If you’ve been renting for a while, you’ve probably had the thought: “What would it actually take to buy?”
Moving from renting to owning isn’t just a financial shift; it’s a mindset shift. While renting offers flexibility, homeownership offers the opportunity to build equity—essentially turning a monthly expense into a long-term investment.
Here’s how to break down the transition step by step.
1. Review Your Finances (The "Health Check")
Before looking at listings, you need a clear picture of your "buying power."
- The Debt-to-Income Ratio: Lenders look at how much of your income goes toward debt. Try to keep your total monthly debt payments (including your future mortgage) below 40-44% of your gross monthly income.
- The Credit Score Factor: In Canada, a score of 680 or higher generally secures the best interest rates. If you aren't there yet, a few months of diligent payments can save you thousands in interest over the life of your loan.
- The Stress Test: Remember, you must qualify at a rate that is typically 2% higher than your actual mortgage rate. This ensures you can still afford the home if rates rise.
2. Strategic Down Payment Planning
In Canada, the minimum down payment is 5% on the first $500,000 of the purchase price. However, there are trade-offs to consider:
- The 5-19% Range: You’ll need to pay for Mortgage Default Insurance (CMHC). While this is an extra cost, it allows you to enter the market years sooner.
- The 20% Mark: At 20% down, you avoid insurance fees and typically have lower monthly payments.
Pro Tip: Look into the First Home Savings Account (FHSA). It allows you to save up to $8,000 per year (up to a $40,000 lifetime limit) tax-free, combining the benefits of an RRSP and a TFSA.
3. Beyond the Sticker Price: Upfront Costs
Surprises are great for birthdays, but terrible for real estate closings. Budget an additional 1.5% to 3% of the purchase price for:
- Land Transfer Tax: This varies by province (and sometimes city).
- Home Inspection: $500–$800. This is the best money you’ll ever spend to avoid buying a "money pit."
- Legal Fees: Usually $1,000–$2,000 to handle the title transfer and paperwork.
- Adjustments: Reimbursing the seller for prepaid property taxes or utility deposits.
4. The Value of Your "Home Team"
You wouldn’t go to court without a lawyer; don’t enter the real estate market without a specialist.
- Your Mortgage Broker: Gets you pre-approved so you know exactly what you can afford before you fall in love with a house.
- The Real Estate Agent: They are your boots on the ground. They know which neighborhoods are appreciating, which buildings have "leaky" reputations, and how to win in a multiple-offer scenario.
Is Now the Right Time?
Renting provides a roof over your head, but homeownership provides a stake in the ground. The "right" time isn't necessarily when the market is lowest—it's when your finances are stable and your lifestyle requires more permanence.
When you know your numbers, the "leap" feels more like a step.
If you’re wondering where you stand in today's market, let’s map out a plan. Whether you're ready to buy in three months or two years, a strategy session today makes all the difference.
What’s your biggest question about moving from renting to owning?