Should I keep renting or buy a home with down payment assistance?

Should I keep renting or buy a home with down payment assistance?

Last updated
Nov 2022
5 min
Written by
Chrissy Kapralos
  • Renting is an expensive monthly payment for most Torontonians, with the average one-bedroom costing over $2,400. 
  • Down payment assistance can help eligible Canadians access the real estate market. 
  • Despite the fact that mortgage payments might be more costly than rent, you’ll still build hundreds of thousands of dollars in equity as a homeowner in the GTA.

Your $2,600 rent payment comes out like clockwork. Despite living in that Queen St. one-bedroom condo for over a year, you still feel that burn every month. It’s hard to get used to.

What’s the alternative? You make a decent salary at $90K per year, but a Toronto mortgage would ruin your liquidity and freedom. Plus, you can’t fathom the down payment it would require. 

Rent or buy? What’s the best option for a middle to high income earning Torontonian? 

With Lotly’s down payment assistance as an option to help folks buy, we see homeownership as the better choice in most cases.

But it might not be for everyone, at every point in their lives. 

If you’re having trouble saving up for a down payment, Lotly might be a great option for you. We’ll walk through how much wealth you can build if you go the Lotly homebuyer route, and then explore some scenarios where renting might make more sense for you.

Why become a Lotly homebuyer?

We understand that some scenarios are more suitable for renting. But life events change, meaning you could find yourself in a primed position for homeownership. 

Even with the responsibility that comes with a mortgage, Lotly’s down payment assistance makes homeownership a wealth-building investment sooner than if you purchased on your own. Here’s a few reasons: 

  • You leverage shared equity to acquire an appreciating, wealth-building asset you get to love and live in.
  • You enter the real estate market without saving for a full, large down payment.
  • You have a little more breathing room while paying down your mortgage since Lotly brings homebuyers up to a 20% down payment.

Renting versus owning with Lotly

We’ll walk through an example with our rent-vs-own calculator to show you the wealth difference between renting and buying a home with Lotly. 

rent vs homeownership calculation
Rent vs homeownership calculation

The above shows a scenario where an aspiring homeowner saves 5% of their down payment and plans to live in their home for ten years. That’s a lot of appreciation if we’re working with a 5% yearly appreciation rate, for example. 

You won’t feel rich purchasing a home, even with Lotly. Your monthly payments will be higher than rent, but you’ll reap the asset-building rewards of appreciation. Of course, you’ll have to refinance or sell later to pay back investors. But look at the wealth you’ll build over time, even after paying your investors: 

Fast-forward ten years? Your initial $35,000 builds you $354,623 — including $139,126 in home equity and $225,615 in appreciation. 

Wealth built through homeownership vs renting
Wealth built through homeownership vs renting

When is renting a better option?

Toronto’s average one-bedroom rental costs $2,478 — nearly a 24% increase from last year’s averages. 

How does a monthly payment like that make sense on something that will never be yours? It really depends on your lifestyle. Here are some situations where renting might be a better option for you: 

1. You travel frequently

Travel might have crossed your mind if you’re one of the five million Canadians working from home. The digital nomad movement is growing, with plenty of Torontonians moving to provinces and entirely different countries to make the same salaries at lower living costs. 

Even with a one-year rental term, you’re on the hook for monthly payments. But a sublet is easier to manage — the landlord is still responsible for maintenance and other issues that may arise. Now, if you own the property? You’ll have to pay the mortgage, property tax, and a host of additional costs without even getting to enjoy your home if you’re away! And if you rent it out?

Try managing a rental from overseas — people do it, but it isn’t easy. Plus, emergencies like water leaks or power outages might force you to return and deal with the issues. 

On the flip side, you might find it worthwhile to have a property manager take care of the rental while you’re traveling. But that comes with anywhere between a 10-20% management fee from your rental income, plus expensive vendors for maintenance. 

Overall? A regular traveler isn’t the best homeowner or landlord unless you have support from a shared investor or family member. Renting in this case, allows for a little more freedom. 

At most, you’re on the hook for an apartment for one year. After that, you’re free to leave as you please or even keep the place month-to-month. 

2. You don’t have a regular income or a great credit score

Of course, a landlord won’t willingly rent to you if you can’t prove income or creditworthiness. But you can probably manage a rental approval faster than a mortgage approval with irregular income. A family member or friend acting as a guarantor should help.

But for a mortgage? It’s not so easy. A guarantor doesn’t provide enough assurance to a big bank lender that you’ll cover your payments. And private lenders will assess on a case-by-case basis, though it’s not a sure thing. 

Even with down payment assistance, lenders need to see regular income and decent credit scores. No bank or private lender will lend to you without those key items. In this case, your best bet is to live in a rental (either short-term or long-term) until you can improve your credit score and income while saving more for the down payment. 

3. You’re just not into commitment

Homeownership is one of the most important responsibilities you’ll ever undertake. Even condos present responsibility through regular maintenance fees in place of regular maintenance fixes like houses. 

You can’t just turn the switch off — it’s a responsibility that lasts as long as your amortization period or until you decide to sell. 

Now, there’s always another side to this. It’s unreasonable to assume every single homeowner displays the utmost commitment — but they use other traits and skills to make homeownership work for them, either by becoming investors, leveraging shared equity, or even flipping. 

Will I ever be able to purchase a home?

Let’s say your situation matches any of the above three scenarios. We won’t lie to you. Given the many obstacles to homeownership, like rising interest rates, wage inequities, and constantly increasing home prices? For some, the uphill battle is going to be quite difficult to overcome.

That’s why here at Lotly, we’ve worked hard to create a model where aspiring homeowners won’t be held back by large down payment requirements. 

You’ll still need to meet us halfway in making yourself mortgage ready. But we believe the down payment is a significant enough obstacle that, once solved for, makes homeownership much more accessible. 

Buy a home with Lotly!

If you’re curious about other rental scenarios, play around with our rent versus owning calculator. And if you’re ready to take the plunge? Get started on becoming a Lotly homebuyer today!

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Chrissy Kapralos
Writer & Editor
Chrissy Kapralos runs a Toronto-based writing agency called No Worries Writing Co. She loves writing about personal finance and real estate topics and helping businesses communicate effectively with their customers. When she's not working, you can find her travelling, practicing yoga, or watching horror movies.