Toronto Real Estate Buyers Guide

Toronto Real Estate Buyers Guide


What Can You Afford?

Homes come in every size, style and price range. Knowing what you can afford at the beginning of your search saves you time and disappointment later on. The following calculations outline the process financial institutions use to determine what you an afford.

First Affordability Rule

Lenders such as banks and trust companies allow you to spend approximately 32% ( some lenders may allow you to exceed this) of your gross monthly income on housing costs ( including mortgage payments, property taxes, home insurance, heating and if applicable 50% of the condo fees). The ratio of debt to gross income income is referred to as the Gross Debt Service Ratio or GDS.


Second Affordability Rule

The second affordability rule is that your entire monthly debt load should not be more than 40% of your gross monthly income. This includes housing costs and all other debts, such as car loans and credit card payments. The ratio of total debt to gross income  is referred to as the Total Debt Service Ratio or TDS.

The following calculation will show you what you can afford for housing costs including your outstanding debts:

A) Gross Monthly Income x 40% = TDS ___________

B) Total debt payments from loans and credit cards: ____________

C) Monthly income left for housing costs: Subtract A from B ___________

In addition to GDS and TDS ratios, financial institutions base their lending decision on your credit history, job stability and the amount of your down payment. Interest rates also affect the amount of financing you will be able to obtain.


David earns $40,000 annually ($3,333/mo) and his partner Ruth earns $43,500 ($3,625/mo). They have a car payment of $350/month and a credit card payment of $150/mo.

How much can they afford monthly for housing?

A) Gross Total Monthly Income: $6,958.00

B) Gross income x 32% : $2,226.56 = GDS

They can afford to spend no more than $2,226,56 on monthly housing costs.

C) Total monthly payments: $2,226.56+$350+$150= $2,726.56.

TDS = $2,726.56/$6,958.00= 39%.

Because their total debt including housing costs and all other monthly debts does not not exceed 40% they can afford to purchase a home under the TDS affordability rule.


Third Affordability Rule

The financial institutions use gross income in their affordability calculations. However, your daily expenses are paid out of your net income. It is very important as a primary step in your home buying process to complete a personal budget form. ( I will provide you with one). The final number on the personal budget form will help to determine the maximum purchase price you should be considering. (This will be accomplished through a cash-flow analysis which I prepare for you). The personal budget form will prevent you from overbuying! The numbers used on the personal budget form must be realistic, as if you are a home owner already.


Understanding Financing


It is important to be qualified or pre-approved for financing before you start looking for a home. This is a  primary step in the home buying process. Your lender will require a mortgage application to be filled out. As part of the mortgage application your lender will require your proof of income, your current debts, your credit score and proof of your down payment. Your lender will calculate a maximum level of financing based on the information they have processed. Having a lender familiar with your mortgage application prior to looking at homes to purchase is crucial.

I do recommend using the services of a VERY GOOD Mortgage Broker. The benefit of a Mortgage Broker is that he or she operates independently of the lender and operates in your best interests by finding you the best financial product and the best lender from a variety of sources.

My Team Mortgage Broker is Jerome Trail from Soho Mortgages.

Note that when you actually submit your application with your accepted Agreement of Purchase and Sale there are no guarantees that your mortgage will be approved if market conditions have changed or if your personal situation has changed. Having a knowledgeable Mortgage Broker by your side will minimize any turbulence.


Down Payment

A down payment may come from your savings ( including any investments ie. rrsp, stocks, bonds, GIC) or may be in the form of a gift from a relative. There are guidelines for gift letters that must be followed. Down payment rules are strict. Your mortgage specialist will provide direction for you.

Using Your RRSP To Purchase A Home

The Federal Government's Home Buyer's Plan (HBP) allows a Buyer to borrow up to $25,000 from his or her RRSP plan to use towards the down payment of a home purchase. Couples with separate plans can borrow up to $25,000 each. Home Buyers using this program have up to 15 years  to return the money to their RRSP plan. Repayment is interest free. The amount to be repaid begins on the second year after the plan was opened. If any of the funds are not repaid then participants will lose the tax advantage the RRSP offers.

Here are the major guidelines for this program:

* You are a first time home Buyer or have not owned a principle residence in Canada during the past four years.

* You cannot open a second plan until the first plan has been paid off.

* The RRSP must have been in existence for at least 90 days.

* You must be a resident of Canada both at the time the funds are withdrawn and at the time the home is acquired.

* The amount borrowed is paid back in equal installments over 15 years. If you overpay in any year than the over-payment can be carried forward to a future year's repayment.

Note every RRSP is eligible under this program. Check with your investment firm to see if your plan qualifies. Your mortgage specialist is a valuable resource here.


Do You Know Your Credit Rating?

Your lender's credit score is an important part of your mortgage application.  As part of the preparation before your eventual mortgage application it is a good idea to order your credit report online from Look over your credit report and make sure it does not contain any errors. In some instances those errors could take months to fix and those errors may have a negative affect on your credit score. Note that your credit score will not be affected when you order a report from Equifax. However, when a lender runs your credit report your score will be affected by a few points. Your mortgage specialist should be a good resource on how to manage your credit score or improve your credit score.

Note that it is imperative to keep your credit score in good standing up to the date you apply for your mortgage and up to the date your mortgage is funded.


Consider Mortgage Options

What Type of Mortgage is Best For You

* Fixed Rate Mortgages: Your interest rate is locked in for a specific period called a term. Your payments stay the same for the mortgage's term so you will not pay more if interest rates increase over time.

* Variable Rate Mortgages: Your interest rate may change if interest rates go up or down.

* Conventional Mortgage: A mortgage that has a loan-value ratio of less than or equal to 80% ( 20% or more down payment). You are not required to get mortgage default insurance with a conventional mortgage.

* High Ratio Mortgage: A high ratio mortgage is one that has a loan-value ratio of more than 80% ( less than 20% down payment). Mortgage loan insurance is required on any mortgage with less than a 20% down payment. Mortgage insurance is protection for the lender. With mortgage insurance the minimum down payment for a principle residence is 5% ( 10% for multi-unit dwellings up to 4 units). The cost of high ratio mortgage loan insurance is in the form of a premium. The premium is calculated as a percentage of the principal. The premium cost is amortized over the life of your mortgage.

* Closed Mortgage: The mortgage cannot be paid off early without paying a penalty.

        - Note that it is very important to know how your lender will calculate the penalty if you prepay large portions of your mortgage early of if you break your mortgage during the term due to unforeseen life changes. The Group A lenders charge a very high penalty in these cases which is one of the reasons why Boutique lenders have had huge gains in popularity in recent years.

* Open Mortgage: A mortgage that can be paid off at any time during the term without having to pay a penalty. The interest rate for an open mortgage may be higher than a closed mortgage.


What Mortgage Features Are Best For You

* Portable Mortgages: If you sell your existing home you can transfer your mortgage to your new home while keeping your current interest rate.

* Prepayment Privileges: You can make lump-sum prepayments or increase your monthly payments without paying a penalty. This can help you pay off your mortgage quicker.

* Payment Frequency: You can pay your mortgage monthly, bi-weekly or accelerate bi-weekly. Speak with your Mortgage Specialist about the best payment frequency for you. By paying more frequently you can pay off your mortgage sooner.


Home Operating Costs

The following are the costs involved in the normal operation of a home in the Toronto area.

Property Taxes

Property owners have the option of paying their property taxes in SIX installments over the course of the calendar year. Lenders may insist that they collect and pay the property tax with your monthly mortgage payment.


Home heating will typically be provided by natural gas, oil or electricity. Costs can vary depending on the type of fuel, size of home, condition of home, exposure and usage.


Costs vary depending on usage. eg.How many people live in the home, size of the home, energy efficient cost measures in the home. Typically billing is every second month. There is also the option of equal monthly billing.

Water and Solid Waste Management

Most properties in Toronto are now on water meters and are billed according to the usage. As of November 1,2008 the water bill will include a fee for solid waste management. This fee will cover garbage, garden waste, recycling, green bin, landfill management and other diversion programs. The bills are typically sent three times per year.


Home insurance is essential for all homeowners and it is required by your lender before it will release the funds to close your home purchase. Premiums will vary and can depend on the type of home, the location and the home's condition.


The Condominium Alternative

Condominiums have grown in popularity over the last three decades as an affordable, alternative form of home ownership.

A condominium can restrict your freedoms through a list of rules and bylaws governing how you may use the unit. It is important to be fully aware of the corporation rules and bylaws before you buy. A Status Certificate condition in your offer will allow your lawyer to examine the rules and bylaws.


How Do Co-Ops and Co-Ownerships Differ From Condominiums?

In an equity co-operative the owner is not registered on title but receives a form of proprietary ownership. The corporation is registered on title and issues a share certificate to each owner. The corporation owns the property and the rights of occupation come from a separate agreement that sets out the exclusive right of each owner to occupy a certain unit. This agreement also sets out the owners obligations to pay a proportionate share of the building's mortgage, operating expenses and property taxes. Since responsibility for payment of taxes and mortgage in a co-op is joint, if one owner goes into default the other owners must make up the shortfall or risk losing their equity. Many older co-ops have no mortgage and buyers must pay cash since most banks are reluctant to finance share certificates. However there are some institutions that provide financing for these types of properties typically at a higher interest rate and with a higher down payment.

In a co-ownership, each buyer has his or her percentage interest in the property registered on title. Possession of an individual unit in the property comes by way of a separate agreement which sets out each owner's rights and responsibilities. Mortgages are often available for this type of property through credit unions and trust companies typically at a higher interest rate and with a higher down payment.

Reselling a co-op or a co-ownership is often more difficult than selling a condominium.


How Are Condominiums Owned?

Condominium ownership is generally divided between two or more parties, each of whom owns a portion of the structure separately and a portion of it in common. For instance, if you are an owner in a high rise condo building where there are several other owners, you own a unit individually and it is legally registered in your name. You also own a proportionate share of the common areas in the development ie. outside grounds, recreational facilities, lobby, stairs, halls, elevators, HVAC, electrical and plumbing systems. Some common areas may be reserved for the exclusive use of specific owners such as roof gardens, balconies, parking spaces and storage lockers.

As a unit owner you are automatically a member of the condominium corporation. In essence you are a voting member of a self-governing community with one vote per unit.


What Is Included In The Maintenance Fees?

In addition to the costs associated with owning your unit ( Mortgage payments, property taxes, condo insurance, utilities) you are also required to pay your shared costs of water, building insurance and maintaining the common areas in a monthly maintenance fee.

Note that in some new buildings the unit cost for heat and hydro are metered separately and are not included in the monthly maintenance fees. It is more common to see the unit cost for heat included in the maintenance fees and the unit cost for hydro metered separately. Some buildings will have both heat and hydro costs included in the maintenance fees.


What Is A Reserve Fund?

In Ontario under the Condominium Act at least 10% of a maintenance fee must be held in a reserve fund to pay for minor repairs on items like the HVAC system, roof and plumbing. Information on the buildings reserve fund is contained in the Status Certificate which your lawyer will review under condition after your offer is accepted.


Finding A Home

Finding your perfect home can be a long process. Your Realtor will help identify the right type of home for you and continually research new listings in neighbourhoods that meet your needs.

To begin the search process a completed WISH LIST is a necessary place to start.


Where Do You Want To live?

* What are your lifestyle needs?

* Do you have an ideal location?

* Is proximity to your work important? What is your maximum commute time?

* Is access to public transit important?

* Are schools important? Distance from schools?

* Do you want parks and recreation nearby?

* Do you want grocery, coffee and retail shops nearby?

* Is proximity to restaurants important?

* Do you want to be close to nightlife?


What Type of Home Do You Prefer?

* Do you prefer a condominium high-rise building? Condominium low-rise building?

* Do you prefer a condominium townhouse?

* Do you prefer a freehold home? Detached? Semi-Detached? Townhouse?

* Do you prefer a multi-unit home? Duplex? Triplex?


What  Characteristics Do You Prefer?

* How many bedrooms?

* How many washrooms?

* Do you require an ensuite washroom?

* Finished basement?

* Do you require parking?

* Do you require an enclosed garage?

* What type of layout do you prefer? Open concept?

* What type of interior design do you like? Modern? Traditional?

* Are you open to doing renovations or would you rather have move-in condition?

* Do you prefer a front yard? Back yard?


Making An Offer

You've found that perfect house or condo! What do you do now?

An offer is a formal, legal agreement to purchase a home and is legally binding once accepted by the Seller. Your Realtor will prepare an Agreement of Purchase and Sale with certain conditions and clauses. If any of the conditions are not met, you can change or cancel the offer, even if the Seller has already accepted it. Conditions in your offer may include:


Once your financing is approved by your lender you are required to provide written notice to the Seller before the expiry of the condition. A typical finance condition will expire five banking days after offer acceptance.

Condominium Status Certificate

This condition only applies to the purchase of a condominium. It allows your lawyer to review the condominiums financial documents and other related documents to ensure that the condominium corporation is meeting all the requirements of the Condominium Act. Under the Condominium Act the property management company has up to 10 banking days to prepare the status certificate and related documents.

Home Inspection

This condition provides an opportunity to have the property inspected by a qualified home inspector who will look for any major defects. A typical home inspection condition will expire five banking days after offer acceptance.

FINTRAC ( The Financial Transactions and Reports Analysis Center of Canada)

As of June 23,2008 for every purchase and sale in real estate,  the Brokerage must obtain an Individual Client information Record. This record sets out the Buyer/Seller name and address, the nature of your principal business/occupation and date of birth. You will need to show a piece if identification ie. birth certificate or driver's license.


Elements Of The Offer

Irrevocable Date

For the offer to be valid it must contain a number of specific dates and times. Your initial offer will be valid for a specific period of time after which the offer is deemed to be null and void.

Completion Date

This is the date set for the transfer of ownership of the property as negotiated between Buyer and Seller. this date is also known as the closing date.

Requisition Date

This is the period which your lawyer must determine if there are any problems with the title of the property .

The Deposit

The deposit cheque is due within 24 hours of the offer acceptance. Typically the funds are payable via a bank draft and the funds will typically represent 5% of the purchase price. The deposit funds are deposited into the Listing Brokerage's trust account and left there until the closing date or until a mutual release has been signed.


Fixtures are any items permanently attached to the property. For example: a bathtub, sink or toilet permanently plumbed would be a fixture.


Chattels are not deemed to be part of the property and must be specified in the offer if you want them included in the sale. For example: an area rug, ceiling fans, chandeliers and light fixtures, draperies and other window treatments, appliances, storage sheds, garage door openers, central vacuum attachments, playground equipment, garden equipment, barbecues etc.

Negotiating The Offer

Once your offer is received by the listing agent, the Seller has a number of options available:

* Reject the offer;

* Accept the offer;

* Make a counter-offer with whatever changes the Seller wants to make, such as price, closing date or conditions. You then have the option of accepting the Seller's counter-offer or making any changes and signing the amended offer back to the Seller. This is where your Realtor's negotiation skills come into play.


Additional Costs of Buying

Home Inspection

A home inspection is strongly recommended for residential properties and will usually be a condition of the offer. My Team Home Inspector is Brian Hardie from Elements Home Inspections.

Termite Inspection

If you are buying in an area of the city where termites are known to be a problem a termite inspection is recommended and will usually be a condition of the offer.

Appraisal Fees

Your lender will want to do an appraisal on the property prior to your mortgage being funded to ensure that the price you are paying falls within the acceptable range of value.

Land Survey

If a survey is not available as part of the offer documents for a property you may wish to hire a surveyor to prepare one. A survey will show the boundary lines and the footprint of the structure.

Title Insurance

Title insurance provides insurance against the future costs of remedying most problems with the title of your property. It is a one time cost and arranged by your lawyer at closing.

Land Transfer Tax

If you are buying in Toronto there are two land transfer taxes due on closing of the property. One is paid to the Province of Ontario and one is paid to the City of Toronto. Your lawyer will arrange the payment. If you are a first time buyer then you are entitled to an exemption in Ontario up to a $227,350 purchase price and an exemption in Toronto up to $400,000 purchase price.

Home Insurance

You are required to place fire insurance on the property as of the closing date. The coverage should be at least for the amount of the mortgage and acceptable to the lender.

Legal Fees

This is collected by your lawyer prior closing. These may include:

* Reviewing the terms of the offer

* Conducting a title search on the property to certify good and marketable title to the property, free of encumbrances, liens and judgments and ensure that everything is in order for a smooth closing.

* Registering new title

* Obtaining relevant documents such as surveys and evidence of liens on the property.

* Preparing the statement of adjustments:

The closing balance to be paid by the Buyer is " subject to the usual adjustments." The statement of adjustments is a system of debits and credits whereby amounts are added and subtracted from the balance to be paid by the buyer, depending on whether or not the seller has paid certain items in advance. The day of closing is assigned to the Buyer, who is responsible for taxes and utilities from 12:01am of that day. For example taxes might have to be paid up to the date after the scheduled closing, so the buyer will credit the Seller for the exact number of days " overpaid." The same applies to water rates and fuel. Utility companies are notified of the change of ownership by your lawyer and final meter readings are arranged for the date of closing.

* Correspondence with the Seller's lawyer

* Registering the mortgage:

Your lawyer will receive instructions from your lender, prepare the draft mortgage document, forward the draft to the lender, makes any amendments and arranges for you to sign the documents. The lender then releases the funds to your lawyer. Some lenders prefer to pay the property taxes on your behalf to ensure that the taxes are never in arrears. In this case the lender will hold back a certain amount from the advance on closing to start a tax account.

* Day of Closing Preparations:

The lawyers or clerks exchange documents and funds to close the transaction. You can expect to get access to your new home by late afternoon before 6:00pm. Changing locks is recommended after closing.

Moving Costs

Storage Costs

Service Charges From Utility Companies

Interest Adjustments Between The Date of Closing and the First Mortgage Payment


Frequently Asked Questions

Many Buyers do not fully understand the home buying process and what role a Sales Representative plays. The following are some of the most frequently asked questions that Buyers ask or don't fully understand.

What Does It Cost As A Buyer To Use A Sales Representative?

The compensation that a Sales Representative receives is typically paid by the Seller in a traditional Sales Representative/Buyer relationship.

Can My Sales Representative Give Me Information Regarding Properties From Other Companies?

Yes. If that Company is a member of the Multiple Listing Service (MLS) which most real estate companies are. For Sale By Owner (FSBO) properties are not listed on the MLS so a Sales Representative would likely not be able to provide information regarding them. However, with a Buyer Representation Agreement your Sales Representative may be able to help you purchase a FSBO.

What If I Find A Property On My Own?

You should contact your Sales Representative and not the property owner or the Sales Representative listing the property, who represents the Seller. Having the address or the MLS number is helpful and will assist your Sales Representative in gathering the relevant property information.

What Type Of Information Will My Sales Representative Need From Me?

A Sales Representative will need any type of information regarding the property you are looking for that is important to you. For example; type of home, price, location, number of bedrooms and number of washrooms.

Can I Go To An Open House Without My Sales Representative?

You can go to open houses without your Sales Representative. However, inform the attending Sales Representative that you already have representation . As well do not reveal any personal information to the attending Sales Representative. You do not want to reveal your "cards" to any Sales Representative other than your own.

How Can I Find Out About New Properties?

Clients with email capability can receive automatic updates from the MLS system as soon as new listings are entered. 

What If I Am Unhappy And Want To Switch Sales Representatives?

First try to work out the issues with your Sales Representative by communicating the reasons why you are unhappy.



When purchasing real estate , a Sales Representative can be an invaluable resource if you remember your responsibilities:

1. Work with just one Sales Representative

2. Make sure that you tell your Sales Representative everything

3. Always tell other Sales Representatives that you are already working with a Sales Representative. As well and keep you personal information private when speaking to other Sales Representatives.

4. Have a Buyer Representation Agreement signed.


From Now Until Closing

Top Priorities

* Book your moving truck early

* Book your move-in elevator ( if a condo)

* Keep communication with your Lawyer

* Keep communication with your Bank or Mortgage Broker

* Obtain your home or condo insurance.

* Register your children for school.

* Set-up your new gas/oil and hydro accounts and disconnect all existing gas/oil and hydro accounts.

* Schedule your new cable, internet and landline accounts and disconnect all existing accounts as of your closing day.

* Terminate your current home service contracts. ie. alarm, lawn care.

* Set up any new home service contracts.

* Notify your change of address with Canada Post, car insurance, subscriptions, banks, revenue Canada, vehicle registration, health card, pharmacy, credit cards, cell phone, family and friends.


Your Realtor Can Help You:

Fully educate you and prepare you for your home purchase.

* Help you to navigate the home buying process and the paperwork from start to finish ensuring everything runs smoothly without any surprises.

* Help guide you through your personal budget preparation .

* Preparation of your cash-flow analysis to pinpoint your purchase price comfort zone.

* Plan for closing costs through a closing costs analysis.

* Discuss home ownership programs.

* Help to assess mortgage products and different types of lenders.

* Help guide you through the mortgage preparation and application process.

* Help you to understand all related agreements including Buyer Agency and The Agreement of Purchase and Sale.

* Get a feel for neighbourhoods including schools, parks and other amenities.

* Find the right home within your budget.

* Prepare a comparable market analysis with similar properties that have sold over the past months for any home that you are interested in making an offer on.

* Negotiate the best purchase price and the best contract terms.

* Refer qualified industry professionals such as real estate lawyers, mortgage specialists and home inspectors.

* Be your real estate Counsel and Advisor For Life!!!

Contact Information

David Stoddard
RE/MAX Hallmark Realty Ltd Brokerage
968 College Street
Toronto ON M6H 1A5
Fax: 1-866-248-2303
David Stoddard B.A., M.A., A.B.R.
Sales Representative
Direct: 416-520-6746