How to Transition from Renting to Owning a Home in Canada: Everything You Need to Know
Sep 21, 2024
Written by
Written by
Brianna Harrison (Credit Card & Travel Writer)
Brianna Harrison (Credit Card & Travel Writer)
Table of contents
Title
Title
Title
After years of renting, saving your money, and building your credit, you’re now ready to start looking to buy a home.
Transitioning from renting to owning a home in Canada is a major milestone that comes with both excitement and challenges. You might be wondering where you’ll buy, how to afford it, and what the process entails.
In this guide, we’ll walk you through every step of the journey, from the moment you decide to buy to the day you get the keys to your dream home. By the end, you’ll have the knowledge and confidence to turn your homeownership dreams into reality.
Why Should You Own a Home?
Before we get into the home-buying process, let’s go over some of the top benefits of owning a home rather than renting.
The first–and arguably greatest–reason why you should own a home when you’re ready is the fact that it’s more cost-effective in the long term. Sure, you need to put in a considerable down payment and pay your mortgage every month, but you won’t be paying money to somebody else who could raise the rent each year and even kick you out if they wanted to.
When you own a home, it’s yours. You can do anything you want, including renovations, repairs, and even renting it out to someone else if you want to. Nobody can kick you out, and you can decorate it however you like. There’s no better feeling than owning your own home.
The price of your property will likely eventually increase, as most do. It’s an investment that could make you money years down the line.
What You Need To Know About Buying a Home in Canada
Homeownership has many benefits, but transitioning from renting to owning isn’t always smooth. Here’s some important info you should know about the home-buying process.
The Costs of Buying a Home
Buying a home isn’t as easy as you might think. Here are a few costs that come with being a homeowner:
Down Payment
To get a mortgage, you’ll need a down payment based on how much you’re paying for the home, as per the following:
Purchase price: less than $500,000; down payment: 5%
Purchase price: $500,000 to $999,999; down payment: 5% on the first $500,000 and 10% of the amount over $500,000
Purchase price: over $1M; down payment: 20%
Save as much as you can for the down payment. The bigger the down payment, the smaller the mortgage. This can save you tons of money in interest over the years.
Closing Costs
Closing costs are the fees paid when you close on the property and take ownership. Closing costs can include legal fees, title insurance, home inspection fees, and property tax insurance. It can typically be between 1.5% to 4% of the home’s purchase price.
Mortgage
Of course, you’ll need to pay the mortgage. It usually ranges from six months to ten years, but it could be even longer, depending on your loan. You could get either a fixed or variable interest rate, which both have their pros and cons.
With a fixed-rate mortgage, you’re locked in for the full term, paying the same amount every month. On the other hand, a variable-rate mortgage can fluctuate, giving you flexibility to take advantage of falling interest rates.
Mortgage Loan Insurance
Mortgage loan insurance is mandatory if your down payment is less than 20% of the home’s purchase price. Your insurance premium can range from 0.6% to 4.5% of the mortgage amount.
Title Insurance
This type of insurance is optional, but it covers you against property title issues, such as fraud or liens. On average, it costs around $250 to $500.
Home Inspection Costs
Home inspections cost between $300 and $500 in Canada. The price varies based on location, type, size, and age of the property, and it can be even higher if additional services are required.
What if you’re not approved for a mortgage?
If you don’t get approved for a mortgage but still want to buy a home, here are a few different things you can try:
Add a co-signer to your mortgage, who will take over the mortgage payments if you can’t make them yourself. They should have a high income and a strong credit score.
Improve your credit score by renting with Chexy for a few more months, paying off your debt, lowering your credit utilization ratio, and monitoring your credit reports.
Increase your down payment so that your mortgage will be lower.
Look into government home-buying programs and incentives.
How much mortgage can you afford?
The popular 28/36 guideline says you shouldn’t put more than 28% of your total monthly income towards your mortgage and no more than 36% towards debt. If you are, you’re probably not ready to buy a home.
With inflation, mortgage rates are expected to rise over the next few years, especially variable mortgage rates tied to the prime rate in Canada.
Use this affordability calculator to estimate how much mortgage you can afford.
Alternative options for owning a home
If you want to eventually buy a home but don’t have enough funds or your credit score is too low, you can enter a rent-to-own agreement. Here, you rent a home for a certain amount of time, with the option to buy it before the lease ends.
How does rent-to-own work?
In a rent-to-own contract, you make monthly rent payments as you would in a normal lease. A portion of these monthly payments goes towards the down payment on your home (if you decide to buy at the end of the lease).
In this agreement, you pay the seller a one-time, non-refundable fee called the option fee. This fee is typically between 1% and 5% of the purchase price and gives you the option to buy the home in the future.
Home Buying Programs and Incentives in Canada
If you’re finding it a bit difficult to come up with all the money yourself, the government has a few incentives for first-time homebuyers in Canada:
First-Time Home Buyers’ Tax Credit (HBTC)
You could receive up to $1,500 as a non-refundable tax credit.
You may be eligible for a rebate of some of the tax paid when you buy your home.
With this program, you can withdraw up to $60,000 from your RRSP to build or buy a home.
First Home Savings Account (FHSA)
This registered plan helps you save money to buy or build your first home tax-free.
Photo by Maria Ziegler on Unsplash
The Steps to Buying a House in Canada
Now that we’ve got all that out of the way, here’s how you can go about buying a home in Canada:
Make sure you’re ready
If you are not 100% ready, don’t rush into buying a home. Homeownership is a big deal and a long-term commitment that will cost you hundreds of thousands of dollars over the years. Make sure you’re clear on the reasons why you want to own a home and ensure you’re financially ready.
Assess your financial stability and check your credit score. Generally, you’ll need a credit score of at least 650 to qualify for a conventional mortgage, but some lenders may set the minimum credit score higher. You can check your credit report (without lowering it!) with one of the main credit bureaus, Equifax or TransUnion.
If your credit score isn’t quite there yet and you’re still renting, use Chexy to pay your rent with your credit card. You can build your credit score while earning rewards on one of your biggest monthly payments.
Set a budget and save
Determine how much you can reasonably afford to put into a down payment and how much mortgage you can pay every month. The higher the down payment, the lower the mortgage. If you put less than 20% of the home’s purchase price as the down payment, you’ll need to pay for mortgage loan insurance.
As a general rule of thumb, your mortgage should not cost you more than 28% of your monthly earnings, and your total debt payments should not be more than 36% of your monthly earnings. This is called the 28/36 rule.
Also, consider other expenses, like maintenance and homeowners association fees, that you’ll need to factor into your monthly budget.
How much home can I afford in Canada? Find out how much mortgage you can afford with this calculator.
Find the right home
Make a list of things you want in your home. Do you want a condo in the city with all the amenities or a house with a big yard in the suburbs? Think about the things that matter to you most and make an upfront wishlist so that you keep these things in mind and don’t settle for anything less than the best.
Location is a big factor in the size and price of your home. For example, the average cost of a house in Toronto is a whopping $1.1M, while it’s just $344,800 in Saskatchewan–one of the cheapest places to buy a home in Canada.
Shop for a mortgage and get pre-approved
Shop around for the best mortgage you can find. It’s a good idea to compare at least three mortgage lenders or get a mortgage broker to help you get a lower interest rate. You might also want to ask what programs or incentives are available for a first-time homeowner.
It’s a good idea to get pre-approved for a mortgage at this part of the home-buying process. We recommend Homewise, an online mortgage brokerage that helps you shop around and compare the best mortgage rates from over 30 banks and lenders.
If you have a Chexy account, getting pre-approved with Homewise is easy. It takes less than 5 minutes to complete, and involves a few key steps. Here’s what you need to do:
Go to ‘Amenities’ on the left-hand side.
Go to the bottom and click ‘Get pre-approved.’
You’ll be taken to this page, where you can get started with the pre-approval process.
Fill out the basic information, such as how soon you’re looking to buy, the property type, and more personal information like your income, marital status, and future plans.
After successfully filling out and submitting the application, expect a follow-up call from one of the Homewise advisors. You will be asked in more detail about what you are looking for and will be required to submit documents to finalize your application.
Hire a real estate agent
Finding an experienced real estate agent who is familiar with the area, can guide you through the negotiation process, and can stick within your budget is so worth it. They can tell you whether your budget is realistic and help point out things you wouldn’t have otherwise noticed.
Talk to real estate agents about your needs before choosing one. If your friends and family have been through this process, ask for their recommendations or visit a few real estate offices. The right agent is crucial in the search for your new home.
View potential homes
Now, this is the fun part. You can look at properties online, but nothing compares to viewing them in person. Your real estate agent can show you different homes based on your budget and list, and you can get a feel for the space and the neighbourhood.
Make an offer
Once you’ve found your dream home, your real estate agent will help you prepare an offer package, which includes the offer price, your preapproval letter, and proof of funds for the downpayment.
If the market is competitive, you might have to act fast to put in an offer when you see a home you really like. When you make an offer, the seller may make a counteroffer, and you’ll need to decide whether you want to negotiate or back down.
Get a home inspection
Hire a professional to conduct a home inspection, which provides an overall picture of the property’s condition and any issues it may have. If you find any problems with it, you might want to ask the seller for repairs, revise your offer, or even back out of the deal.
After signing the purchase agreement, you’ll generally have to complete the inspection within 10 to 14 days.
Secure your financing
Mortgage pre-approval does not mean approval. At this stage, you’ll need to get all your ducks in a row for a final loan approval. The lender will need to verify your debts, income, credit score, and employment status, as well as verify the value of the property you’re purchasing.
Until you’ve fully secured funding, avoid making any major purchases or opening new lines of credit. Essentially, try to keep your credit score as pristine as possible.
Close the deal
Do a final walk-through of the home. This is your opportunity to point out any outstanding issues before it’s yours.
Once you’re sure it’s up to your standards and your lender has declared your loan ‘clear to close,’ it’s time to seal the deal and sign the paperwork to close on your new home. It’s now officially yours–congratulations!
Ready to start looking for a home? Get pre-approved for a mortgage with Homewise in minutes via your Chexy dashboard.
Subscribe to our newsletter below for up-to-date credit card, travel, and rental content.
After years of renting, saving your money, and building your credit, you’re now ready to start looking to buy a home.
Transitioning from renting to owning a home in Canada is a major milestone that comes with both excitement and challenges. You might be wondering where you’ll buy, how to afford it, and what the process entails.
In this guide, we’ll walk you through every step of the journey, from the moment you decide to buy to the day you get the keys to your dream home. By the end, you’ll have the knowledge and confidence to turn your homeownership dreams into reality.
Why Should You Own a Home?
Before we get into the home-buying process, let’s go over some of the top benefits of owning a home rather than renting.
The first–and arguably greatest–reason why you should own a home when you’re ready is the fact that it’s more cost-effective in the long term. Sure, you need to put in a considerable down payment and pay your mortgage every month, but you won’t be paying money to somebody else who could raise the rent each year and even kick you out if they wanted to.
When you own a home, it’s yours. You can do anything you want, including renovations, repairs, and even renting it out to someone else if you want to. Nobody can kick you out, and you can decorate it however you like. There’s no better feeling than owning your own home.
The price of your property will likely eventually increase, as most do. It’s an investment that could make you money years down the line.
What You Need To Know About Buying a Home in Canada
Homeownership has many benefits, but transitioning from renting to owning isn’t always smooth. Here’s some important info you should know about the home-buying process.
The Costs of Buying a Home
Buying a home isn’t as easy as you might think. Here are a few costs that come with being a homeowner:
Down Payment
To get a mortgage, you’ll need a down payment based on how much you’re paying for the home, as per the following:
Purchase price: less than $500,000; down payment: 5%
Purchase price: $500,000 to $999,999; down payment: 5% on the first $500,000 and 10% of the amount over $500,000
Purchase price: over $1M; down payment: 20%
Save as much as you can for the down payment. The bigger the down payment, the smaller the mortgage. This can save you tons of money in interest over the years.
Closing Costs
Closing costs are the fees paid when you close on the property and take ownership. Closing costs can include legal fees, title insurance, home inspection fees, and property tax insurance. It can typically be between 1.5% to 4% of the home’s purchase price.
Mortgage
Of course, you’ll need to pay the mortgage. It usually ranges from six months to ten years, but it could be even longer, depending on your loan. You could get either a fixed or variable interest rate, which both have their pros and cons.
With a fixed-rate mortgage, you’re locked in for the full term, paying the same amount every month. On the other hand, a variable-rate mortgage can fluctuate, giving you flexibility to take advantage of falling interest rates.
Mortgage Loan Insurance
Mortgage loan insurance is mandatory if your down payment is less than 20% of the home’s purchase price. Your insurance premium can range from 0.6% to 4.5% of the mortgage amount.
Title Insurance
This type of insurance is optional, but it covers you against property title issues, such as fraud or liens. On average, it costs around $250 to $500.
Home Inspection Costs
Home inspections cost between $300 and $500 in Canada. The price varies based on location, type, size, and age of the property, and it can be even higher if additional services are required.
What if you’re not approved for a mortgage?
If you don’t get approved for a mortgage but still want to buy a home, here are a few different things you can try:
Add a co-signer to your mortgage, who will take over the mortgage payments if you can’t make them yourself. They should have a high income and a strong credit score.
Improve your credit score by renting with Chexy for a few more months, paying off your debt, lowering your credit utilization ratio, and monitoring your credit reports.
Increase your down payment so that your mortgage will be lower.
Look into government home-buying programs and incentives.
How much mortgage can you afford?
The popular 28/36 guideline says you shouldn’t put more than 28% of your total monthly income towards your mortgage and no more than 36% towards debt. If you are, you’re probably not ready to buy a home.
With inflation, mortgage rates are expected to rise over the next few years, especially variable mortgage rates tied to the prime rate in Canada.
Use this affordability calculator to estimate how much mortgage you can afford.
Alternative options for owning a home
If you want to eventually buy a home but don’t have enough funds or your credit score is too low, you can enter a rent-to-own agreement. Here, you rent a home for a certain amount of time, with the option to buy it before the lease ends.
How does rent-to-own work?
In a rent-to-own contract, you make monthly rent payments as you would in a normal lease. A portion of these monthly payments goes towards the down payment on your home (if you decide to buy at the end of the lease).
In this agreement, you pay the seller a one-time, non-refundable fee called the option fee. This fee is typically between 1% and 5% of the purchase price and gives you the option to buy the home in the future.
Home Buying Programs and Incentives in Canada
If you’re finding it a bit difficult to come up with all the money yourself, the government has a few incentives for first-time homebuyers in Canada:
First-Time Home Buyers’ Tax Credit (HBTC)
You could receive up to $1,500 as a non-refundable tax credit.
You may be eligible for a rebate of some of the tax paid when you buy your home.
With this program, you can withdraw up to $60,000 from your RRSP to build or buy a home.
First Home Savings Account (FHSA)
This registered plan helps you save money to buy or build your first home tax-free.
Photo by Maria Ziegler on Unsplash
The Steps to Buying a House in Canada
Now that we’ve got all that out of the way, here’s how you can go about buying a home in Canada:
Make sure you’re ready
If you are not 100% ready, don’t rush into buying a home. Homeownership is a big deal and a long-term commitment that will cost you hundreds of thousands of dollars over the years. Make sure you’re clear on the reasons why you want to own a home and ensure you’re financially ready.
Assess your financial stability and check your credit score. Generally, you’ll need a credit score of at least 650 to qualify for a conventional mortgage, but some lenders may set the minimum credit score higher. You can check your credit report (without lowering it!) with one of the main credit bureaus, Equifax or TransUnion.
If your credit score isn’t quite there yet and you’re still renting, use Chexy to pay your rent with your credit card. You can build your credit score while earning rewards on one of your biggest monthly payments.
Set a budget and save
Determine how much you can reasonably afford to put into a down payment and how much mortgage you can pay every month. The higher the down payment, the lower the mortgage. If you put less than 20% of the home’s purchase price as the down payment, you’ll need to pay for mortgage loan insurance.
As a general rule of thumb, your mortgage should not cost you more than 28% of your monthly earnings, and your total debt payments should not be more than 36% of your monthly earnings. This is called the 28/36 rule.
Also, consider other expenses, like maintenance and homeowners association fees, that you’ll need to factor into your monthly budget.
How much home can I afford in Canada? Find out how much mortgage you can afford with this calculator.
Find the right home
Make a list of things you want in your home. Do you want a condo in the city with all the amenities or a house with a big yard in the suburbs? Think about the things that matter to you most and make an upfront wishlist so that you keep these things in mind and don’t settle for anything less than the best.
Location is a big factor in the size and price of your home. For example, the average cost of a house in Toronto is a whopping $1.1M, while it’s just $344,800 in Saskatchewan–one of the cheapest places to buy a home in Canada.
Shop for a mortgage and get pre-approved
Shop around for the best mortgage you can find. It’s a good idea to compare at least three mortgage lenders or get a mortgage broker to help you get a lower interest rate. You might also want to ask what programs or incentives are available for a first-time homeowner.
It’s a good idea to get pre-approved for a mortgage at this part of the home-buying process. We recommend Homewise, an online mortgage brokerage that helps you shop around and compare the best mortgage rates from over 30 banks and lenders.
If you have a Chexy account, getting pre-approved with Homewise is easy. It takes less than 5 minutes to complete, and involves a few key steps. Here’s what you need to do:
Go to ‘Amenities’ on the left-hand side.
Go to the bottom and click ‘Get pre-approved.’
You’ll be taken to this page, where you can get started with the pre-approval process.
Fill out the basic information, such as how soon you’re looking to buy, the property type, and more personal information like your income, marital status, and future plans.
After successfully filling out and submitting the application, expect a follow-up call from one of the Homewise advisors. You will be asked in more detail about what you are looking for and will be required to submit documents to finalize your application.
Hire a real estate agent
Finding an experienced real estate agent who is familiar with the area, can guide you through the negotiation process, and can stick within your budget is so worth it. They can tell you whether your budget is realistic and help point out things you wouldn’t have otherwise noticed.
Talk to real estate agents about your needs before choosing one. If your friends and family have been through this process, ask for their recommendations or visit a few real estate offices. The right agent is crucial in the search for your new home.
View potential homes
Now, this is the fun part. You can look at properties online, but nothing compares to viewing them in person. Your real estate agent can show you different homes based on your budget and list, and you can get a feel for the space and the neighbourhood.
Make an offer
Once you’ve found your dream home, your real estate agent will help you prepare an offer package, which includes the offer price, your preapproval letter, and proof of funds for the downpayment.
If the market is competitive, you might have to act fast to put in an offer when you see a home you really like. When you make an offer, the seller may make a counteroffer, and you’ll need to decide whether you want to negotiate or back down.
Get a home inspection
Hire a professional to conduct a home inspection, which provides an overall picture of the property’s condition and any issues it may have. If you find any problems with it, you might want to ask the seller for repairs, revise your offer, or even back out of the deal.
After signing the purchase agreement, you’ll generally have to complete the inspection within 10 to 14 days.
Secure your financing
Mortgage pre-approval does not mean approval. At this stage, you’ll need to get all your ducks in a row for a final loan approval. The lender will need to verify your debts, income, credit score, and employment status, as well as verify the value of the property you’re purchasing.
Until you’ve fully secured funding, avoid making any major purchases or opening new lines of credit. Essentially, try to keep your credit score as pristine as possible.
Close the deal
Do a final walk-through of the home. This is your opportunity to point out any outstanding issues before it’s yours.
Once you’re sure it’s up to your standards and your lender has declared your loan ‘clear to close,’ it’s time to seal the deal and sign the paperwork to close on your new home. It’s now officially yours–congratulations!
Ready to start looking for a home? Get pre-approved for a mortgage with Homewise in minutes via your Chexy dashboard.
Subscribe to our newsletter below for up-to-date credit card, travel, and rental content.