Despite two recent cuts to the Bank of Canada’s benchmark interest rate, the Canadian housing market still presents significant challenges for many Canadians. The cost of living, mortgage rates and skyrocketing housing costs have put the dream of home ownership out of reach for many.
@hgtvcanada Ready to buy your dream home? Here are 3 must-do steps before applying for a mortgage 🏡🔑 @Roxanne #realestate #mortgage #buyingahouse #finance
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It doesn’t help that the Canada Mortgage and Housing Corporation’s First-Time Home Buyer Incentive is no longer accepting applications. However, there are some non-traditional approaches that can help you purchase your first property.
1. Rent-to-Own
According to a recent Re/Max Canada report, 22 per cent of Canadians are interested in this homeownership alternative. With a rent-to-own arrangement, a renter enters into an agreement with their landlord to rent a property with the option of purchasing it at a set price at a later date (generally five years). The renter pays a fee, usually separate from rent, that goes towards a future down payment on the property. Terms vary, so it’s important to read the fine print.
While this model may work for some potential buyers, Jason Heath, managing director of Objective Financial Partners, told Global News that it may not work for those having a hard time paying their monthly rent as they’ll now have to come up with the extra payment.
Related: Scott McGillivray Weighs in on Renting Vs. Buying: When is it Smarter to Rent?
2. Co-Ownership
Another popular trend in home buying is co-ownership. Under this scheme, multiple parties share ownership. This could be co-owning with a family member who’s not a spouse or multiple parties, including friends. In addition to making homeownership accessible for the co-owners, it also means sharing costs and responsibilities. If you don’t know the right people to share ownership with, there are co-ownership companies that can help match buyers.
If you’re considering co-ownership, be sure to have legal agreements in place that cover any potential conflicts or changes in your partners’ circumstances.
Related: Buying a House With Multiple Owners? 10 Things You’ll Want to Know
3. Secondary Suites
While not a true alternative to a traditional mortgage, rental income from a secondary suite can help offset mortgage costs. This is another popular option for Canadians, as it makes buying in urban and more costly markets achievable. In addition, some municipalities are easing zoning regulations on secondary suites and laneway houses in order to increase density while tackling affordability and lack of housing stock.
Related: What to Do Before Building a Laneway House or Garden Suite
Keep in mind that being a landlord can be a challenge. It can be very stressful and expensive if you’ve rented to the wrong tenants. Make sure you do your due diligence and never trust your gut when choosing renters.
4. VTB Mortgage
A vendor take-back mortgage (VTB) is a financing arrangement in which the property seller lends money to the buyer to help them make the purchase. The seller acts as the lender and allows the buyer to make payments over time, similar to a traditional mortgage. The seller must own the property outright.
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VTB mortgages can help buyers with credit issues or who are having trouble putting together a large down payment. For the vendor, these mortgages allow them to sell the property quickly, benefit from possible tax advantages and earn interest. However, these mortgages do have some disadvantages, such as high interest rates and complex terms of sale.
5. Government Programs and Assistance
The First Home Savings Account (FHSA) is a new registered savings plan introduced by the Canadian government in 2023, aimed at assisting first-time homebuyers in saving for a down payment. Individuals can save up to $40,000 tax-free, with contributions being tax-deductible. Contributions can reach a maximum of $8,000 per year, and any unused contribution room can be carried forward.
Withdrawals for purchasing a qualifying home are not taxed as long as specific conditions are met, such as being a first-time buyer and occupying the home within a year of purchase. This account is a tax-efficient way to save for a home.
Related: What is a First Home Savings Account and How Does it Work?
The federal government’s Home Buyers’ Plan lets you withdraw from your Registered Retirement Savings Plans (RRSPs) to buy or build a qualifying home for yourself or a specified disabled person. The 2024 federal budget increased the HBP withdrawal limit from $35,000 to $60,000.
From poor credit to affordability, there may be any number of reasons that Canadians are considering non-traditional ways to buy a home. The approaches and incentives above offer a solution to those who don’t want or aren’t able to secure a traditional mortgage.
All of these alternatives have their benefits and challenges, but they’re definitely options worth considering if you have your heart set on becoming a homeowner. If the housing and affordability crisis continues, more Canadians will embrace non-traditional options, which may shift how people see homeownership and how they achieve it. No matter which method you opt for, expert advice will be critical to making the right decisions and owning your own home.
Related: Expert Tips That Will Help You Become a Homeowner Before 40
