What to Know Before Buying Your First Home in Toronto

A lot of the people who call me are families and buyers looking to purchase their first home or condo in Toronto. That comes with plenty of worries and questions, and if you are reading this you probably have your own.

I am Moe Asgarian, a senior real estate broker in Toronto, ranked among the top brokers at RE/MAX worldwide. I want to walk you through the whole path of buying a first home, from start to finish, and cover the main things you need to know.

Savings accounts that actually help

The first step is knowing how you can save, which means getting familiar with the accounts your bank offers. Start with the FHSA, the First Home Savings Account. These accounts are not a miracle, but it helps to know the tools you have. If you do not have one yet, open it. For first-time buyers, you can save up to 40,000 dollars in it, with an annual cap of 8,000 dollars. The best part is that the 8,000 dollars you put in each year is deducted from your total income, so you pay less tax. On top of that, the money grows tax-free, and when you pull it out for a home you do not pay tax on it. They basically took the best parts of an RRSP and the best parts of a TFSA and built an account designed for first-time buyers. The second tool is the RRSP. The difference is that money you withdraw has to be paid back over time. Because RRSPs have been around much longer, you may have more saved in one. Canada now lets you take up to 60,000 dollars from it for a home, up from 35,000 dollars. If you are buying with a spouse, each of you can withdraw up to 60,000 dollars.

Down payment and insured mortgages

Let me start with an example. Say the home you want costs 600,000 dollars. The minimum down payment on the first 500,000 dollars is 5%, which is 25,000 dollars. From 500,000 up to 999,999 dollars, the minimum is 10%, so on the next 100,000 dollars that is 10,000 dollars. Your minimum down payment in this example is 35,000 dollars. A smaller down payment gets you into the market more easily, but remember that the less you put down, the higher your monthly costs and loan amount. One thing to know: if you buy in Canada and put down less than 20%, you need mortgage insurance. This is called an insured mortgage, and the rate is usually a little lower than an uninsured one. The bank sees it as a safer product, but you have to add the insurance cost to your mortgage. If you are buying as an investment, you need at least 20% down.

Which is better, less down or more? Each has trade-offs. Someone with modest savings but a solid income might look at an insured mortgage. Run the numbers over a five-year window and see which works for you. Two important changes matter here. First, the price cap for putting down less than 20% rose from one million dollars to one and a half million, effective December 15, 2024, so if you can swing it you can buy a more valuable home with less cash. Second, for insured mortgages on homes under one and a half million, the amortization cap went from 25 years to 30, which lowers monthly payments but raises total interest. In my experience most people do not stay in a home for the full 30 years anyway. They move after three, five or six years, and everything then depends on the rates at that time.

Getting pre-approved

The next key point is pre-approval. Getting pre-approved is like buying your ticket before you board the plane. Before anything else, know how much you can spend. Pre-approval does not mean you have to buy. There is a myth that a single credit check will hurt your score, and that is not always true. Talk to a mortgage advisor at your bank about it, even if you think you are three to five years away from buying. It helps you understand what kind of home you want, what the average price is in an area, and how your income, credit score and savings fit together so you can build a plan. Sometimes that conversation brings your expectations closer to reality. You might think you are four years out, then find after a pre-approval that you could make a good purchase in two.

Fixed vs variable and the stress test

A big question is the loan type, fixed or variable. The right answer depends on when you ask, because market conditions change. Generally, a variable rate is often the better long-term loan, though there are times when variable rates run well above fixed ones. One more thing: if you take a variable rate and decide to pay it off early, the penalty is usually three months of interest. With a fixed rate, especially a five-year fixed, the penalty can be much larger, even tens of thousands of dollars. Talk to an experienced mortgage advisor. There is also the amortization question, 25 years or 30. The longer the term, the more interest you pay over time, but the lower your monthly payment. If you can, make accelerated bi-weekly payments, which put more toward the principal. Most mortgages also let you make an annual lump-sum payment, often 10 to 20% of the balance, and all of that goes straight to the principal. Finally there is the stress test. When you get approved, you have to qualify at a rate 2% above the one you are actually taking. So if your rate is 5%, you must pass the test at 7%. This rule started in 2018, and while many opposed it then, it helped a lot of people keep up their payments when rates climbed.

Choosing the home and making the offer

The main thing with the home itself is buying well. Nothing helps your investment more than buying at a good price. Plenty of people fall for a home and pay anything to get it, then realize they overpaid. Part of my job as an agent is to stop emotional buying. Buy a home that scores a ten. Sometimes the market is tight and good homes are rare, but right now there are plenty of options, so there is no reason to overpay for a home that scores a six. When it comes to the offer, five points matter. First is the price. Second is the deposit, the money that sits in an account until closing, usually 5% of the purchase price in Toronto, though it can be less elsewhere. Third is the closing date, which can be 30, 40, 50 or 60 days. Closing is the day you get the keys and the title is registered in your name. In our market we usually plan on 60 days. Fourth is the irrevocable time, the window you give the seller to review and respond to your offer. If they do not respond in time, the offer expires. They can accept, counter, or reject. Fifth, and maybe most important, are the conditions that protect you as the buyer.

Conditions, closing costs and monthly ownership

You can put many conditions in a contract, but three are the most common. The first is the financing condition. When you get pre-approved, you are approved, but the bank still has to approve the home itself. If the place has no plumbing, for example, the bank might refuse. An appraisal happens after the offer, usually within the financing condition, and in Toronto that window is often three to five business days. The second is the status certificate if you are buying a condo. This legal document can run around 250 pages and tells you everything about the building, like how much is in the reserve fund, whether the current owner is current on payments, and whether any special assessments are coming. The third is the home inspection. Depending on the market, the seller may have done one, or you may want your own. Keep in mind that more conditions weaken your offer, so in a hot market you may want to do your inspection before offer day.

Then there are closing costs. You already have the deposit, but there is more to pay in cash at closing. In Toronto you pay land transfer tax, with rebates up to around 8,000 dollars for eligible buyers. Beyond that, budget for three main costs: the real estate lawyer, usually around 1,500 dollars in Toronto, the land transfer tax, which is the biggest one, and the home inspection if your team does it. Once you own, your monthly costs include the mortgage payment split into principal and interest, maintenance or condo fees, property tax, home insurance, and utilities like internet and cable. Sit down and add them all up. If you want help running these numbers, fill out the form at the bottom of this page or book a free consultation. Stay well and take care.