So you want to buy a Toronto condo? Congrats! Real estate – especially urban real estate – can be a great investment.
But when it comes to knowing whether you can afford to purchase a new home, there’s a lot more to consider than just the down payment. With downtown Toronto one-bedroom condos typically starting in the $500,000 range, here’s a breakdown of exactly how much you’ll need to make one of those condos yours.
Unsurprisingly, the biggest portion of what you’ll be spending will be your down payment, and in Canada, there are a few options for what you can put down. If you’re looking to pay the smallest amount possible upfront, you can put just 5% down on a property that costs up to $500,000, so you would be looking at a $25,000 down payment. If the selling price tips into the above $500,000 range, you’ll have to pay 10% down on that additional amount.
“The cost of mortgage insurance is calculated as a percentage of the mortgage, and is based on the size of your down payment,” Costigan told Daily Hive.
This can run you anywhere from an additional 1.5 to 4% on the overall price of the condo, which translates to about an extra $7,500 to $20,000 that is added to the total amount of your mortgage.
This is why Costigan recommends putting down 20% on your Toronto condo if you are able.
“If a first-time homebuyer is able to put down 20%, I would always suggest that they do so to avoid paying mortgage insurance,” she said. “But not everyone has the means to do that. It’s still of benefit though as you’ll pay less interest on your overall mortgage.”
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You’ll also have to put down a deposit within 24 hours of the buyer accepting your offer which, in Toronto, Costigan says, is usually 5% of the entire purchase price. The deposit counts towards your overall down payment, so if your down payment was only going to be 5% to begin with, you’ll be paying the entire amount right away.
There are also a few other important closing costs to keep in mind as they can add up. First, there are legal fees, which can vary in price but are typically between $500 and $1,000.
You will also have to pay a Toronto Land Transfer Tax and an Ontario Land Transfer Tax, which on a $500,000 property will run you $12,950. But luckily if you’re a first time homebuyer, you’re eligible for a rebate that will make the transfer tax just $4,475.
There are also potential adjustments on closing that you’ll have to pay.
“For example, if the seller of the home you want to buy has prepaid their property taxes for the entire year, you’ll need to reimburse them a prorated amount, from your closing date to the day they’ve paid up to,” Costigan said.
Luckily, Toronto condo buyers don’t have to pay any commissions to the real estate agent, as that is all covered by the seller.
First-time homebuyers are also eligible for the Government of Canada’s First-Time Home Buyer Incentive, which offers you the amount of 5% for the purchase of an existing home or up to 10% on the purchase of a newly constructed home.
Costigan, however, is cautious of using the incentive.
“The First-Time Home Buyer Incentive would help buyers with their down payment,” she said. “But the caveat is that the government would have equity in your property. So when you sell your property you will need to give the government 5% of the resale value. In other words, 5% of the home’s appreciation price. That just rubs me the wrong way.”
“Another restrictive aspect of the rules is that your household income had to be under $120,000 to qualify. And the purchase price you could qualify is four times your salary. So basically, if you max everything out – your top end purchase price would be $480,000. In Toronto this isn’t very helpful as there are not many properties selling under $480,000.”
So with all of the costs totalled, you will at a bare minimum be paying $29,975 upfront. But of course depending on how big of a down payment you want to front, whether you have to get mortgage insurance, if you have more expensive legal fees, if there are any adjustments on closing, and whether or not this is your first home purchase, the overall price will vary.