Monday, September 1, 2014

How we Bought our First House in Toronto in a Sellers Market-The Plan

(Disclaimer, I am not an expert on this! This post is solely based on our own experiences, talk to Real Estate Agents, Banks, Lawyers, Mortgage Brokers etc. for information and advice specific for your needs.)...

As mentioned in my previous post, this summer was an exciting one, especially since Mike and I bought a house!!! In the process I gathered a few lessons learned, that I couldn’t seem to find organized all together online, so I thought I would share my experience- in three parts: the plan, the hunt, and the close.



Part 1- The Plan 
To buy or not to buy?:
First, a long time ago, we had to decide if we were going to even buy a house. We have heard millions of opinions one way or the other for the past couple of years. In Toronto (and similar in Vancouver), financially, renting is, in general, the way to go. Experts say you can take the money you would save by not owning a home, invest it at 7% (historical values), and have way more money in a certain time period compared to owning a home. For us (and yes we did the math), the numbers came out pretty darn close, but having the autonomy of owning a house and not being responsible to a landlord was a big factor in our decision. Also, we were hoping to do some renovations and/or create a income suite to help make the house a better financial option than renting. Everyone is different, but our financial situation and lifestyle led us to the decision to buy a house. 


Save Money:
This step started way before we bought the house, but knowing for the past 3 years that we were working towards home ownership made us stick to a budget. It also made sure that we didn’t get into a spending routine that wouldn’t fit our lives in the future, which will make the adjustment to home ownership more bearable. My advice for this is to maximize work savings programs (employee share plans and RRSP savings...more on this later), and take full advantage of TFSAs as soon as you can. I procrastinated moving money from a low return savings account to a TFSA because I was “afraid” to lock in my savings, but talking to someone at the bank made me realize I was ridiculous. I could have saved a lot more money the past 3 years if I had had that discussion the day I started working. Lesson learned.

How much Money?:
After saving for a few years we started seriously considering buying a house (once Mike was working full time), so we needed to figure out how much of a house we could afford. By using online calculators we had an idea, but we went to get pre-approved by a bank to make sure. Even for a pre-approval the bank needs to know that there enough of a down payment saved, so we were saving way before this point. Also consider the down payment %. Anything less than 20% will need CHMC mortgage insurance, which is expensive, and has additional closing costs. We had to determine if it was worth it to go with a lower %, or wait a few more years until we saved a 20% down payment. All those options and scenarios can be run on this great website: RateHub.ca

We also ran a few numbers to determine our monthly budget with a house at the pre-approved mortgage amount to make sure we wouldn’t be living on Kraft dinner for the next 5 years, using some of the values on the Ratehub website. I recommend Gail Vas-Oxlades budget worksheet. Some house budgeting tips:

1. 1% of the home price saved for maintenance annually
2. A good ball park for utilities is $300 a month for a small house (from Rate Hub)
3. Don’t forget property taxes
4. Consider new monthly expenses above and beyond the house (additional transit costs, increases in car insurance etc.)
5. 10% of take home should be kept in savings and 3-6 months of living expenses should be saved in an emergency fund. Don’t consider the house a “savings account” since the money is locked in into the house.
6. Cut any unneeded expenses, for us it was cable. Not having cable was a small sacrifice to lead to being home owners!
7. (General budgeting tip) For me I consider I get 2 pay cheques a month all year, the extra 2 paycheques during the year are “extra money” compared to my budget, and I can use that for savings, or for travel, or big purchases but it is a nice contingency amount to keep on a yearly basis.

Research the market: 
Just because we weren’t in a financial position to buy 3 years ago (Mike was still in school), it didn’t stop us from starting our search. We checked out different neighborhoods, and started looking at MLS.ca and Zoocasa for housing prices.
First pass at favourite neighbourhoods
This quickly showed us that our dream neighborhoods (Runnymeade, Bloorwest, Swansea, Roncesvalle) were definitely out of our assumed price range, and narrowed down our selection. We also could have used this neighbourhood matching service from Realosophy to find a neighbourhood that met our needs. I also considered things like commuting time, walking scores, crime rates, and gentrification of the neighborhood. For us we knew we wanted to be fairly close to downtown and near the water, and west of the city, which focused our searching in the lake shore communities of Mimico, Long Branch, and New Toronto. 

Our search area

We even went to a few open houses to get a feel for what we could buy in each area for our price range, just for fun. The lesson learned here was to remember that at this point we were only browsing. Mike and I found a house we loved way too early in the process, and almost put in an offer before we had even talked to a realtor or understood ANY thing about the home buying process. I’m glad we waited, but it was a hard decision to make at the time.

Understanding our needs:
We had to figure out why we were buying a house, and what kind of house we wanted to buy. This may seem straightforward, but there were quite a few options. Condo vs house? Rental Property vs Fixer Upper? Detached or Semi? We had to ask ourselves what we want in a property. For us we wanted a detached house that provided some income possibility.  I preferred a two story, but that was negotiable. We only need two bedrooms at this time, so we were ok with a smaller house, but we definitely considered our “five year plan”.  In a hot market like Toronto, and for our price range, we knew we had to keep our "must have list" pretty short to find a house. If we had started searching thinking we were going to get a HGTV home, we would have been very disappointed.

By narrowing down the price, location and type of dwelling we were fairly well prepared to go talk to a realtor, without being overwhelmed by all the options.

Next post: The Hunt

2 comments:

  1. It's definitely a great idea to take advantage of those employer-sponsored savings plans. You don't want to leave behind what is essentially free money from your employer. Buying a home is a major challenge, but it's not something that you can't do. Employer-sponsored savings programs definitely represent a step along the right path that you need to take to your first home.

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