As the real estate market appreciates year after year, saving for your first home in Toronto can feel like a moving target. Every time you get close to a down payment, you suddenly need even more.
Jarrod and Karolina Armstrong, The Armstrong Team of Right At Home Realty Inc. Brokerage, have a combined 30 years of experience in the Toronto market and remember their own sacrifices when they were buying their first home together. They know how frustrating entering the market can be and attempt to make sense of it.
How much money do you need to save to buy a home now in the Toronto market?
It really depends on the neighbourhood you want to live in. Every pocket of the city is commanding a different price and we have minimum requirements set by the Bank of Canada. At the bottom end of the borrowing market – below half a million – you need five percent down and then 10 per cent for anything up to $1 million.
On top of that, you need closing costs. And the minimum requirements for a $500,000 condo will greatly differ from the closing fees on a single-family home. But it all comes down to where do you want to live and the prices in that neighbourhood. In an area like North York, you could get away with as little as $25,000 to $30,000 as your down payment. In downtown Toronto, a down payment could go as high as one million.
When our clients come to us wondering how they are going to save up for a home, we have them work with a mortgage broker who can really get down to the nitty-gritty of financing and help them find strategies for reducing debt. We look at how much they are saving per month and what that will look like per year.
We ask our clients if it makes sense to get them into the market in a different location and whether they are able to save at an equal or greater amount than the market is appreciating. For example, is it worth waiting a year to buy something better when prices are appreciating at eight per cent per year? Eight per cent of half a million is $40,000 and if you don’t save $40,000 a year, then you’re always going to find yourself at the same point in the market.
There’s also a lot to be said about an insured mortgage vs. a non-insured mortgage. It would be worth getting over the cap limit to avoid paying a premium on insurance. If you have a smaller down payment, you’re going to be charged a larger premium from The Canadian Mortgage and Housing Corporation. With a five per cent down payment, you’d be paying around 2.75 per cent interest as a one-time fee, whereas there’s no CMHC fee above 20 per cent down.
In any case, we would advise that you beg, borrow or steal in terms of a saving strategy.
If you want to affordably buy, purchase a home below your expectations just to get your foot in the door of the Toronto market. No one can afford their forever home in Toronto, but through strategic steps, you can get there by investing properly. For example, maybe you have to start off by buying your first condo with another investor or a friend before finding that you can afford that condo by yourself. Once you’ve taken that step, the next step is graduating to another property. You also may want to consider living in your number two or three ranked neighbourhood, then making a lateral move when your income and savings grow.
When we bought our first townhouse together, we saved money by renting at a price below what we could’ve been renting at. We didn’t live in the fanciest place we could afford because by not doing that we could save double the amount of money — knowing what the end-goal was. We could’ve afforded more while renting, but why waste that money when we could double our savings and get out of the rental market sooner?
We wouldn’t live where we do today if we didn’t start marking real estate investment goals right out of university. We would advise people to start thinking about their real estate and savings goals right when they’re on the cusp of living on their own.
Saving is a political hot potato because you need a good job and solid support – some people will be renting forever and that’s okay too – but it is still possible to buy in today’s market by planning ahead and getting creative to meet your savings goals.