For Newcomers to Canada: Buying vs Renting your First Home
Welcome to Canada! You’ve chosen to live in a safe and tolerant country with a strong economy, great diversity, and amazing natural beauty. Canada offers you many opportunities and you may feel slightly but pleasantly overwhelmed with all the choices you have, including where to live and what kind of home to live in. This article will help you with one of the first choices you need to make about your new home in Canada: do you rent or do you buy, and how?
First, start your credit history
As a newcomer to Canada, it’s important that you build up a healthy Canadian credit history regardless of whether you end up renting or buying a home. Canadian banks and credit unions have special services and money management advisors to help newcomers to successfully establish themselves financially. These services may include a checking account with no fees (usually for the first 12 months), welcome bonuses, a credit card that doesn’t require an annual fee or an annual income or a credit history, and even a car loan available without a credit history. Scotiabank’s StartRight program, CIBC’s Welcome to Canada Banking Package, and BMO’s NewStart! program are all examples of bank initiatives to help you get started. Once you get here, you can establish a good credit rating by applying for different types of credit and paying all your bills in full on time. We talk about mortgages for newcomers in the Buying section of this article.
Some reasons you might rent:
· You don’t know where you’ll be working, so you’re not sure where to live. You could end up with a long commute if you purchase a home far from your workplace.
· You don’t have enough money for a down payment on a home. New immigrants are expected to cover a downpayment of at least 35% .
· Your income won’t be enough to cover the monthly mortgage payments, property tax, home insurance, maintenance costs, and other homeowner expenses. These will often be much more expensive than in other countries.
· You need somewhere to live very soon. It takes on average 4 to 7 months to buy a home from start to finish. If you need someplace to live first, it would be better to start off renting. You could also find a real estate agent specialized in your city to help you find and start the process of buying a home while you’re still in your home country.
Finding a place to rent
If you choose to rent, you’ll still need to find a home. You can rent apartments, houses, duplexes and condominiums either from a corporation or directly from the owner. Kijiji or Craigslist are useful websites for finding a place to rent or you use real estate agents near you to help you find and inspect suitable homes. It’s free for you (the owner of the rental will pay a finder’s fee to the agent) and it can be helpful for you to get the advice of a real estate professional experienced in the area and understands what things to pay attention to and look out for. Some apartment blocks (usually renting from a corporation) and houses (renting from owner) will have “Vacancy” signs outside with a phone number to contact if you’re interested in renting.
What you’ll need to provide
You may need to provide a reference from someone who has known you for some time. This may be difficult if you’ve just arrived in the country and don’t have any local connections or relations. It’s not a strict requirement, however, and some property owners may waive this requirement if your finances are in order.
Financially, you have to provide the first month’s and the last month’s rent before you move in. Asking you for a larger initial payment than this is illegal in Canada. In addition, you’ll have to pay upfront for the security deposit to cover any potential damages. The security deposit is typically less than $500 but can be up to a single month’s rent. You may also need to give the homeowner permission to access your credit rating, provide an income statement or pay slips if you are working, or hand over copies of your bank statement showing that you have enough funds to cover the rent for a certain period [4,5].
Some more things to know
· Rental contracts usually start on the 1st or 15th of the month and end on the last day or the 14th of the month, as applicable.
· Many rental properties have a policy against large pets or several small pets. Cats are generally more commonly accepted than dogs. If you are allowed to keep a pet, you may be charged a pet damage deposit, but it is illegal to charge a regular fee for having a pet. In Ontario, it’s illegal for homeowners to ban pets from their property unless they are subject to other regulations (such as in the case of condos), but they can refuse to rent to a tenant with pets .
· You can get furnished and unfurnished rentals. Large appliances such as stoves and refrigerators are usually included even in unfurnished rentals.
- In many cities, there are regulations mandating heating to be available and minimum temperatures during the winter months. Due to Canada’s temperate weather, however, you are unlikely to find any rentals with air conditioning.
· Some properties don’t have a washer and a dryer. Apartment blocks usually have a communal laundry room and if you rent a house without laundry facilities, you’ll have to find a local laundromat. This can be a hassle and an additional expense, so be sure to consider it when choosing between rentals.
· Landlords have the right to prohibit smoking in their properties. In addition, any common areas (such as those in a condo or apartment) are smoking-free zones by law. .
Some reasons you should buy:
· You know you’re going to be settled in one neighborhood for three or more years
- You have children that will be affected by the potential moving around while renting and you want them to be able to make long-term friendships and connections in your area.
· You consider home ownership as an investment – real estate investments in Canada have been very profitable in the past 20 years.
· Having your own space where you have the freedom to do whatever you want is important to you.
· You’ve crunched the numbers and have both the time and the money to purchase your own home.
Buying takes time
It typically takes several months to find the right neighborhood and then the right property to buy even with the services of an experienced real estate broker, and much longer if you’re doing the search yourself. Not hiring an agent who knows several neighborhoods, including the ones that you’re considering, is one of the seven biggest mistakes that first time home owners make. After finding your dream home and making an offer, it generally takes up to two months before the sale closes and you can get the keys to move in. Hiring a real estate lawyer to guide you through the process and to submit legal documents on your behalf is another key element to making this process go smoothly and efficiently.
Getting a mortgage
It is possible for new immigrants to Canada to obtain a mortgage even without a Canadian credit history. You will need to talk to different banks or credit unions about their mortgage plans available for newcomers to Canada, comparing the rates and the conditions of each and finding the best mortgage rate in Canada. You can also find a mortgage broker with access to a wide variety of lenders and can give you advice on your best steps. These financial institutions don’t expect newcomers to have a well-established Canadian credit history or the usual record of two years’ employment in Canada. To qualify for their new immigrant programs, they generally require you to have stayed in Canada for less than 5 years, have permanent resident status, have either worked full-time for at least three months or show that you have the funds in Canada to make the first year’s payments on your new home , and have a letter of reference from your bank in your home country. In addition, you’ll need to have a down payment of 35% of the purchase price of the property . You can use a mortgage payment calculator to figure out your future monthly mortgage payment.
If all this sounds too complex, you have the option of going through a professional mortgage broker who will guide you towards the best mortgage for newcomers.
The bottom line
In Canada, most people seem to have their own opinions on the best neighborhoods, what kind of homes to live in, and the pros and cons of renting vs buying. Before you become confused by all the options and by what’s the best choice for you and your family, consult a top real estate agent who will consider your unique circumstances and work with you to find your welcoming home in Canada.
- Newcomers: Helping You Establish a Solid Financial Future. CIBC.
- Building a Credit History in Canada. RBC.
- Newcomers to Canada. Servus Credit Union.
- Human Rights in Housing: An Overview for Landlords. Ontario Human Right Commission.
- Human Rights for Tenants. Ontario Human Right Commission.
- What you need to Know about Ontario’s new Standard Rental Lease. CBC.
- Essential Mortgage Information Available for Newcomers. RBC.
- What new Canadians Face when Buying a Home. Globe and Mail.