There was a time when owning a home was a rite of passage for the average Ontarian. But times have changed, home prices have skyrocketed, leading many Ontarians to contemplate whether to rent or buy, a question that anyone looking to put down roots of their own has been contemplating. There are pros and cons to each, and truly no wrong answer. Renting vs owning a home is a choice that is reliant on several factors and differs from person to person. There is no one-size-fits-all formula to tell anyone which option is the best. We have compiled a list of tips and considerations to help anyone looking to set out on their own, make a responsible decision.

Financial Considerations for Buying

When it comes to purchasing a home, there are many up front, and monthly expenses that buyers need to be aware of and prepared for like a down payment. A down payment is an initial upfront payment that buyers are required to pay towards the purchase price of their new home. Depending on the price of the home that is being purchased, the total amount of the down payment would change.

The next consideration would be a mortgage. If you don’t have a spare 500K laying around to purchase a new home, you will need a mortgage and loan insurance to cover it which is required if the down payment of a house is less than 20% of the home’s purchase price.

Next on the list is land transfer tax. When buying a home, whether it is a house or a condo, there is a one-time closing cost called the land transfer tax which must be paid in full upon closing on the home. The price of the land transfer tax in Ontario depends on the price of the home.

Property taxes is another consideration when buying a home. The town or city that you live in will affect the amount of property taxes that are paid. In Niagara Falls the property tax rate in 2022 was 1.35% of the homes assessment value. Payments of property taxes can be incorporated into monthly mortgage fees.

Inspection Fees when purchasing a home are not a requirement and can be waived but are strongly suggested. Having a home inspector come out and look at the property before you finalize the deal is a wise decision. It is the inspector’s job to search for and uncover any potential issues in the home such as old or faulty electrical wiring and pipes, or a leaky roof. Ranging anywhere from $300-$1,000, inspection fees may feel like an added cost that can be overlooked but may end up saving you thousands in the long run.

If you decide a condo is a great fit for you, then condo fees are an inevitable & reoccurring cost. Purchasing a condo or apartment also comes with their own extra fees. Also known as strata fees, condo fees are used to cover costs relating to the building such as maintenance, cleaning, and utilities. This is a monthly fee that must be paid. Each building is different, so it is important to find out exactly how much the fees are, and what is and isn’t covered in your condo fees.

Financial Considerations for Renting

Whether you're looking to rent a home for the first time, or you're a veteran renter who's thinking about moving to a new city or town, it's important to know what you're getting into. The good news is that renting is much more affordable than owning. You'll have lower housing costs and no mortgage payments, which means more money for other things—like travel or retirement savings! But there are some downsides to renting too. You'll have more limited space and may not be able to make changes to your home as easily as an owner can. You also might not be able to take advantage of certain tax breaks when renting (although some may still be available). You see, when you own a house or condo, you can deduct mortgage interest from your income when calculating your taxes. But when you rent, it's different: You can't reduce your taxable income with rental costs unless you itemize your deductions—and this will only happen if your total expenses (including mortgage interest) exceed 2% of your adjusted gross income. So, if you're renting in Ontario, and planning on buying in the future… make sure to take these tax considerations into account before signing up for an apartment!

Renting a home can be a great choice, but it's important to consider the financial implications of your decision. The most obvious consideration is that you'll need to pay rent every month. Landlords have the right to raise the rent every year and in the long run, may have you spending more money than if you had purchased a home. In Ontario, there are three main types of rental contracts: fixed-term lease, periodic lease, and month-to-month lease.

Fixed-term leases are the most common type of rental contract. The length of a fixed-term lease depends on what kind of property you're renting, but they typically last anywhere from six months to one year. After that period is up, tenants can either renew the lease or move out.

Periodic leases are similar to fixed-term leases except that they last until one party decides to end the contract (such as when a tenant moves out). These contracts are not always guaranteed to be renewed or extended beyond their initial term.

Monthly leases are also known as month-to-month leases because they're automatically renewed each month until either party decides otherwise. No matter what term you decide on, remember that the largest upfront cost associated with renting a home is first and last month’s rent and some landlords require a security deposit, this is generally equal to one month's rent and is sometimes non-refundable if you decide to move out early.

Other Important Considerations

Unplanned expenses are always going to happen, so make sure that you’re ready for them by saving up an emergency fund. It is equally important for both homeowners and renters to have money tucked away to deal with and overcome life’s surprises. It is generally recommended to have three month-worth's of expenses saved for such instances.  

Another important factor in buying or renting a home is taking stock of your current lifestyle. Do you travel a lot for work? Or are you a free spirit and love to experience and try new places? Does the thought of not having a home base scare you? Do you currently have stable employment? Before buying or renting a home it is always a good idea to think long and hard about where you want to be for the time being and into the future. Renters have a far greater ability to be flexible in their plans. Lease lengths can vary anywhere from a month to years, so renters can pick how long they want to stay in one spot. If you enjoy moving around and experiencing new places, or if your job takes you all over, renting might be a better option as it allows you a level of freedom that homeownership does not. Owning a home does provide a stable home base, but typically, requires a long-term commitment to a specific area.

It doesn’t matter whether you are renting or buying, the location of the home needs to be right for you. Take commute times to and from work into consideration. As well as any sports, hobbies, or activities that you enjoy doing. For those with kids, proximity to schools is a major consideration to be taken into account. Keep in mind that living outside of a town or city also comes with added expenses as it is going to take more gas to get to and from grocery stores, work, restaurants, etc.

Buying and renting a home both have different levels of responsibility. Homeowners have a far greater level of responsibility that they are undertaking. If something breaks, it is up to them to fix or replace it, whereas renters inform their landlord, who will then take care of the problem. Ensure that you are prepared for the level of responsibility you are committing to and make sure that it matches your current lifestyle. The decision to rent or buy is not a cut and dry one. There are pros and cons to each, and anyone ready to make a change needs to be aware of them so they can make the best decision for their life. Use this as the first step in the process to buying or renting a new home. Discuss your options with any of our real estate agents today and let us help get you into the home of your dreams!

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