"That is its home."
Translation:Tio estas ĝia hejmo.
Your understanding of the difference between "tiu" and "tio" is not precise and thus misguiding.
"tio" can be used to refer to any unspecified object.
"tiu" can be used to refert to the identity of an instance of a specified class of objects.
This explanation may sound a bit weird, so here a bit more practical way how to tell whether it's "tiu" or "tio".
"tio" stands alone, without noun.
"tiu" cannot stand alone. If it does stand alone, there's some implicit noun with it, that you could drop in.
For English speakers there's also the following explanation that might help.
"tio" = this / that "tiu" = this one / that one "tiu <noun>" = "this <noun> / that <noun>"
(I actually just translated it to
"Tiu estas ĝia hejmo.",
and got it marked as
You are correct
I guess it's basically a matter of how you read it - I read it as
"That is its home." → specific → tiu.
If I had read it as "That is its home.", the non-specific tio would probably have been the better choice.