Buying a Condo in Toronto - Follow These 11 Steps
Monday Feb 08th, 2021
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If you are thinking about buying a condo in Toronto, I'm going to explain to you the whole buying process and give you a step by step guide in terms of what to know before buying a condo in Toronto, what you need to do, how you need to do it, so regardless if you're a first-time buyer, you're upgrading to a larger condo, downsizing from a house or buying a condo for investment purposes this guide will help.
1. Get to know the Toronto condo market
Step #1 is just to get familiar with the condo market and the neighborhood that you're looking to buy in. Maybe you're looking at buying in the next couple of months, maybe you're looking at buying in a year's time. Whatever the case may be, just get familiar with the condo prices in terms of the buildings or neighborhood that you're looking at. There's no point you looking at a condo for a $1 million condo if your budget is 600,000 for example, just get familiar with what places are being listed for but also what condos are being sold for in that neighborhood and price range that you're looking at.
2. Get a mortgage pre-approval
The second step that you need to do is to get pre-approved for a mortgage, whether that's through your bank, through a mortgage broker, or a private lender, especially if you're gonna be buying a condo in the next three or four months. There is a difference between being pre-qualified and being pre-approved. Pre-qualification is basically the first initial step, so the banks will tell you what you should be able to get, but it's no guarantee, based on the information that you've told them. The second step is you getting a pre-approval, and this is where you are going to have to provide documentation in terms of proof of funds for your deposit, employment letters, credit check, income tax reports for the last couple of years. Typically once you get a pre-approval the bank will give you a conditional commitment in terms of the maximum amount of money that they will be able to lend you for a mortgage. The other main advantage of getting a pre-approval done is that you can lock in the interest rate for the next 90 to 120 days typically. So if you're buying a Toronto condo, you're looking at properties and you find a condo you like, with your pre-approval in place, if the rates do go up over that next couple months you'll be saing money by locking in the lower rate. However, if rates do drop, you can obviously re-apply and get the lower rate. So get the pre-approval done, it's peace of mind on what your affordability is, you're locking in the rate for the next three or four months and you don't have to go up to the maximum amount you are approved for.
How much money do you need to buy a condo in Toronto is a question I often get asked but it depends on a number of factors. The downpayment is how much of your own money you are using to buy a condo. It has to be a minimum of 5% and it can be all the way up to 100% and you're paying cash for the condo. Anything less than 20% downpayment does require extra insurance, the reason for that is because, the less money you're putting down into the property, it's more of a risk for the banks to lend you the money. So the less money you're putting down, you have less risk yourself and higher the premium. From 5% to 9.9%, the premium is 4% on top of your mortgage. From 10% to 14.99%, insurance of 3.10%. And anything from 15% to 19.99% is insurance of 2.8%. Any downpayment 20% or more doesn't need any mortgage insurance.
4. Closing costs
Outside of the purchase price of the property itself, are closing costs. These include your land transfer tax and your lawyer fees, moving costs, and any fix up and repairs for the condo that you need to do once you move in. If you're buying in Toronto you'll pay two land transfer taxes, the city tax and the provincial tax. If you're buying outside of Toronto, but in Ontario, you'll just pay the one tax.
Your legal fees for your lawyer are going to be approximately $1500 to $2000, depending on which lawyer that you use. Your other costs when you're buying a condo in Toronto are your moving costs and any renovations or repairs.
5. Define your preferred neighbourhoods or locations
It's important to define the neighborhood or locations that you're interested in buying a condo. This could be a specific neighborhood, such as King West, Yorkville or The Entertainment District or it could be a number of different neighborhoods combined. If you want to be in downtown Toronto, west of Yonge but south of Queen and north of Front Street. That could be a combination of the Financial District, the Entertainment District. Defining neighborhoods and defining locations to focus your condo search.
6. Condo Type - Condo, Loft or Townhouse?
What type of condo do you want?. This could be a typical condo apartment, a condo townhouse, or a loft. If you're looking at lofts you could have a hard loft, which is a converted building that they've turned into residential units from an office or factory such as the candy factory on Queen West. Typical features of a hard loft conversion are exposed brick or exposed wooden beams, or you may prefer a newer construction, soft loft, which typically has features like exposed concrete ceilings or exposed concrete columns. So once you've figured out the type of condo that you want, the next step is to look at what type of building do you wanna be in as well. This could be a low-rise boutique building, or a mid-rise, or a high-rise building. Other things that you may wanna consider when you're buying a Toronto condo is, do you want a pre-construction, it's gonna be ready in three, four, five years time, and you can select all your finishes and upgrades or move sooner in the next few months which would be a resale condo.
7. Define your criteria - must have and nice to have items
It's vital to define the criteria for the condo and the building itself. This is part of what I do when working with condo buyers whether it's a single person, a couple or an investor. Start by creating two lists, a must have list and nice to have list. Must-have items are things you really want to have and you're not willing to compromise on.. The second list is a list of things that you'd like to get, but if you don't get it, it's not a deal-breaker. Remember to be realistic with your budget though! If you want a 1000 square foot penthouse condo with clear views for $700,000, that will be tough to say the least!. These list items can consist of the following:
# of bedrooms
# of bathrooms
do you want a den
outside space - balcony or terrace
new building or willing to update or renovate
preferred view or exposure
building amenities - gym, concierge, party room, a rooftop deck terrace to barbecue, guest suites etc
parking and/ or locker
By defining these lists is will help your search as any building that doesn't offer something such as a gym, but it's on your must-have list will save you looking at Toronto condo buildings that do not have a gym.
8. Be aware of your costs - mortgage, condo fees and property taxes
Your monthly condo costs consist of: your mortgage, condo fees, and property taxes, plus any utilities not included in your condo fees such as hydro (electricity) and sometimes water. Most newer condos have the hydro billed separately. Be aware of what the condo fees and property taxes are as you are viewing properties. Older buildings generally have higher condo fees but are less expensive to buy but may need some updating or renovating.
9. Hire a Toronto Condo Agent
You should engage a real estate agent that is familiar with the Toronto condo market when you are serious about buying and getting your mortgage pre-approval processed. Use their experience, knowledge to help you save you time and money. Ask your realtor different questions in terms of their experience, the area that they specialize in, ask them which areas they sell in most, which buildings they know. There are good and not so good agents out there and I see some buyers using agent that really don't know what they are doing - trust me you should see how some of the offers I get on my listings are put together - and this is a legally binding contract! Work with somebody who you trust, who a good communicator, will listen to you, and somebody that can help you through the buying experience. But work with somebody who you are comfortable with and isn't pushy. You do need to be ready to make that offer is it's a busy market and condos are selling quickly in Toronto.
10. Current market conditions
Once you are working with a real estate agent, you're viewing condos, it's a good idea to obviously look at properties online too to pre-screen them. Your agent should be setting you up with your search criteria, so you get notified when there's new listings that hit the market. As you see more Toronto condos for sale you'll start to build up a sense of the market value in terms of various buildings, sizes, plans and views. It's also good to know what condos actually sold for that you saw but were not interested. Did they sell below list price, if so how much? 1%, 3% or more, or did they sell at list price or was there abidding war and ended up selling over list price? Other factors that affect the market are supply and demand, the general economy, immigration and interest rates.
11. Understand elements of an offer for Purchase and Sale
Once you've been out for a few weeks viewing condos and you have found a place you want it's time to make that offer. It can be scary for some people as it's probably the most money you've ever invested but lets look briefly at the elements of an offer which your agent will put together.
The first element and probably the most you are interested in is the price which will depend upon the situation, the market conditions, list price, demand and the market value.
The second item is the closing date when you take ownership of the condo. The closing date is when you would close the property with your lawyer and that's when you take ownership on that date and you can move in later that day or any time after that date. These are the main two items that usually get negotiated the most.
Typically the initial deposit in Toronto is around 5% of the purchase price. This is part of your downpayment and you will need access to these funds within a day of your offer being accepted. If you're buying a condo for $1 million, the deposit should be around $50,000.
Irrevocable date and time
Another important element of the offer is the deadline of when the offer is valid. Let's say you've given an offer to the seller today and you want to make the irrevocable till 6p.m. tomorrow, the seller has until that time and date until they can accept the offer. The seller can respond in 3 ways - accept the offer, sign and counter your offer with different terms, or do nothing and the offer expires at the irrevocable time and date.
Terms & Conditions
The other main section you want be aware of when you're making an offer is Schedule A. This is where all the other terms and conditions are written by your agent. There's are two main conditions that you typically see in a condo for a purchase. The first one is a finance condition even though you have been approved, the second is for your lawyer to review the status certificate. See this post for details on what the status certificate is is more detail, but essentially it's a financial report of the condo corporation. The financing condition is typically anywhere from three to five business days. I would suggest you put this in if you are making an offer, even if you've done your pre-approval process. However, in a hot market you can usually review the status certificate before offer date and make an offer with no conditions if you are happy with it and very sure everything will be ok with your financing. Once you have an agreement accepted you will have certain deadlines to waiver these conditions or the deal with fall through. Once the conditions are waived, congratulation you have bought a condo :)
Inclusions & Exclusions
Make sure you have written into the offer what is included in the agreement, for example, parking and locker if there are for this particular condo. Typically appliances, window coverings, light fixtures and other "attached" items stay with the condo, but some items may be excluded so check with your agent.
I hope you found this helpful when it comes to buying a condo in Toronto and explaining the condo-buying process. If you do though have any questions or you're unsure about anything just get in touch and I will get back to you