Toronto (and the surrounding areas within the GTA) have seen price declines after soaring house and condo values. Buyers looking to purchase a condo have a great opportunity on their hands.
Before You Buy a Condo in Toronto
Before you buy a condo in Toronto, having your finances in place is essential. If you don’t have the finances to buy a condo, you risk missing out on a great opportunity. We cover the necessary steps to buying a condo with financial support. After all, most condo buyers borrow to finance their purchases. It will ensure a wise condo investment in today’s buyers’ market.
Get Your Finances In Order
To buy a condo in Toronto in the next few months, it is absolutely essential to have your finances in order. It is important to know how much of a deposit you have (cash and/or net equity minus debt) to purchase a property but also the cost of land transfer taxes, both city of Toronto (municipal LTT) and the province of Ontario (provincial LTT.) It is also essential to see whether it is worth paying down loans or not (a mortgage broker can assist with this guidance). Sometimes, it’s wise not to pay off certain types of loans as it could impact the buyer’s ability to purchase a condo (caveats certainly exist.) Taxes must also be paid with Canada Revenue Agency (CRA) statement to prove it. If you are a first-time buyer, you can save on the LTTs, and if you have a Registered Retirement Savings Plan (RRSP), you may be able to borrow from that without a short-term penalty.
Get Pre-Approved For A Mortgage
We want to stress the necessity of first getting pre-approved for a mortgage before starting your condo search. Why? If you do not know how much you can afford, you frankly cannot choose from a selection of condos currently available in Toronto. You may be able to afford more or even less than assumed. A wise financial decision is to get your ducks in a row to have a clear financial picture before you invest in a new condo. We stress the necessity of “pre-approved” versus “pre-qualified.” Pre-approval means that you have told your mortgage broker that your income is X, your investment holdings are Y, and your debts are Z. A good mortgage response with, “great, now send me the proof” so that I can ensure your mortgage lending rates are locked in and that you 100% confidence in your ability to purchase. A pre-qualification, however, is often what a bank will give when you give the above “X/Y/Z” examples – they basically say, we will confirm that at a later date, leaving the buyer with no certainty. And unfortunately, they are unaware of the lack of confidence, which is even worse. If you are looking to buy a condo in Toronto, don’t you want to be sure and confident that you can afford what they tell you? The only solution (with confidence) is a mortgage pre-approval. You deserve to know up front, not after you have found a condo and run the risk of losing the purchase.
Bank Of Mom & Dad
An option that some fortunate condo buyers leverage in Toronto is what we like to call the “Bank of Mom and Dad.” What we mean by this is that a condo buyer reaches out to their parents for either a gift or a loan to help with their downpayment and thus their ability to afford a condo. We appreciate that this isn’t an option for everyone. There are some fortunate enough to have the financial support of their parents. Those who do are typically given two options: an “affordable” loan or outright gifting. Parents can access cash to assist in borrowing from their Home Equity Line of Credit (HELOC). It’s a powerful way for a condo buyer to get started. We have seen this throughout our careers. The Bank of Mom and Dad has played a major factor in Toronto’s real estate value increases over the last 20 years.
Cosigner Assistance
Another option for condo buyers is what is called cosigner assistance. This is when another person (could be a parent, another family member, or a friend) offers to cosign on the mortgage, which could get the mortgage amount higher than if it were just the original buyer on the loan and land title. As with the Bank of Mom and Dad, this requires trust by both parties. We helped a client many years ago who was a teacher, making roughly $85K/year in Toronto. She had a close family contact that was very successful. When the buyer got pre-approved for a mortgage alone, she could afford (at the time) a $300K mortgage. When she added the (very wealthy) family friend as a cosigner, she could afford $26,000,000. We aren’t kidding – their wealth allowed for a purchase of any type in Toronto. Did she take that full cosigner mortgage option? No. For obvious reasons, she would not be able to debt service a mortgage of that size. We offer this as an example of how helpful it can be to have someone lend their signature and guarantee that the mortgage will be paid.
Deposit Ready For Making An Offer
It is essential to have 5% of the condo purchase price on hand. Instantly accessible from the bank. Be careful if you have a secondary bank that requires a few days to access cash. This won’t work. You will need to transfer the money into a bank account that can be accessed immediately when needed. The 5% deposit will be due to the listing brokerage with the offer (ideally) or within 24 hours. The deposit can come in the form of a certified cheque, bank draft or, the most straightforward option, a wire transfer from the buyer’s bank account to the listing brokerage’s Trust Account.
Key Takeaway for Buying a Condo in Toronto
There is an excellent opportunity to buy a condo in Toronto at a price we have not seen in a long time. We don’t believe this opportunity will last long. It may last two years, maybe slightly longer. But, if the Toronto real estate market has told us anything, we cannot predict anything. The market may rebound much faster than that. What is integral to know is that Toronto’s condo market will be far more expensive in ten years. Look at our real estate history, the economic growth of Toronto and the desire to move to North America’s fourth-largest city.
