From Renting to Owning: How to Save for Your First Home

Transitioning from renting to owning a home is a significant milestone that requires lots of planning and preparation. With the national average home price expected to reach over $700,000 in 2025, it's essential to be well-informed about the financial and logistical aspects of homeownership. Here's a comprehensive guide to help you make your transition as smooth as possible.

The Real Cost of Buying a Home

Purchasing a home involves more than just the listing price. Buyers should anticipate additional expenses totaling between 1.5% and 4% of the purchase price. Key costs include:

• Minimum Down Payment: In Canada, the minimum down payment is 

  • 5% for homes priced under $500,000

  • 10% for homes priced above $500,000

  • 20% for homes priced above $1.5 million

• Home Inspection Fees: A pre-purchase inspection typically costs between $300 and $600 and can identify potential issues before finalizing the purchase.

• Legal Fees: Engaging a real estate lawyer to handle the necessary paperwork can cost between $1,500 and $3,000.

• Property Tax Adjustments: If the seller has prepaid property taxes, buyers may need to reimburse them upon closing.

• Title Insurance: This protects against potential ownership disputes or title fraud.

• Homeowner or Condo Insurance: Mortgage lenders require proof of insurance before closing. It’s important to have your homeowner or condo insurance lined up before your closing date.

Understanding Mortgage Options

Securing the right mortgage is crucial for long-term financial health. Consider the following:

• Down Payment and CMHC Insurance: A down payment of less than 20% necessitates purchasing Canada Mortgage and Housing Corporation (CMHC) insurance, which increases overall costs. A larger down payment can reduce monthly payments and interest expenses.

• First-Time Home Buyer Incentives: Explore government programs designed to assist first-time buyers:

  • Home Buyers' Tax Credit (HBTC): A $10,000 tax credit to help offset closing costs

  • Home Buyers' Plan (HBP): Allows withdrawal of up to $60,000 from your Registered Retirement Savings Plan (RRSP), tax-free, for a down payment

  • First Home Savings Account (FHSA): Enables saving up to $40,000 tax-free toward a first home

• Mortgage Rate Comparison: Utilize services like Homewise to find competitive mortgage rates, simplifying the process and potentially saving money over the loan term.

Renting vs. Owning: Key Differences

Transitioning to homeownership introduces new responsibilities:

• Maintenance and Repairs: Homeowners are responsible for all upkeep and repairs. It's advisable to budget 1-2% of the home's value annually for maintenance.

• Property Taxes and Utilities: Unlike renting, homeowners pay property taxes, utilities, and any applicable homeowners association (HOA) or condo fees.

• Equity Building: Mortgage payments contribute to building equity, offering a financial asset that can appreciate over time.

• Credit Impact: Consistent mortgage payments can positively affect credit scores, while missed payments can have adverse effects.

Saving for a Home: Timelines and Strategies

While saving for a down payment, it’s important to remember that unexpected events can quickly derail your financial goals. Tenant insurance provides crucial protection against losses that could otherwise force you to dip into your savings.

If a fire, flood, or theft damages your belongings, or if you’re held liable for accidental damage to your rental unit or a neighbour’s property, you could be on the hook for thousands in repair or replacement costs. Instead of using your hard-earned down payment savings to cover these expenses, tenant insurance ensures you stay financially secure while working toward homeownership.

The time required to save for a home varies based on individual circumstances:

• Short-Term (1-3 years): Aggressive saving strategies, such as reducing discretionary spending and leveraging first-time buyer programs, can expedite the process.

• Medium-Term (3-5 years): In higher-priced markets, consistent saving and strategic investments may be necessary.

• Long-Term (5+ years): For those aiming for larger down payments to avoid CMHC insurance, a longer savings horizon may be required.

Innovative programs like RentFund allow renters to allocate a portion of their rent toward a future down payment, accelerating the path to homeownership.

Hidden Costs of Homeownership

Beyond the obvious expenses, homeowners should be prepared for additional costs:

• Closing Costs: As previously mentioned, these can range from 1.5% to 4% of the home's price and include fees such as land transfer taxes and administrative expenses.

• Furnishing and Upgrades: New homes may require investment in furniture, appliances, or renovations.

• Emergency Fund: Establishing a fund for unexpected repairs, like appliance failures or structural issues, is essential.

Are You Ready for Home Ownership?

Consider the following factors to determine if you're prepared to buy:

• Stable Income: Lenders prefer applicants with consistent earnings and job stability

• Savings for Down Payment and Closing Costs: Having at least 5-20% of the home's price saved is crucial

• Long-Term Commitment: Homeownership is ideal for those planning to stay in the same location for at least 5 years

• Solid Credit Score: A score above 680 enhances mortgage options and favourable interest rates. Use Zenbase, an APOLLO partner, to easily report your current and past rent payments to Equifax to build your credit.