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Published May 8, 2024
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5 minutes

7 Tips to Help Renters Save for Their Future Home

Skyrocketing rents are making it even harder for prospective home buyers to save. Stashing funds in the right accounts, and getting help from family or roommates, are two strategies that can give you an edge.

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Becoming a homeowner is a major life milestone — a rite of passage that helps many Canadians build wealth. But the homeownership dream has become increasingly distant as rents surge across the country.

Here’s the reality check: In March, the average rent for a studio apartment spiked 14.9% year over year to $1,564, while rent for a one-bedroom apartment jumped 13.6% to $1,926 compared to a year ago, according to the latest Rent Report from Rentals.ca and Urbanation.

Average asking rents across all property types were 21% higher in March 2024 compared to March 2020, according to the report, which looks at monthly listings from the Rentals.ca Network of Internet Listings Services (ILS). 

Paying a lot for rent makes it even harder to save up enough cash to cover a down payment and closing costs for a future home. This predicament can lead to a ‘rock and a hard place’ feeling for many potential home buyers.

So how do you save up for homeownership when the cost of rent is stacked against you? For starters, it’ll require a lot of patience and at least one or two of the strategies below.

7 savings strategies to prepare for homeownership

While current market dynamics might not be ideal, you can make moves today to help put you in a better position to buy when you’re ready. Here are a few steps you can take now.

1. Get your financial house in order.

If you’ve had credit or debt challenges, take control of your finances. Most importantly, pay your monthly bills on time and don’t skip payments. Need help? Contacting a non-profit credit counselling agency may be a way to get free or low-cost guidance on debt consolidation and other solutions.

2. Stick to a budget. 

Track your income and expenses, and identify areas you can trim back. This will require discipline and adjusting your spending habits, says Greg Parker, a Toronto real estate broker and a director at large with the Black Realtors Association Canada (BRAC). For example, consider cutting out unnecessary subscriptions or services, extravagant purchases (like a new iPhone as opposed to an older model) and other discretionary spending, he adds.

3. Earmark a house savings fund. 

Anytime you get a windfall, bonus or an unexpected financial gift, set aside a portion in your house fund to accelerate your savings.

It may not be ideal, but consider renting with a roommate. Having a roommate to help share rental expenses can fuel your savings for getting a place of your own.

5. Get a boost from family (or yourself). 

Toronto real estate agent Alan Zheng says many of his clients tend to get help from their parents. The gift of a full or partial down payment is a huge advantage for buyers whose families are in a position to do so. Another avenue: consider moving back home for a while to grow your house savings fund faster.

Crushing it at your job but haven’t had a raise or promotion? Now might be a good time to ask for one. Make sure you have a strong case to justify it, showing how you add value and drive results in your role. Another way to increase your income is working a side hustle, such as freelancing or creating items for an online marketplace. Adding even a few extra hundred dollars a month into your house fund from a side gig can make a notable difference over time.

7. Tap into your RRSP savings. 

Under the government’s Home Buyers’ Plan (HBP), you may be able to withdraw $60,000 from your registered retirement savings plans (RRSPs) to put toward a down payment for a home. If you’ve maxed out your RRSP contributions, think about diverting future contributions towards your down payment instead.

Nerdy Tip: The federal government announced plans to increase the HBP withdrawal limit from $35,000 to $60,000 after April 16, 2024. Check with your bank to confirm the limit before making a withdrawal.

Above all, think creatively and stay patient

Zheng says it takes most homebuyers in his area at least seven years to save up for buying a home.

It’s no surprise why: Sixteen of the highest rents in small-to-mid-sized cities in March were located in Ontario, according to the Rentals.ca report.

Parker is seeing the same upward pressure on rents (with no end in sight) in his market. That’s why, over the long term, buying a home is a better investment if you can swing the initial costs, he points out.

In expensive housing markets like Toronto or Vancouver where average prices are north of $1 million, the prospect of saving for years to amass the required 20% minimum down payment of $200,000 as rents eat up more of people’s monthly income is daunting.

That’s why Parker recommends homebuyers jump in the market earlier (if they can), opt for an entry-level property, like a condo or townhome, and see if they qualify for an insured mortgage.

Although mortgage insurance costs extra, it can allow you to put down as little as 5% for homes that cost $500,000 or less. For homes over $500,000 but under $1 million, the minimum down payment is 5% of the first $500,000 and 10% of the remaining amount. Homes over $1 million don’t qualify for mortgage insurance. Often, insured mortgages enjoy more competitive rates because lenders are protected from financial loss if you fail to repay your loan, Parker says.

For some renters on the home-buying sidelines, the math just may not work out, no matter how flexible they are, and that’s totally OK.

But if you’re determined to become a homeowner, now is a good time to get professional advice from a mortgage advisor to set you up for success, Zheng says.

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