How to afford a house in GTA, Ontario and surrounding areas

The Greater Toronto Area (GTA) housing market presents a significant affordability challenge for many prospective homebuyers. With the average home sold price reaching $1,153,269 in April 2023 and the average GTA salary at $80,185 per year or $41.12 per hour, it's crucial to employ effective strategies to overcome this disparity. In this article, we will explore several key tips on how to buy and afford a house in the GTA and surrounding areas, considering the limitations posed by current affordability calculations.

1.?????Secure a Mortgage (Consult with a Mortgage Specialist): Absolutely, securing a mortgage loan is a crucial step in the home-buying process, particularly for low-income individuals. Here are some additional tips for low-income people looking to secure a mortgage loan, however first step is to talk to approved and qualified mortgage brokers:

a)?????Find a Guarantor: Having a guarantor with good financial standing can increase your chances of securing a mortgage, especially if you have a low income or limited credit history. A guarantor agrees to take responsibility for the mortgage payments if the borrower is unable to meet them. It's important to note that being a guarantor is a significant commitment, so both parties should fully understand the responsibilities and potential risks involved.

b)????Pool the Mortgage: Sharing the mortgage with friends or family members can make homeownership more affordable, especially in high-cost areas like the Greater Toronto Area (GTA). By pooling financial resources and sharing expenses, individuals or families can jointly purchase a property. However, it's crucial to establish clear agreements and consult with a mortgage broker and legal professionals to ensure everyone's rights and responsibilities are protected.

c)?????Bring a Good Down Payment: A larger down payment can help offset a low income or limited credit history when applying for a mortgage. While the standard down payment in Canada is typically 20% of the property's purchase price, some lenders may be more willing to approve a mortgage with a lower income if you provide a larger down payment, such as 35%.

d)????Maintain a Good Credit Score: A good credit score is crucial when applying for a mortgage. Lenders use credit scores to assess the borrower's creditworthiness and determine the terms of the loan. Building and maintaining a strong credit history by paying bills and debts on time, keeping credit card balances low, and avoiding excessive new credit applications can help improve your credit score. Regularly checking your credit report through agencies like Equifax Canada, TransUnion Canada, or Credit Karma (a free service) can help you stay informed about your credit health.

It's advisable to consult with a mortgage specialist or broker who can provide guidance on available options.

2.?????Use Government Incentive for first time home buyers: Government of Canada and Government of Ontario have multiple programs for the first home buyers, below is one of them.

a)?????The first-time home buyer incentive: The First-Time Home Buyer Incentive is a shared-equity mortgage with the Government of Canada, which offers:

o??5% or 10% for a first-time buyer’s purchase of a newly constructed home

o??5% for a first-time buyer’s purchase of a resale (existing) home

o??5% for a first-time buyer’s purchase of a new or resale mobile/manufactured home

The incentive is available to first-time homebuyers with qualified annual incomes of $120,000 or less. A participant’s insured mortgage and the incentive amount cannot be greater than four times the participant’s qualified annual income.

b)????Home Buyers' Plan (HBP): The Home Buyers' Plan (HBP) is a program that allows you to withdraw funds amounts of $35,000 or less from your Registered Retirement Savings Plans (RRSPs) to buy or build a qualifying home for yourself or for a related person with a disability. The HBP allows you to pay back the withdrawn funds within a 15-year period.

c)?????Land Transfer Tax (LTT) Rebate: The Government of Ontario offers a rebate on the provincial land transfer tax for first-time home buyers. The maximum rebate amount is $4,000, which means eligible first-time buyers can receive a rebate equal to the full LTT on homes priced up to $368,333.

d)????First-Time Home Buyers’ Tax Credit (HBTC): First-time home buyers who acquire a qualifying home can claim a non-refundable tax credit of up to $750. For the 2022 and subsequent taxation years, the Budget proposes to increase the amount used to calculate the HBTC to $10,000, which would provide a tax credit of up to $1,500 to eligible home buyers.

e)????Municipal Programs: Some municipalities in Ontario may also offer additional incentives for first-time home buyers, such as down payment assistance programs or grants. These programs vary depending on the specific municipality, so it's important to check with your local government for any available programs.

Remember, it's crucial to confirm the current availability and eligibility criteria for these incentives, as well as any new programs that may have been introduced

3.?????Pay minimum 20% Down payment: In Canada, when the purchase price is $500,000 or less, the minimum down payment is five per cent. The minimum down payment for homes priced $500,000-$999,999 is five per cent for the first $500,000 and 10 per cent for the remaining portion. Homes over $1 million require a 20-per-cent deposit.

For many individuals, saving up for a 20% down payment can be challenging. However, it's important to note that a higher down payment can significantly reduce the mortgage loan amount. As illustrated in the above example, even a 1% difference in the down payment, such as between 20% and 19%, could result in an additional $22,567 to be paid over the course of the mortgage. Exploring government incentives and implementing a well-planned savings strategy can help you reach your down payment target and potentially save a substantial amount in the long run

4.?????Consider Longer Amortization Periods: Opting for a longer amortization period can lower your monthly mortgage payments, providing more affordability. Here's an example to illustrate the impact of different amortization periods:

?Let's say you're purchasing a $995,000 house with a 20% down payment ($796,000 mortgage) at a 5.0% interest rate. With a 30-year amortization period, your monthly mortgage payment would be $4,248, while a 20-year term would result in a higher payment of $5,231. Exploring longer amortization options, such as 35 years, can further reduce your monthly payment

5.?????Shop for the Best Mortgage Rate: Take the time to compare mortgage rates offered by different banks to secure the best deal. Even a small difference in interest rates can lead to significant savings. Consider this example:

Suppose you're purchasing a $995,000 house with a 20% down payment and you're borrowing $796,000 with a 30-year amortization period. With an interest rate of 5.0%, your monthly payment would be approximately $4,248. However, if you find a lower rate of 4.8%, your monthly payment would decrease to around $4,154. This seemingly small difference saves you approximately $94 per month or $1,128 per year.

6.?????Opt for Bi-Weekly Payments: In Canada, the salary is paid bi-weekly basis. Why pay monthly as you have the money. It will reduce the significantly amount paid. ?See blow for 5.0% rate, the bi-weekly amount is $1,959 where as monthly payment is $4,248 which is more than double. In a year you pay total $50,976, but if you pay biweekly $1,959, you pay $50,934 in total, which is $42 less. Though it is not a big amount, but it is still some saving as the interest is paid earlier in small mount.

7.?????Explore Affordable Areas Outside the GTA: In the past, certain areas like Mississauga, Brampton, and Scarborough were popular among new immigrants. However, in recent years, the GTA surrounding areas have experienced significant diversification, attracting a growing number of new immigrants. Locations such as Burlington, Halton Hills, Brantford, Paris and Georgetown have become preferred choices due to their diverse and inclusive communities. I recently assisted a client in finding a house in Woodstock, ON, and was surprised to witness a thriving Sikh community settled there. This highlights the growing appeal and diversity of GTA surrounding areas. With remote work becoming more prevalent after Covid, individuals who have the flexibility to work remotely or in a hybrid mode can explore housing options that align with their work style and budget. As a realtor, I have a range of properties to show my clients that offer a suitable match at a more affordable price point. ?

8.?????Share your mortgage: Sharing your mortgage by renting out a portion of your house, such as a separate basement apartment, has been a beneficial practice in the past and remains common today. A two-bedroom basement apartment can easily be rented out for $1800 to $2200 per month, providing a constant income of $2000 per month, which greatly assists in affording your mortgage. Some of my clients even have two basement apartments in their houses, earning over $3000 per month. This setup allows for mortgage sharing. Currently, I have over 20 houses listed in the GTA and surrounding areas that feature separate basement apartments.

-???????When considering basement apartments, it is essential to conduct due diligence to ensure they meet the legal requirements. Some homeowners make modifications themselves, adding doors and walls and falsely declaring these spaces as bedrooms. It is important to be aware that a bedroom must have an egress window for tenants as a secondary means of exit in case of an emergency. To avoid any complications, it is crucial to work with a knowledgeable realtor who understands basement apartments and always hire a qualified inspector for home inspections.

-???????Having more rooms in a house can also be advantageous. A 4-bedroom house is preferable to a 3-bedroom house if it is available at the same price, as it can generate rental income or be used for Airbnb purposes. Nowadays, Airbnb is commonly utilized to earn extra money. I know a family who lives in the basement and rents out the upper portion of their house by room on Airbnb, earning a substantial amount ranging from $4000 to $6000.

-???????Additionally, houses with more parking spaces and bathrooms should be preferred as they add value and rental potential.

-???????Another option to consider is purchasing a house with the potential to build a basement apartment. While houses with existing basement apartments are typically more expensive, buying a house with the possibility of adding a basement apartment allows you to explore the cost of construction, which can range from $25,000 to $100,000. Consulting with your realtor will help you determine the exact cost of building a separate basement. It is worth noting that the Ontario government currently encourages the construction of legal basement apartments to address housing needs.

In summary, sharing your mortgage through renting out a portion of your house, specifically a separate basement apartment, can be financially beneficial. However, it is crucial to ensure legal compliance and seek the assistance of a knowledgeable realtor and qualified inspector.

9.?????Buy in Buyer’s Market: Keep an eye on market conditions and aim to purchase during a buyer's market when prices are more favorable. Timing your purchase strategically can save you tens of thousands of dollars. Here's an example:

During a buyer's market, you might find a similar house for $50,000 to $100,000 less than during a seller's market. By capitalizing on market trends, you can secure a better deal and potentially reduce your overall mortgage burden. Read my article for more detail. When to buy and when to sell

10.??Reduce Living Expenses: Identify opportunities to reduce your living expenses, allowing you to save more towards your mortgage. For instance:

Learn basic home maintenance tasks and fix minor issues yourself, avoiding the need to hire professionals for every small repair. By leveraging resources like YouTube tutorials, you can save thousands of dollars annually.

11.??Focus on Paying Down Your Mortgage: Make it a habit to save money and allocate it towards paying down your mortgage each year. Many lenders allow you to make additional payments without penalties. By reducing your principal amount, you can decrease your monthly payments over time.

12.??Consider selling high and buying low strategy: One strategy to consider is selling your property when it has gained significant value. In a seller's market, where demand is high and prices are favorable, selling your house can generate a substantial profit. Once you have sold, you can take advantage of a buyer's market in further away areas, where prices may be more affordable. By timing your buying and selling wisely, you can potentially end up with a house that is mortgage-free. For more detailed information on when to buy and sell a house, please refer to my article on the topic. When to buy and when to sell

13.??Establish a long-term relationship with the realtor: Establishing a long-term relationship with a reliable and knowledgeable realtor is crucial, similar to having a family doctor. A trusted realtor can assist you in finding the best options and provide cost-saving solutions. It is important to choose a realtor who is well-informed and stays updated on the current real estate market conditions. By maintaining a strong relationship with your realtor and continually evaluating your circumstances, you can make informed decisions about your real estate transactions. Remember to plan wisely and leverage the expertise of your realtor to maximize your financial outcomes.