New Home Buyers Guide for First Time Homeowners

Is It Time to Stop Renting?

Whether you are a newcomer, have a young family or an individual who entering the housing market, it can feel out of reach.

Today a person must work far longer to save a down payment on an average home. This can leave individuals and families locked out of homeownership and shackled in rentership.

Six in ten non-homeowner (aged 26 to 41) in Canada believe they will one day own a home.

Source: Royal Lepage 2022 Survey

However, homeownership brings both tangible and intangible benefits. Not only do you have your own home, but you can also make decisions about the look and design of the space, while creating stability and enjoy the pride of ownership.

The New Homeowners Guide for First Time Homeowners is intended to aid you through the first-time homebuying experience and aid you in making homeownership a reality.

“63% of Canadians who don’t own a home have “given up” on ever owning one.”

“The findings show that while 76 per cent of respondents felt that owning a home was the best investment a person can make, nearly seven in 10 say that home ownership is now only for the rich.”

Source: Ipsos poll conducted for Global News 2023

Home ownership (by almost any measure) is exponentially better than renting!

Home Ownership Is Cheaper. A 2021 report commissioned by Royal LePage found that in Canada, owning is “considerably cheaper” than renting. Check out the RRHBA Life Time Cost Calculator and compare your different scenarios.
It’s “forced savings.” A portion of every single mortgage payment goes towards paying down your principal. As a result, what you see as a mere monthly housing cost is actually quietly stacking up equity in the background.
It’s a gateway investment. Not only will your monthly housing costs stop vanishing into the pockets of your landlord, but owning a home is akin to entering a playground of investment opportunities: Subdivide the lot, rent out one of your rooms to a university student or start an Airbnb side hustle.
It’s independence. Your days of fretting about losing your security deposit because you hung some pictures are over. From this day forward, the paint, flooring, window coverings and fixtures are all under your sole discretion — not to mention any walls you might feel like knocking down.
It’s stability. Guess who never gets renovicted? Also, while homeowners do have to worry about rising interest rates, chances are good they’re never going to experience an overnight doubling of their housing costs.

Renters have it harder than homeowners when it comes to retirement.

The 2023 Mercer Retirement Readiness Barometer found “Millennial workers who rent for their entire careers must save 50% more than homeowners in order to have a sufficient monthly income in retirement, according to the 2023 Mercer Retirement Readiness Barometer.

Source: Mercer

We are not going to sugar coat it: Canada is not an easy place to buy a home. Decades of underbuilding have resulted in Canada having one of the most acute housing shortages in the G7. With fewer homes to go around, real estate in many of Canada’s major cities has been bid up to levels that now rank as some of the most unaffordable on earth.

However, it is not impossible. While home affordability has not been kind to young people, the country is still home to hundreds of thousands of homeowners under the age of 34.

So chances are good you can still get into the Canadian real estate market, it’s just going to take a bit more savvy than it did in the 1980s.

Is renting ever preferable to buying?

Could your housing needs change dramatically in the next three years? If the answer is most likely “yes”. It can be easier to break a lease than to sell a home.

Before officially beginning your metamorphosis into homeowner, take a moment to consider whether any of these apply to you:

Are you going to be moving cities anytime soon?
Do you have a substantial amount of debt that might interfere with obtaining a mortgage?
Do you have a good chunk of savings on hand for a down payment?
Could your housing needs change dramatically in the next three to five years?

Opening Steps To The Home Buying Adventure

Financing (or, how to quickly scare up a few hundred grand)

The first step of buying any home is also its most boring step. Before you start reviewing school districts or fantasizing about kitchen nooks, you’re going to have to spend some time doing math.

Specifically, you’re absolutely going to need to get pre-approved for a mortgage. This is where you send a bunch of personal documents to a bank or credit union to get a rough estimate of how much they’d be willing to lend to you. In pre-approving your mortgage, lenders are basically trying to figure out how much cash you have available each month to cover a mortgage payment. So they’re looking for pay stubs, employment letters, tax returns and credit scores.

First-time homebuyers should have a mortgage pre-approval in hand from a broker or lender, not just a quick online calculation for what they should be able to afford. Knowing exactly what your maximum budget is to ensure you have a realistic budget when considering buying or building a new home or buying a resale home and planning a renovation along with that.

Considered a rental suite?

A lender will consider any regular source of income you have coming in. One way to boost that is to plan for a future as a landlord. One of the easiest ways to score more house on your current paycheck is to look for properties that come complete with a rental unit, be they a basement suite, a backyard tiny house, or even just a spare bedroom to rent to a student. Plenty of homeowners have also managed to punch above their weight by entering the Airbnb trade: Do it right and you could be boosting your income $1,000 to $3,000 a month.

Leave yourself some breathing room.

After years of rock-bottom interest rates, a significant portion of Canadian homeowners got their homes using some of the cheapest debt in the country’s history. Rock-bottom interest did not last forever, so in deciding how much debt to take on, you’re also going to need to consider a future where it becomes much pricier to service.

“But why can’t I just start touring homes and figure out the financial stuff later?” you ask. A couple reasons …

You might not have as much cash to work with as you think. It’s not as simple as looking at your monthly paycheck. If you’re already on the hook for car loans and credit card debt (as well as having one or two kids in daycare), that’s going to take a significant bite out of how much debt they’ll be willing to sign you up for.
Your offers risk getting ignored if you can’t back them up with money. Say you start touring houses without doing your financing homework first. If you find your dream home, good luck trying to get an offer accepted if your only financing is a fervent hope that someone will lend you enough money. Or there’s the nightmare scenario: You make an offer, it gets accepted, and you suddenly realize you have no way to pay for it (in which case the seller gets to keep your down payment and can sue you for more).

This is also the time you’re going to be needing to count up whatever cash you have on hand for a down payment.

“The bank of mom and dad”

At some point, your realtor or mortgage broker is probably going to mention the term “bank of mom and dad” — the polite way of asking whether you access to additional funds. Family money is indeed a growing component of the Canadian real estate market, particularly for first-time buyers. However, the term may not necessarily mean you are borrowing or getting a gift from your folks. Mom and dad might be investing some upfront cash in exchange for a share of the home’s equity, or even a secondary suite where they can comfortably spend their retirement within easy reach of the grandkids.

Your first home purchase will probably require a couple of years of pretty aggressive saving …

Lay off the pricey vacations.
Curb your eating-out budget.
Go as cheap as you can on a rental unit until you buy.
Getting married? Resist an expensive ceremony and ask guests to give housing cash in lieu of presents.

The bigger the down payment, the better the mortgage terms, so any short-term pain you experience will pay dividends down the road once you’ve gotten your name on a land title.

Bank or credit union?

The easy answer is “whichever is going to give you the best rate on a mortgage.” Credit unions often have a little more wiggle room due to the simple fact that they’re not as tightly regulated. Unlike banks, credit unions don’t answer to the Office of the Superintendent of Financial Institutions, so they can offer things like longer amortization terms or cash-back features, which effectively work to bring down the overall mortgage cost.

OFSI is an independent agency of the Government of Canada, reporting to the Minister of Finance to “contribute public confidence in the Canadian financial system”. Most often OFSI is associated with the mortgage stress test which requires the minimum qualifying rate for uninsured mortgages will remain the greater of the mortgage contract rate plus two percentage points.

First, tally up absolutely every dollar you have available for a down payment. Then, gather up every document that’s going to give a lender a sense of your annual income (T4s, pay stubs, bank statements). Finally, start shopping around for mortgages, either via a mortgage broker or by getting in touch directly with lenders.

How to maximize your housing dollar

By this point you’ve scraped together your down payment and have a pretty good picture of how much house you can afford to buy.

If it’s still not enough, you have a few more cards to play …

If you are not living in Saskatchewan, consider moving here?

Find a cheaper community.

One of the most epic demographic shifts that has changed Canadian real estate has been work-from-home measure. It has prompted thousands of Canadians to flee the big city in search of a better life in smaller centers. This has freed up many individuals and families workers to buy where stable internet connection is available.

Not everyone can do their job from a laptop, but it’s worth considering whether it makes sense to find a job in Regina or Saskatchewan if it’s going to buy you and your family more house. Regina and Saskatchewan have some of the lowest if not they lowest average housing prices and newly built housing prices in the nation. This may ultimately yield you far more square footage and a more walkable neighbourhood.

Buy with friends or family

Can’t afford a house in your preferred neighbourhood? Consider going in halfsies with a friend, with each of you taking a floor to yourselves. Some lenders will actually accommodate this using what’s known as “mixer mortgages.” If you’re going to do this, though, you’re going to want to be very meticulous about working out a co-ownership contract. It might be fine at the beginning to divide up parking spaces based on a handshake agreement, but what if your newfound housemate suddenly pursues a new side hustle of running a motorcycle salvage yard in the back garden?

Building New, Buying New or Purchasing A Resale Options

Starting fresh and building bran new, buying a newly built home that is under construction purchasing an existing home on the resale market all comes with different advantages and challenges. Let’s walk through a few of those:

The purchase process can be more cumbersome with a resale home:

The bidding can require you to work through the minefield of digits and conditions to put down a legally binding document to convince someone to sell their home to you. Write down your bid price (offer) and amount of deposit and conditions you’re attaching to the sale, as well as clauses that need to be fulfilled before your offer is finalized. Common conditions include getting an inspection done to the house, clauses requiring your own home to sell before his deal goes through and financing conditions. In a busy market, sellers might add offer dates, which dictates a day and hour they’ll review all the bids coming in for their home at the same time. Adding conditions as a buyer creates a pause in the seller’s mind and a preference for “no conditions” can become the norm.

The bidding process varies from province to province and becomes a legally binding agreement once you’ve signed and submitted to the seller.

Then there is competing against other buyers in the market who are also making offers. This can push prospective buyers to sweeten their own offer, either by waiving conditions or raising the price. Sellers may come back to you (most likely through the agents) and ask whether you want to increase a bid after all the offers have been received.

Sometime a buyer may have an option to provide a pre-emptive bid that is typically very generous for a home in an attempt to circumvent a potential bidding war an convince the seller not to wait for the date in question.

What is the fair market of a resale home, that is determined by comparable that the agent most likely will provide to the seller, buy looking at similar priced homes in the neighbourhood to create a starting point for where bids should be priced towards. How does this compare on the extent of renovations that have been completed. Have fixtures been replaced or the state of the appliances which may be include or not in the home purchase.

There can also be an additional emotional component for sellers when buying a resale home, more than just dollars and cents. Learning what the sellers motivation to sell can be an important tool in the process. Example, an earlier closing date can help in an estate sale where parties are just hoping to get rid of the property quickly, while stretching out the dates can cater to someone who wants more time to hunt for their next home. For others, who may feel nostalgic about their old home and want to make sure it ends up in good hands, writing a letter to go along with the offer is sometimes recommended by real estate agents. However, if a lawyer is handing a sale for a deceased owner or an investor has a number they need to hit to turn a profits, a sweet letter will most likely not make a difference.

In the end, purchasing a resale home requires a lot of tools in the tool box to ensure you are getting the best value for you purchase.

Purchasing A Newly Built Home That Is Already Constructed Is Straight Forward

Purchasing a newly built home directly from a New Home Builder (we recommend a member of the Regina & Region Home Builders’ Association) is a straightforward buying process, making it a relatively easy endeavor for a prospective new homeowner. A newly constructed home purchasing process is usually well structured and transparent. Many builders have dedicated sales teams that guide the client through the entire process. There is no bidding process, competing with other buyers for the purchase. The price is based on the cost of construction, not on the comparable’s in the community. If you like the features, the floor plan, the amenities etc. You can purchase the newly constructed home with the certainty that it will be yours.

Purchasing A New Home That Needs to Be Constructed

The process to purchase a New Home that needs to be constructed does take more time and the process has its own complexity, it is still fairly straight forward. You can focus your time on thinking about floor plans, finishes, features and pricing options instead of bidding, making bidding offers with conditions and the plethora of other items in the resale purchasing process.

In this scenario the New Home Builder (again we recommend a member of the Regina & Region Home Builders’ Association) most likely has a sales team to guide you through the process.

Research and Pre-Approval:

Begin by researching the real estate market and identifying areas or developments where you’d like to buy a newly constructed home. Get pre-approved for a mortgage to determine your budget and ensure you’re eligible for financing.

Choose a Builder and Floor Plan:

Once you’ve selected a preferred location, explore different Regna & Region Home Builder Association New Home Builders and their offerings. They can share with your their past projects and reputation. This can help you choose a builder that aligns with your preferences and needs and start to develop a suitable floor plan that meets your requirements.

Customize and Sign the Contract:

Work with the builder to customize the home’s design, finishes, and additional features according to your preferences. After finalizing the details, you will sign the purchase contract, which outlines the terms and conditions of the sale, including the agreed-upon price and estimated completion date.

Secure Financing:

Finalize your mortgage application and secure financing for the construction of the home. This may involve providing additional documentation and information to the lender to complete the approval process.

Construction Begins:

Once the contract is signed and financing is secured, construction will commence. Throughout this stage, the builder will keep you informed of progress and may invite you for on-site visits to review the development.

Inspections and Walkthroughs:

As construction nears completion, the builder will schedule inspections to ensure the home meets local building codes and safety standards. You’ll also have the opportunity to do a final walkthrough to identify any issues that need to be addressed before closing.

Finalize Financing and Closing:

As the construction nears completion, you’ll need to finalize your mortgage financing. This involves providing any required documentation and coordinating with the lender. Once everything is in order, you’ll schedule a closing date. At the closing, you’ll sign the final paperwork, transfer the funds, and officially take ownership of the newly constructed home.

Moving In:

After the closing, the keys to your new home will be handed over, and you can start moving in and making the house your own.

It’s essential to maintain open communication with the builder throughout the process to ensure a smooth and successful construction and purchase experience.

Some additional considerations

Planning on growing your family?

Are you planning on having kids? How many? Can you start by stacking them up in bunk beds in a shared room, and then renovate new rooms in the basement or attic when they become teenagers and want some more privacy? Are you buying into a condo building that bars children? Is the home laden with features that could prove deadly to any future toddlers, such as ladder-accessible lofts or low-lying windows?

Are your accessibility needs going to change?

Is the home going to be frequently visited by someone who might struggle with stairs? Do you have a knee injury from high school that’s going to make it difficult to regularly mow a massive lawn? One classic mistake for older buyers is that they buy into a remote community accessible only by car – and find themselves trapped when they start losing the ability to drive.

Understanding Mortgages Before Looking For A New Home

For most of us, the quest to buy their first home begins and ends at one place: the mortgage.

A mortgage is a particular kind of loan that uses the property itself to back the financing. Since few people have enough cash on hand to buy a home outright, this is the most common way for prospective buyers to finance the purchase.

For most homeowners the process of securing the dream of homeownership will be the biggest loan of their lives. It is not exactly straightforward.

What are mortgage brokers, mortgage specialist or mortgage advisors

Some type of mortgage brokers, agent, specialist or advisor should really be the “first stop” for someone gearing up to take a run at the housing market.

Terminology:

A mortgage broker or mortgage agent generally refers to someone who works independently of lenders to help buyers compare mortgage rates from a variety of institutions.
Mortgage specialist or adviser generally refers to mortgage experts at a specific bank or specific lender. They often can only offer products from their institution. This route offers convenience of getting a mortgage where you already do your banking. Some institutions might offer additional incentives or perks for having multiple products with them.

The risk in not contacting a mortgage expert in advance is finding the home of your dreams and finding out too late that you can’t get as big a mortgage as you need to build or buy.

It is advisable to start your start your homebuilding or homebuying process with the mortgage specialist. Get that pre-approval and then be confident in your search for a builder to know exactly home much home you can afford to build or buy.

There is an added benefit with reaching out to a mortgage expert as a low-stakes way to figure out whether homebuying is right for you. There is no cost for their initial expertise.

Mortgage specialists are not paid directly by the borrower at any part in the process, they are paid by the lender at the end. The exception maybe if you are working with an alternative lender for your mortgage, in which case you may pay a broker fee.

One other thing a good mortgage expert can help you figure out is not just how big of a mortgage you can qualify for, but what you can afford.

Many first-time homebuyers coming from renting are unaware how homeownership will affect their monthly budgets when additional costs such as property taxes and maintenance are added into the equation.

What goes into qualifying for a mortgage

Securing a mortgage is not a one-and-done process. There are multiple stages to go through in qualifying for a mortgage, each with a bit more certainty for what you can ultimately afford in a home.

First is pre-qualification. This as a “very high-level” sense of what you can afford based on what your income and credit score are as well as what assets and other debts you might have.

You initial consultation may be based on your word on your income and other information. The step for a pre-approved mortgage will require you to submit actually proof of income, banking information and other pieces of verification to your mortgage.

Conditional approval puts a homebuyer in a holding pattern between the time the agreement is in place and when the purchase closes, at which point the mortgage becomes active and the transfer of funds to the seller is complete.

Real estate lawyers facilitate this transaction with the lender once you’ve signed all forms and delivered the deposits and necessary information.

While the entire process is set up for a lender to gauge whether you’re in a secure enough position to meet the monthly payments on your mortgage and other obligations, in Canada, most financial institutions actually test your budget assuming your mortgage rate is higher than it really is.

This is called the stress test. Federally regulated lenders like the big banks have to test borrowers based on whether they could handle a mortgage rate of 5.25 per cent or two percentage points more than the actual mortgage rate you’re being offered — whichever is the higher of the two.

For example, if a bank offers you a mortgage rate of 4.64 per cent, it’s going to test you to see if you could handle payments at 6.64 per cent interest. If you had a much lower offer rate of 2.2 per cent, the bank would test you at the bar of 5.25 per cent interest.

The Canadian government instituted this check in 2018 to make sure homebuyers wouldn’t commit to a mortgage that they couldn’t afford if interest rates suddenly rose. The intent is protection that if interest rate changes you are still able to afford your mortgage.

Alternative lenders such as credit unions are not subject to the federal stress test, but typically have their own tests they’ll put borrowers through to gauge the amount of risk they’re taking by offering the mortgage.

The difference between fixed and variable rate mortgages

When you take on a mortgage, you’ll have a set rate that determines how much additional interest you’re paying on the loan in addition to paying down the principal. The original amount you took out to begin with to finance your purchase.

A typical term is five years or fewer, depending on the arrangement you have with your lender. At the end of your term, you’ll have to renew with either the same lender or, potentially, a new one. (More on that later).

Mortgage terms are distinct from the overall amount of time it takes to pay off the mortgage, called the amortization. In Canada, this period is typically 25 years.

When you are looking to take out a mortgage or renew at the end of your term on an existing mortgage you will have an option between fixed and variable products, with some important distinctions within those categories as well.

Variable-rate mortgages are directly influenced by the Bank of Canada’s target for the overnight rate, commonly called the central bank’s policy rate or benchmark interest rate.

The Bank of Canada sets the standard for interest rates with its policy rate, which filters down to lenders’ prime rates.

Banks typically use their prime rates to set variable-rate mortgages, offering something like, prime minus a certain percentage to determine what rate these mortgage holders pay.

But because of this setup, the rates on these mortgages are, well, variable — they move up or down immediately in line with the Bank of Canada’s rate decisions.

If you take out this mortgage, then what you pay could change month to month based on what the Bank of Canada does.

There’s another option here, however.

Some lenders will also offer variable mortgages with static payments, which means your monthly payment typically won’t change with the Bank of Canada’s decisions. Instead, those rate changes will affect how much of your payments go toward the interest portion of the loan compared with the principal amount.

If you pay off more and more interest and less and less principal, the amortization of your mortgage can be extended, though you’ll often have to reset to your original amortization length when you renew with higher payments. The opposite is true if rates go down — your amortization would get shorter.

But if you eventually hit a point where you’re only paying off interest as rates rise, you’ll hit what’s called a trigger rate, which can force an immediate lump-sum payment or increased regular payments on your mortgage. (You can read all about trigger rates over here).

Want more consistency when it comes to your mortgage payments? Fixed-rate mortgages are the traditionally popular options for Canadians who want predictability.

A fixed-rate mortgage will see your interest rate stay the same for the entire length of your mortgage term. There are no changes to your amortization. There’s no changes to your monthly payments. It’s static.

The offer on a fixed rate is typically higher than you’d get with a variable option. The rate you’re offered here isn’t directly influenced by the Bank of Canada, it is tied to the bond market.

The yield, or rate of return, on the five-year bond will affect what kinds of rates lenders offer on five-year fixed-rate mortgages, and so on and so forth.

Still, the central bank’s policy rate does have an indirect influence here, as bond traders will try to anticipate where the Bank of Canada is taking its benchmark rate and yields will adjust closer to that mark.

Because of the nature of this relationship, fixed mortgage rates can fluctuate outside of Bank of Canada decisions, whenever new data is released or when concern or excitement about possible economic developments spreads.

What to know about penalties for breaking a mortgage

When you’re gearing up to buy a home, you might be fairly certain you’ll be in that house for the long haul.

Homeowners should know before picking a mortgage that life happens. There are many reasons you could unexpectedly have to move or sell that home.

In these cases, you might have to break that mortgage before you pay it off. In many cases, that means paying a penalty.

If you’re moving and buying a bigger home within Canada and your mortgage is with a big bank, typically that loan will be “portable,” meaning you can bring it over to the new property or take on a new rate for the mortgage without being charged a fee, as long as you stick with that lender.

In other instances, such as refinancing a mortgage at a lower rate, there could be a penalty based on the differences in rates as well as the type of mortgage you have.

In the case of fixed-rate mortgages, you’ll either pay the equivalent of three months’ worth of interest on the mortgage or a penalty called the interest rate differential (IRD) — whichever one is larger.

Here, you’ll typically pay interest fees based on the difference between today’s posted rate from the lender and the interest rate you originally signed up for. The Financial Consumer Agency of Canada has more in-depth information about the IRD here.

The IRD is where homeowners can come up against “quite substantial” penalties costing thousands of dollars.

Alternatively, variable-rate mortgages don’t usually come with an IRD option, instead defaulting to the three months’ interest penalty.

This makes variable rates the more “flexible” of the two options. You can also usually convert a variable-rate mortgage to the fixed alternative at any point without paying a penalty.

Aside from breaking a mortgage, IRD penalties can arise when you pay off a mortgage early.

If these penalties for breaking a mortgage or changing up your payment schedule are surprising to you, you’re not alone.

Mortgage experts are experienced at helping clients understand the ins and outs of mortgages and communication does not need to end when the purchase is finalized.

It’s important to stay in touch with whichever mortgage expert you are working with as your situation changes and as you approach renewals. They can help you figure out payment options that fit your needs.

Lifetime Cost of Housing Choices

Renting a home, buying a resale home and renovating or building or buying a newly built home can have significant financial implications over the long term. This is why it is important to consider those options:

Financial Stability:

Understanding the lifetime cost of each housing option allows individuals to make informed decisions about their finances and plan for the future. It helps determine if a particular housing choice aligns with your budget and long-term financial goals.

Affordability:

Comparing the lifetime costs of renting versus buying a home can help determine which option is more affordable in the long run. While renting may seem cheaper initially, homeownership can provide certain benefits and the opportunity for equity growth, making it a potentially more cost-effective choice over time.

Equity and Investment:

Buying a home, whether resale or newly built, can be seen as an investment. Over time, the property may appreciate in value, allowing homeowners to build equity. Understanding the lifetime cost can help assess the potential return on investment and evaluate the overall financial benefits of homeownership.

Maintenance and Upkeep:

Different types of homes require varying levels of maintenance and upkeep. Newly built homes may have lower maintenance costs initially, as they are less likely to need immediate repairs. Resale homes, on the other hand, may require more frequent maintenance and renovations. Considering these costs can provide a more accurate picture of the lifetime expenses associated with each housing option. Renting removes the immediate risk of individual replacement costs, but are ultimately part of the overall rent.

Personal Circumstances:

Everyone’s circumstances are unique, and the lifetime cost of housing can vary depending on factors such as location, mortgage rates, rental market conditions, and personal preferences. By understanding the lifetime cost, individuals can make decisions that align with their specific needs and circumstances.

It’s important to note that the lifetime cost of renting, buying a resale home, or a newly built home is not solely about the financial aspect. Personal factors such as lifestyle, flexibility, and personal preferences also play a significant role in the decision-making process.

To help prospective homebuyers the ability to compare the lifetime costs of a new house, resale house and renting an equivalent house the Regina & Region Home Builders’ Association created a Lifetime Cost Calculator that provides the user the ability to enter there own costs and assumptions to see how the affect the final result.

You can find the Lifetime Cost Calculator here.

Saving For A New Home Without The Bank of Mom and Dad

The Bank of Mom and Dad is considered an informal financial institution that is open to some but not all prospective homebuyers. It has become a major factor in whether some Canadians can break into the housing market.

Having family with enough spare resources to lend towards a downpayment or help with a mortgage is a privilege afforded to a lucky few, and it’s often along these lines that young Canadians are divided between homeowners and renters.

A Statistics Canada report released in November shows that young adults whose parents own their home were more than twice as likely to be homeowners themselves, compared to the children of renters.

That report didn’t directly consider whether financial gifts were part of the trend, but it did cite separate studies about the growing prominence of intergenerational wealth transfer helping to fund home purchases.

A 2021 CIBC report, for instance, notes that the size of the average financial gift given to a family member for a home purchase was $82,000, up from $52,000 six years earlier.

Breaking Into Housing Market With The Bank of Mom and Dad

It’s still possible to break into the housing market without a cash injection from family, but the degree of lifestyle changes needed depending on the particular household or city could lead some to question the value of homeownership in the first place.

Building the ‘Savings Muscle’

Before ruling themselves out from the ownership dream, prospective buyers can know how close they are to affording a home by “taking stock” of their finances.

Metrics like the average income needed to buy a home or how many months it’ll take to save for a downpayment can be useful benchmarks. Most Banks, Credit Unions or other financial institutions have online calculators that individuals can use to plug in their personal numbers to know what homeownership costs would actually look like for them.

Individuals can also get pre-approved for a mortgage with a lender directly or by tapping a broker to get a sense of how much house they can qualify to afford.

Working with a professional can also give you a sense of whether you can realistically afford what you’re being offered, including costs on top of the mortgage like closing fees, property taxes and regular maintenance.

If someone finds themselves close to breaking into the housing market but their spending habits aren’t in line with homeownership, they might want to consider some lifestyle changes to “build that savings muscle.”

While those kinds of actions can have an impact at the margins, Canadians who really understand the long term benefits of homeownership might have to think about more drastic decisions, such as moving to a different city like Regina, where less of their monthly paycheque goes to rent and home prices are more affordable.

The qualifying income needed to buy a representative home in Regina is below $100,000, while the typical salary needed to buy a condo is actually below the median income for the city, with estimates it’ll take less than two years’ time to save up for a downpayment on a condo unit.

Maximizing the first home savings account

It may not be enough to just put aside 10 per cent of your pay each month to arrive at a downpayment in a few years’ time. How you invest your savings can make a significant difference in how much home you can afford.

The First Home Savings Account (FHSA) should be the top choice for prospective buyers. The FHSA allows individuals to contribute up to $8,000 annually up to $40,000, with tax-free contributions and withdrawals.

If an individual is looking to use FHSA contributions within the next three years, it might be wise to stick to lower-risk vehicles like a high-interest savings account or guaranteed investment certificates.

Don’t forget about the role a Registered Retirement Savings Plan (RRSP) or Tax-Free Savings Account (TFSA) can play in the purchase.

The RRSP, for example, has a Home Buyers’ Plan option that allows an individual to draw down up to $35,000 tax-free towards the purchase of a home, and be repaid over 15 years.

The TFSA is meanwhile the most “flexible” of the three options, since the FHSA can only be used towards the purchase of a home, consumers might find their savings unusable when they need it by putting all their eggs in the single basket.