Your Guide to Buying Your First Home in Guelph
What are the Benefits of Buying a New Home?
Transitioning from rental to home ownership can carry similar living costs with the right property.
Gain Equity and Value
Young professionals don’t always realize that their living costs could actually build wealth for them in the form of home ownership.
Renting property tends to be more affordable than paying into a mortgage on a monthly basis, but there’s a key difference—mortgage payments go toward ownership, whereas rental payments are never seen again.
Most people reach a certain point in their careers where it makes sense to gain equity for their monthly living costs, even if those costs are higher than renting an apartment, condo, or townhouse.
Entry-level, small homes or condos start in the $300,000 to $400,000 range— something you might find in Guelph’s west or east ends—might not be significantly more expensive than renting in the city’s south end.
It makes sense to put money toward ownership under those circumstances.
Real Estate Values
It’s no secret that real estate properties can rise in value. In fact, many millionaires invest in real estate to diversify their wealth specifically for this reason.
This is called appreciation, and it varies between locations. Guelph’s proximity to Toronto means that you could expect; depending on market conditions home values to rise at a steady rate—maybe even higher than the national average.
Even though Guelph real estate does cost more than in Cambridge, it has one of the highest growth rates for anyone who can enter the market. First-time home buyers looking for positive return on their investments should consider Guelph for this reason.
Rental Apartment VS Detached Home - More Privacy
The truth about apartment buildings is that renters don’t always get the privacy they’d prefer.
Having your own home—even a townhouse, if not a detached home—means that you most likely wont need to worry about thin walls, unwanted smells from neighbours apartments, or random people looking into your home as they walk from their cars to the front door.
Urban parking fees can surprise people moving to Guelph from southwestern communities like London and Sarnia, where parking tends to be free. Communities in southeastern Ontario are accustomed to paying for parking, depending on the work or living location.
For example, a condo apartment in Guelph’s south tends to come with one parking space, but renting out a second one costs about $70 per month.
Owning a home will likely give you at least one parking space, but most likely two. Most homes have either garages or driveways long enough to fit multiple vehicles, which is an ideal situation for couples buying homes together.
Downtown Guelph also has more relaxed street parking customs compared to newer areas of the city, but you can't always rely on that.
More Space and Storage
Humans accumulate a lot of things over the course of a lifetime.
Owning more storage space shouldn’t be a primary motivation for home ownership, but the extra space gives people breathing room for these sorts of things:
Recreation rooms for children
Family heirlooms or second-hand furniture for relatives
Again, extra space should be a secondary factor in buying a home, it provides the kind of extended amenities that make home ownership worthwhile for most people.
Upgrade (and Fix) Your Own Home on Your Schedule
Rental accommodations have strict rules that dictate these things:
How you decorate your home
What goes on the balcony
What kind of pets you can bring to a property
How quickly leaks or plumbing issues are fixed
As a new home owner, you have the opportunity make your home last for decades with sturdy foundations, well-designed renovations—if that’s something you’d like to do—and high-quality materials.
Home owners do need to fix things themselves rather than asking the landlord to do it, but that also provides the opportunity to do it right—to ensure sturdy, long-term improvements are made.
How Much Money Do You Need to Buy a House in Guelph?
The average price for a home in Guelph was $510,000 in 2017, although this includes condo apartments as well as detached houses.
In 2015 mortgage regulation changes from the Federal Government have assigned specific down payment minimums on high-value homes, but this doesn’t push new home buyers out of the market by any means.
Here are the minimum down payments based on home prices:
Homes under $500,000 require a 5% down payment*
Homes between $500,000- $999,999 require 5% down on the first $500,000 and 10% on anything above that. So if it’s a $600,000 you would need $25,000 (5% of $500,000) plus $10,000 (10% of the amount above $500,000). Your minimum down payment would be $35,000.*
Homes over $1,000,000 require a 20% down payment*
It is still ideal to purchase a home with a 10% down payment if possible because it will reduce the mortgage payment (and you pay less in CMHC premiums with more down)—even on a home under $500,000.*
*For more detailed information you should contact a mortgage professional. This info is strictly based on my own research and personal experience.
Why is Guelph More Expensive Than Kitchener and Cambridge?
Guelph features higher average home prices than other cities in the area for several reasons.
It’s closer to Toronto than Kitchener or Cambridge, but it’s also a satellite community for Waterloo. Guelph lets you commute to anywhere in the TOWR (Toronto-Waterloo) Corridor.
Guelph is also a university town, which essentially almost guarantees that a certain number of entry-level homes will be occupied by Guelph’s student population. This contributes to the city's real estate prices, but it also means you can rent out space to students to pay down your mortgage sooner, if you can spare the space.
Guelph grew by 7.7% between 2011 and 2016, and 5.5% throughout the previous five years—it’s expanding quickly! More people want to buy homes every year, which is why the South end has seen such a rapid development of condos in the last 7 years.
Last—but not least—is the safety of the city. Guelph was touted as the second-safest place to live in Canada in 2014. It’s a place where people want to raise their kids, send them to school, and retire. They can commute to Toronto, Burlington, Kitchener, Waterloo, Cambridge, or Hamilton for their careers in the meantime.
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How Do You Save for a Down Payment?
The biggest hurdle for new homeowners to clear is the down payment. Mortgage payments and property taxes can be boiled down to a consistent monthly payment, but saving up 5% or 10% of a $400,000 down payment represents between three and seven years of savings.
What if you don’t have 5% or 10% of a home’s value saved? There are several options available to you, and you don’t need to choose just one.
Tax-Free Savings Account:
You can take money out of your TFSA to pay for down payments. Withdrawing money is—obviously—free of taxes, and you can replenish your account with savings at a later date.
The key to TFSAs is that you can grow them at 5%-7% per year in compound interest with mutual funds, meaning that the money actually works you in the background until you’re ready to pay for a down payment with it.
New Home Buyer’s Plan (HBP)
The New Home Buyers Plan is a federal program that lets first time home owners withdraw up to $25,000 to put toward home ownership. You do need to have the money already saved in an RRSP account, and you will also need to pay it back into the account to avoid the taxation associated with regular RRSP withdrawals.
The HBP is effectively a loan on your own money to pay for something without taxes in the short term. Withdrawing from a TFSA would be better long-term option, but the HBP lets home buyers put together a down payment when needed.
That’s $25,000 per person. Couples purchasing a home together could withdraw a combined $50,000 to cover most or all of a down payment at once, removing the immediate hurdle to home ownership pretty easily.
The key is to make sure that you can repay that money back into your RRSP within the 15-year deadline while still paying down a mortgage, or else you’ll pay even more in taxes in the long run.
It’s very common to borrow money from parents to finance a first home, and it doesn’t need to be a huge amount, either. Parents tend to avoid charging their kids interest, making it easier to pay back a loan.
It’s also possible for grandparents to provide sums in advance of their wills. It’s morbid to think about, but it has been known to happen.
Loans from family members might not form a complete down payment on their own, but—combined with TFSA withdrawals and RRSP payments—they could be just enough to get you there.
Create a Savings Plan with a Financial Planner
Talk to a financial planner if you don’t have one already. Working with one will help you create an effective budget to balance your cost of living, savings, and home ownership fund.
Financial planners will help you boil down your budget and savings plan into a monthly plan that turns your down payment from a an “if” into a “when.”
What Are the Main Costs of Buying a Home?
There’s more to purchasing a new home than just the down payment. You’ll need to consider:
Legal (Attorney’s) Fees
Land Transfer Tax
How Much Does it Cost to Go Through a Realtor?
This is my favourite question to answer because as the home buyer you normally don't pay my fee. :)
There are some rare situations where buyers may pay a part of the fee, but those are rare—and decided in the negotiation period, so you’ll never be surprised if it ever happens. So far in my career I have never accepted a service fee from a home buyer. $0 is a pretty great service fee, right?
Just for transparency, realtors tend to be paid by the seller. The seller’s real estate agent divides the fee with the home buyer’s agent.
How Much Does a Home Inspection Cost in Guelph?
Home inspections will cost around $350 - $500 in the Guelph area. Don’t skip on this, tempting though it may be to save the money—spending the money today will insure that you don’t get caught off-guard by a huge cost down the road.
Home inspectors can uncover a lot of potential repairs-in-waiting. Ask the inspector to keep an eye out for these common problems:
Faulty electrical wiring
Clogged drainage or poor grading
A damp basement
A particularly old or leaky roof
Broken heating and air conditioning
How Much Do Legal Fees Cost for Buying a Home?
Legal fees for home ownership can cost between $1,300 and $3,000, depending on your lawyer.
Don’t fall into the trap of trying to keep legal fees low by cutting corners. Make sure that your lawyer reviews your contract closely, detailing every expense and disbursement.
What Are Unexpected Costs for New Homeowners?
The down payment isn’t the only cost you need to cover in buying a home, but it is the largest, by far. Use this guide to figure out exactly what you'll need to buy your very first home.
Use this Guelph property tax guide to calculate exactly what will need to be paid on the property you’ll eventually call home.
Guelph’s residential property tax rate was around 1.2% in total for 2017. That’s about $6,120 per year on a home with a $510,000 valuation (and that’s the average for Guelph). Divide that by 12 months and you can expect to save $510 per month for a home in the city after you’ve purchased it. Property Taxes vary by neighbourhood and area. You can get this information from your real estate agent.
Land Transfer Taxes
Home buyers pay the land transfer tax, but not the seller. Don’t fret about that though, because it will probably save you more money in the long term! Since homes in Guelph rise by about 7% in value year over year, that means you get to keep more money if you decide to sell the home at a later date when it’s worth more.
0.5% on the first $55,000 of the home
1% on everything between $55,000 and $250,000
1.5% on everything between $250,000 and $400,000
2% on everything between $400,000 and $2,000,000
2.5% on everything over $2,000,000 if the property has one or two single-family residences
Here’s what that would look like for an average home in Guelph, priced at $510,000:
$275 in tax on the first $55,000
$1,950 in tax on the remainder up to $250,000
$2,250 on the remainder up to $400,000
$2,200 on the remainder up to $510,000
That’s a total land transfer tax of $6,675 on a home worth $510,000.
However, first-time home buyers could also be eligible for a special tax refund that could cover some or all of the amount. It can vary and depending on a few factors.
Not bad for a first-time purchase!
Home inspections cost around $350-$500 in Guelph. You should really consider getting one before buying a home.
Inspections tell you all about the ins and outs of a home—and that’s important because you’ll have a much better idea of what the home needs to be maintained properly. That can have a huge impact on your financial future.
You may not want to risk not getting a $400 inspection just to find out you need to replace the $5,000 HVAC when you move into the house—or repair a wall, install new windows, reinforce the foundations, or replace the roof.
Higher Utility Bills
It’s important to remember that you’re going to be paying for electricity and water—not just for a single apartment!
Some apartments even include water or electricity in the cost of the monthly rent, which can be a big shock to first-time home owners. Many new homeowners in Guelph go from paying $65 or $75 per month in an apartment to paying $150 or more per month in a detached home.
Don’t get caught off-guard! This can make a world of difference in your monthly budget after buying your new home. Make sure you can afford the energy bill and still enjoy the space. When buying a home talk to your real estate agent. They may be able to ask the sellers agent for a years worth of bills. This will defiantly help with your budgeting.
Small and Big Repairs
Any good financial planner will tell you to keep a savings account for mid-term costs. You may in fact need to increase the size of that savings account to account for a home.
Renters don’t need to pay for regular home wear and tear, but homeowners definitely do!
So, how much should you save? The safe rule is to save about 1% of your home’s value every year. That doesn’t mean you’ll need to spend that every year, but it will give you plenty of wiggle room when big repairs roll around.
Use this fund for anything and everything to do with long-term upkeep:
Air conditioning repairs
Homeowners insurance varies with the cost of your home, your own history, income, and so on. Only a bank, insurance company, or credit union can give you an estimate for your specific situation.
Use this guide as a placeholder until you can get that estimate (and get no fewer than three estimates!).
The average rate for homeowners insurance in Ontario is $780 per year. However, the average rate for homes between $300,000 and $700,000 sits at $924 per year. That means you should set aside $1,000 per year—or just under $84 per month.
Which Area in Guelph Will Give Me the Best Returns?
Good news! Just about any area in Guelph will generate a good return. On average, the city will generate over a 7% return every year. Conservatively, you could expect at least a 5% return.
The university, proximity to Kitchener-Waterloo, and the offices for the Federal Government really help stabilize the Guelph real estate market against fluctuations in Toronto.
Having said that, I think that homes in the East end are going to see very high growth. It’s only 10 minutes from the downtown core, and has access to tons of parks and walking trails in the area (including a 20 minute drive to Guelph Lake!). You can also commute to Toronto from the East end via Brock Road
That’s just my opinion for high returns, though. The other ends of Guelph have distinct advantages for your lifestyle, and they’re all likley to grow in value steadily (remember, 5% annually!).
Remember these key points:
The North end has much more affordable housing, making it a great area for first-time home buyers in general (especially if you work in the city).
The South end has a ton of new developments, access to the 401, meaning faster commuting access to Toronto with new, shiny buildings.
The West end has reasonably priced homes, is the closest end to Kitchener-Waterloo (where many commuters work), and access to the Hanlon Parkway, running North and South along the city.
You can’t go wrong, but think about which area would suit your financial situation and commuting needs best while you’re out there hunting.
Should I Buy a Detached House or a Condo in Guelph?
Buying a home under the age of 35 is hard—and I would know, because I’m in that same situation.
My own budget maxed out at $320,000 for my first home, leaving me with the options of purchasing a condo or an old house. There are advantages to both, but let’s look at the numbers.
Option 1: Buying a Condo in Guelph
Newer condos cost more money than old ones, obviously. You’ll find a lot of those in Guelph’s South end.
A big part of what makes them more expensive than a regular apartment is the condo fee that all owners pay. It raises the price of your monthly payments, but those payments take care of maintenance that owners of detached homes need to pay for themselves.
Condo fees cover these costs:
Common elements (cleaning common areas)
Exterior maintenance (mowing lawns, shovelling walkways in winter, etc.)
Property management fees
Condo fees do cover a lot of services that you don’t need to look after yourself, so take that into consideration if you’re a busy professional or a commuter.
Option 2: Buying a House in Guelph
All of those things covered by condo fees become your own responsibility as a home owner (although you can count on parking to be available with the house, except in a few very rare circumstances).
Older homes can be found in certain areas of Downtown Guelph and most of The Ward. That’s not a bad thing, as it puts your home within walking distance of shops, restaurants, and the lively core.
These areas aren’t “recreated” neighbourhoods, either—they’re original! The South and West ends have lovely new homes, but the buildings found Downtown and in The Ward probably won’t ever be built in that style again. These homes might need more maintenance, but will carry a lot of value if and when you need to sell.
Newer town homes will take less effort to maintain, but they don’t have the same originality, either. It’s a trade-off between property value and the time you can put into it.
How Do I Get Approved for a Mortgage?
Getting pre-approved for a mortgage is pretty much a necessity to make a bid on the home you want quickly enough in Guelph’s real estate market. It also gives you the ability to calculate your mortgage costs before you commit to buying anything, which is obviously important for you.
Consult with someone you trust to get information and insights from one of these places:
Come prepared with these 5 pieces of information to help those organizations give you an accurate estimate for a mortgage rate:
Credit Report (if you already have access to it via a credit monitoring company, if not wait until you go to the bank most of them will pull this for you for free)
Capital (your assets’ worth)
Capacity (the house itself)
“Character” (your job and how long you’ve held it, length of residence, etc.)
This means getting a credit report, listing all of your owned assets, providing salary information, and a demonstration of your past commitment to jobs.
How do the New Mortgage Rules Affect New Home Buyers?
The changes to the mortgage rules require ALL buyers regardless of downpayment to face a financial stress test to make sure that they don’t default on mortgage payments.
When a deal has less than 20% down, it is insured through CMHC, so you likely can get a lower rate.
This change will likely affect the size of the home that first-time buyers can afford, so come prepared with back-up options!
Remember is always good to talk to a mortgage professional. This is only a guide, the mortgage brokers are the experts.
I Know I Want to Buy a Home Already. What Are My Next Steps?
If you’ve read all of this and are committed to buying a home, then that’s great! Take these next steps and we should have a quick meeting to talk about your budget, preferences, and options.
Add these things to your to-do list:
Check your credit
Talk to as many organizations you can about a mortgage rate and loan rates, remember not every pre approval is the same
Create a new budget based on those unexpected costs and repair budgets
Talk to your family and financial planner about loans, if you need them
Get a mortgage approval or pre-approval
Think about which area of Guelph will suit your needs best