It’s no fun being a first-time homebuyer in the GTA in 2018. Not only did the federal government increase the qualification requirements for mortgage borrowers starting Jan. 1, prices for Toronto homes for sale continue to rise.
“The piling on of yet more mortgage rule changes that took effect starting New Year’s Day has created homebuyer uncertainty and confusion,” says Andrew Peck, president of the Canadian Real Estate Association. “At the same time, the changes do nothing to address government concerns about home prices that stem from an ongoing supply shortage in major markets like Vancouver and Toronto. Unless these supply shortages are addressed, concerns will persist.”
How has the landscape changed for first-time homebuyers?
It’s no longer enough to scrape together or be gifted a 20% down payment. Even uninsured mortgage borrowers under the new rules will have to prove that they can handle paying a monthly mortgage at the five-year benchmark rate published by the Bank of Canada, or at an extra 2% on top of their contract mortgage rate, whichever is higher. Your income, therefore, must be high enough to allow for breathing room.
This can be a challenge for first-time homebuyers who may be younger and less advanced in their careers, but it will also help prevent the urge they have to overextend themselves with a mortgage they can’t comfortably pay.
(There’s always the option to avoid federally regulated mortgage lenders, like the big 5 banks, and go with private lenders or credit unions.)
The second challenge facing first-time homebuyers in the GTA is just how expensive property prices have become. With no new suburbs being built because of the Greenbelt, and demand coming from all angles — the large echo boom generation coming of age, wealthy foreign buyers, almost 90,000 immigrants moving to the GTA annually, plus Canadians pouring in from around the country for job opportunities — the crunch is serious.
Compare today's top mortgage rates
Looking for a great mortgage rate? Check out the lowest mortgage rates available
So what can the average first-time homebuyer afford?
We picked $350,000 as a reasonable first-time homebuyer budget. That may seem small if you’re used to downtown Toronto property prices, but it’s in-line with what many GTA residents can afford and for which they would be qualified — the median income in the GTA ranges from just $38,018 for a single person, to $132,596 for a couple, before taxes.
To comfortably support a mortgage at that amount — most financial experts recommend housing costs at no more than 30% of your monthly income, including utilities, taxes, and maintenance — you need household earnings of at least $61,500 a year after tax, or $5120 a month.
At a $350,000 property price, you should have a 20%, or $70,000 down payment to avoid paying mandatory default insurance. Assuming a 25-year amortization at a 2.99% rate from a lender like CanWise, monthly mortgage payments equal $1,324 a month.
But, with the new mortgage guidelines we have to assume a supposed mortgage rate of 5.5%, meaning monthly payments rise to $1,709.
(Depending on the actual mortgage lender’s calculation, other assets or monthly expenses you may have you may qualify on less or more income. Always seek a pre-approval before you start house hunting.)
So where can first-time homebuyers get the best bang for their buck in the GTA?
It’s hard, but not impossible to find a property for $350,000 in the GTA; you’ll mostly be looking at condos and townhouses. The real determinant will be the sort of lifestyle you’re interested in. A die-hard urbanite? Hamilton’s your winner. A lover of the slow-paced life? Try New Tecumseth. Want to raise a family in the suburbs? Oshawa is still affordable.
The median condo in Hamilton was just $322,450 this January, according to the Realtor’s Association of Hamilton-Burlington.You may even be able to find a fixer-up house on that starter budget, with the median freehold property going for $471,250.
This city, just one hour door-to-door from Toronto, has all the amenities of Hogtown without the million-dollar price tag. It’s a city even older than Toronto, meaning you can get Victorian-era houses for sale in Hamilton for a relative bargain. It also has the waterfalls, bike trails and green space that can sometimes feel absent from the core. In recent years, it has shed its industrial image for a hipster-paradise, with all the fair-trade espresso one can drink, live bands in every bar, and an abundance of co-working spaces.
The median price of an Oshawa townhouse was $295,000 this January, according to the Toronto Real Estate Board, while a condo was just $240, 000.
Just under an hour away from Toronto, Oshawa offers many job opportunities of its own, especially in the automotive and information technology industries. Hiking and canoeing are popular weekend activities, along with catching a live game of the OHL’s Oshawa Generals.
The median price of a New Tecumseth townhouse was $365,000 this January, according to the Toronto Real Estate Board, while a condo was just $255,000.
If you’re looking for a backyard, you’ll get that and far, far more in this Simcoe County town. To be exact, you’ll get 70 hectares of parkland, 85 hectares of open space and 7 kilometers of trails. Perfect for those looking for a four-season cottage lifestyle in driving distance of many employment opportunities.
- Qualifying for a Mortgage in 2018: An Overview
- How to Stress Test Your Mortgage
- A Primer on the New Mortgage Rules