. By the end of 2022 I will have completed almost 30 transactions for that year. This puts me in the top 2.25% of all Realtors in Ontario (based on stats from REality). Find a Realtor who will listen to you, and who you can trust to take you to the finish line.
7. The seventh step
is to physically visit properties that you click with. It’s one thing to see a great property online and it’s quite another to see it in person. Usually, the first thing a buyer will say is, “It looks bigger in the photos,” and this is generally true. Whether you are looking at houses or condos there are many things to look for but one of the most important factors is, “Does this home give me good vibes? Would I enjoy living here?” It’s important that the home connects with you and you can envision yourself living here. If you get this feeling then it’s time to look at all the nitty gritty things that help you decide to pursue owning this home. Visiting properties can take some time before the right one comes along, but usually around 10-15 appointments will produce the home that is perfect for you. As your Broker Realtor I will start the process with online tools that will narrow down your home search to properties that fit your criteria.
8. The eighth step
is to make an offer on the home you connect with. Depending on the Realty market there are many strategies for making an offer. Having an experienced Realtor at your side will make this process smooth and less stressful. Having a strong agreed-upon strategy between client and Realtor will give you the best chances of being successful with the offer. Fingers crossed! At this point you will need to have a deposit ready to go!
There are many forms that will need to be signed:
Buyers Representation Agreement. Working with a Realtor. Agreement of Purchase and Sale. Schedule A – conditions. Schedule B – conditions. Confirmation of Cooperation and Representation Agreement
Please contact me and I will share educational forms with you so you understand the full process before you actually make an offer on a property!
9. The ninth step
is…success! You have purchased your first home! Now you will need to connect with your Real Estate Lawyer and your lender to let them know you just purchased a property! At this point, your lender and lawyer will step in to ready the possession of your new home. If you need a Real Estate Lawyer contact please let me know.
10. The tenth step
is to take possession of your new home! This step is usually quite easy. On closing day your lawyer will give you the lock box location and lock box code to a set of keys for the home. All you have to do is put the key in the door and walk into your new home. Well, there is more than that! You will need to:
Arrange movers to move in your belongings. Forward your mailing address. Arrange utilities to be in your name and arrange insurance. Maybe the most important thing is to start planning the house warming party!
As your Broker Realtor I am here to offer advice and help connect you to all the services that will make for an easy transition to your new home! Connect with me at: [email protected]
Repeat Buyer – “Not your first rodeo”
Generally, If you are not a first-time buyer and you are looking for a new home, this means you need to sell your existing home. This presents its own challenges! What do you do first? Buy your new home first or sell your current home first? Well, I’m here to answer all these questions for you!
1. The first step
is to review the first time buyer steps! It’s been many years since you purchased your last property and the world of Real Estate is always evolving!
2. The second step
is to understand your affordability for your new home! Are you able to keep your existing property and turn it into an income property (investment property)? There are lots of possibilities and it’s best to connect with your lender to understand these possibilities.
3. The third step
is to determine to buy first or sell first. This really comes down to real estate market dynamics and the overall performance of the economy. A rule of thumb:
Seller’s market – buy your new home first with a longer closing date and then sell your current house.
Buyer’s market – sell your existing home first with a longer closing date, and then purchase your new home.
As your Broker Realtor, it’s important to look at all the possibilities when selling and buying property. Timing is very important and looking out for your best interests is paramount when transitioning from one home to the next! Contact me to talk about the specifics of your next move. Email me at: [email protected]
Investor Buyer – “Think Long Term”
There is nothing better than owning a property where a tenant is helping you pay the mortgage. Investment properties are a great overall investment. If you look at all the options for investing money Real Estate is one of the best! It’s best to think long term. The reason for this is the upfront costs associated with purchasing a property such as Land Transfer Taxes and closing costs are costly. Depending on the property, it might be difficult to have an income producing property without a substantial downpayment for the property. Many new investors purchase a condo to start their portfolio. Condos are great investments and have a very high occupancy rate in Toronto. Some of the key expenses with condos are mortgage payments, maintenance fees, property taxes and landlord insurance fees. These fees can add up per month and this is why it is hard for an investor to make a monthly profit from the rent paid by the tenant. If you are looking for a neutral income producing property or a positive income producing property a large downpayment will be needed when you purchase the property. Why would an investor purchase a property where it loses money monthly? Well, most income properties are revenue neutral or bring in a small profit monthly but the main reason for investing is property appreciation over time! In Toronto, conservatively a property grows by 5% per year. A $500,000 purchase is gaining $25,000 a year. In 10 years this investment property has turned a profit of $250,000! Depending on the property your initial downpayment might have been $200,000. This property has produced over 100% profit from your initial downpayment! Of course, when you sell the property there are costs associated with it. There are not many forms of investment where you make a profit like this and this is why Real Estate is a favourite among investors.
What are the associated costs when an investment property is sold? There are Realty commissions when selling a property. There will be Capital Gains Tax when selling the property. There are possible mortgage penalties if you are breaking a mortgage agreement and then there are closing costs associated with the sale of the property.
Investment properties offer great opportunities for investing. Patience and long term planning are key to any investment. A question to ask yourself is why invest now and what is my expectation after 5 to 10 years from now?
There are lots of moving parts when purchasing an investment property. I am here to help you choose an investment property that will have healthy returns in your future. Please contact me for more information at:
Pre-Construction – “Finding the balance for your investment strategy”
Once upon a time pre-construction projects were a great way to get into the real estate market. Not so much in today’s market (2023). The main reason for this is developers stopped offering big incentives to purchase. Another reason is construction costs have escalated over the past many years and this has reduced profit margins for developers. A good example is a new development project in the Queen and Church area. This project is selling at roughly $1600 per square foot! The current average for downtown Toronto is just over $1100 per square foot. Developers are charging tomorrow’s prices today!
Typical things to know before you buy into a pre-construction project
1. There is a 10-day cool off period. That’s correct! You have 10 days to reflect on your purchase to make sure this is a good fit for you.
2. The developer will want to make sure you can afford the deposit and that you will be able to pay for the condo unit when it’s ready.
3. Deposits are usually 20% in total for downtown Toronto. They are paid in segments. Generally 5% on signing, 5% in 90 day, 5% in 180 days and 5% in 360 days for a total of 20%. Deposit structures dates vary from developer to developer.
4. Are developer maintenance fees and property tax estimates accurate? Generally no, but they are a close estimate. Once a condo building is incorporated (owners takes ownership and a condo board is established) budgets and a Reserve Fund study will be created. This information will dictate maintenance fees moving forward. The same goes for property taxes. The City will evaluate property taxes once a building is incorporated.
5. What’s a Reserve Fund? A reserve fund are funds (money) that is put aside for future fixes and upgrades to a building. A typical capital cost would be window replacement. A reserve fund would put a percentage of funds (money) aside per month for 30 years until the windows need replacing. This is how a reserve fund operates. It is wise for a building to have a healthy reserve fund. Maintenance fees include a contribution to the reserve fund on a monthly basis.
6. Closing costs are part of the process when purchasing a pre-construction condo unit. These costs usually cover cost overruns and funds demanded by the city to enhance or upgrade a public space in close proximity to the condo building. Closing costs are usually capped and are usually a percentage of the purchase price.
So what’s the advantage of buying pre-construction in today’s market (2023)?
1. For some, investing in tomorrow’s projects offers a long term investment with only 20% deposit and an expected payoff many years from now.
2. Another advantage is to buy a property a purchaser is not ready to occupy. The main purpose is to get into the real estate market now instead of the future.
3. Some buyers are only interested in moving into a new property.
4. Location plays a big role in deciding to purchase a pre-construction unit or not.
There are many reasons for buying pre-construction but what is missing in today’s market is the incentive (discounts) to purchase pre-construction projects.
What are the disadvantages to purchasing a pre-construction condo?
1. Waiting for a new project to be completed can take years (typically five years). A lot can change in five years. Life moves on and circumstances change.
2. There is a possibility that the project will not be finished or will not get off the ground. What happens then? You will receive your deposit back with no interest. Sometimes developers will have your deposit for years before the current pre-construction project is cancelled due to cost escalations. This has happened many times and will continue in the future. There is a current development in the Yonge and Bloor area that isn’t at the halfway point after 7 years. Can you imagine having your deposit locked up for 7 years! What happens if the builder can’t afford to finish the building because construction materials have gone up considerably in the past 7 years? Most probably the project will be sold off to another developer and all the deposits will be returned to the original purchasers. The new developer will rename the project and resell the condo units again with a new completion date and a higher price per square foot.
3. When you sign an Agreement of Purchase and Sale for a pre-construction condo unit you are entering into an agreement where the developer has all the power. This is a reality that will not change. All big developers have standard agreements. Very rarely will a developer alter these agreements. It’s a take it or leave it agreement.
4. There are a number of new condo buildings that have questionable quality issues. Purchasing with a developer with a proven track record will help prevent these situations from arising.
5. New condo buildings always have issues when first occupied. In new buildings, false fire alarms tend to go off often in the first year. The general reason for this is water pressure changes to the fire sprinkler system. Elevators will inevitably break down until the bugs are worked out. The building concierge/security will have bumpy service until dedicated employees are found and organizational systems are put in place.
As a former condo board president and board member, I appreciate the amount of work it takes to get a building to operate normally. It takes an experienced condo board and property management team to run a successful condo building.
Knowledgeable Buyers Guide