New to Canada? Here's your guide to purchasing or renting your first home
As a new immigrant, navigating the Canadian real estate market can feel daunting, especially if it differs significantly from that of your home country.
Whether you're contemplating buying or renting a home, this brief guide will help you get a better lay of the land so you know what to expect.
I’ll outline some of the most common property types while explaining the documentation you need to rent or purchase a home, and the key expenses you should budget for.
Can non-Canadians purchase real estate in Canada?
Before jumping in, I’d like to address the Prohibition on the Purchase of Residential Property by Non-Canadians Act and how it could affect new immigrants searching for housing. The act was passed by Parliament in June 2022 and came into effect in January 2023.
The temporary foreign homebuyers ban was passed in an effort to reduce pressure on the real estate market and make housing more affordable. The ban will remain in effect for two years before expiring and effectively prevents non-Canadians and foreign corporations from purchasing a home.
Canada has been going through an affordable housing crisis characterized by strong demand and a lack of affordable homes. The current shortage has been one of the leading drivers of inflated home prices and rental rates, experts say.
New data from the Canada Mortgage and Housing Corporation (CMHC) shows that 3.5 million more housing units will need to be constructed in order to restore affordability by 2030, in addition to homes that are already being built.
While the foreign homebuyers ban remains in place today, immigrants who have obtained permanent residency status or citizenship are exempt. Some other exemptions include:
- International students who meet certain requirements, including having spent most of the last five years in Canada
- Foreign nationals with temporary resident status, such as refugees and those fleeing international crises
- Consulate staff members and diplomats
- Foreign work permit holders with at least three years of filed tax returns
Types of properties you can rent or buy
Now that we’ve discussed the elephant in the room, here’s a quick look at the most common types of property you can rent or buy in Canada:
- Detached house: A single-family home that stands alone on its own property, separated from other homes by open space.
- Semi-detached house: A house that shares one common wall with another home, but is not attached to any other structure.
- Townhouse: A multi-level home that shares one or more walls with adjacent homes, usually in a complex.
- Condominium: Condos are individually owned units within a larger building or complex. Owners have exclusive rights to their units but share common areas such as hallways and building amenities.
- Apartment: A rented living space within a larger building. Apartments are similar to condos, but require a monthly lease agreement and can’t be purchased outright.
Most common living arrangements
Whether you plan on renting or buying a home, these are the most common agreements you can choose from.
1. Standard lease
A standard lease is a fixed-term rental agreement that can be as long as both parties want. Typically, apartments offer lease terms that range from three months to a year in length, or even longer. This legal agreement outlines monthly rent payments, utility responsibilities, and other rights, rules and responsibilities that both parties have agreed to.
Remember that each province and territory has specific laws and regulations regarding landlord and tenant obligations. It’s always a good idea to research some of the key regulations in your province or territory so that you know your rights as well as what’s expected of you.
Signing a longer-term lease or renewing an existing one can lock you into a lower rental rate, versus terminating your current tenancy and looking for a new rental property on the market. In many provinces and territories, landlords are allowed to increase rent once a year for existing tenants, and several governments have set limits on how much landlords can raise rates.
Meanwhile, in several provinces such as Ontario, there are no limits on how much a landlord can ask from a new renter. Also keep in mind that breaking a lease early can result in penalties.
2. Month-to-month lease
Many landlords offer month-to-month rental agreements for those who are uncomfortable with a long-term commitment. Most provinces and territories require tenants to provide a minimum of either one month or 60 days’ notice if they plan on leaving, regardless of whether they have a long-term or monthly lease.
However, in provinces such as Nova Scotia and New Brunswick, tenants with monthly leases have more flexibility. Those who rent on a monthly basis must give at least one month’s notice before moving out, while those on a year-to-year lease must provide at least three months’ notice.
The downside of month-to-month leases is that rental rates are generally higher, as landlords assume more risk. Once you move out, it could take them time to find another tenant, and they may need to invest money in cleaning or preparing the unit for the next occupant.
3. Purchasing a home
Buying a home involves securing a mortgage with a bank or other financial institution, and making an initial down payment. You own the property and are responsible for all mortgage payments, property taxes, insurance and maintenance. It's a long-term financial commitment that may involve a lengthy approval process.
In a rent-to-own arrangement, tenants rent a property for a specific period of time with the option to purchase the home at the end of their rental term, often at a predetermined price. Additionally, a portion of the rent payments may go towards the home’s down payment.
The downside is that rent-to-own arrangements typically involve higher monthly payments. Your payments will be broken down into two parts – your monthly rent and the money you put towards a down payment or home equity.
Renting: The basics
A landlord is defined as an individual, company, or entity that owns a property and leases it to a tenant in exchange for rent payments.
When you apply to rent a property, landlords typically ask you to complete an application form with your personal details. Although documentation requirements may vary depending on the landlord, most rental agreements require prospective tenants to provide the following documentation:
- Passport, visa, or immigration documents for identification
- Proof of income, such as bank statements, pay stubs, or an employment letter
- References from previous landlords (if applicable)
Many landlords may also request approval for credit and background checks. Your landlord may require a higher security deposit if you’re new to Canada and have little or no credit history. A security deposit generally can’t be higher than one month’s rent, but those with good credit and rental history may be offered a lower security deposit.
The fees you’ll need to budget for include:
- A security deposit: While this fee can vary according to province or territory, it is usually equal to one month’s rent and is paid at the start of the tenancy. You should receive this amount back at the end of your lease agreement, along with any accumulated interest, provided you leave the unit in good condition and don’t violate any terms. Landlords in provinces such as Ontario often use this money as payment for the last month of rent.
- Common area maintenance (CAM) fees: Often referred to as “CAM fees” or simply “maintenance fees,” this is paid in addition to your monthly rent to help maintain the property’s shared spaces. Fees may cover services such as landscaping, pest control and trash service.
Your monthly rent payments are typically made in one of four ways:
- Electronic bank transfer
- Credit or debit card
Each landlord may have their own system for collecting rent payments. For example, larger commercial properties often won’t accept cash due to security risks and may require a cheque, money order, or electronic payment.
In most provinces and territories, landlords aren’t allowed to increase rent more than once every calendar year and must adhere to laws governing rental increases. Landlords must also give you between one and three months’ notice of plans to increase rent, depending on the length of the agreement. Once your lease is up, you can renew it or move out.
Buying a home: The basics
The application process to buy a home is typically far more demanding than renting. Unlike signing a lease agreement, buying a home requires you to obtain a mortgage.
A mortgage is a loan from a bank or financial institution to finance your home purchase. You’ll pay regular installments over a fixed period of time. Along with contributing to your home equity, a portion of your payments will go towards interest fees charged by the lender.
There are two types of mortgages you may encounter:
- Fixed-rate mortgage: These have a constant interest rate throughout the term, ensuring predictable monthly payments. Borrowers are shielded from interest rate fluctuations in the market.
- Variable-rate mortgage: The interest rate can change based on market conditions, potentially affecting monthly payments. Borrowers might benefit from lower rates but also face the risk of rate hikes.
In addition to documents and references that show proof of residency, most lenders want to see several years of financial history to ensure you’ll be able to keep up with the long-term commitment of a mortgage. This can include proof of income and employment history.
Your credit report and score, which determine your creditworthiness, are also major factors that lenders will consider before approving you for a mortgage.
Traditional mortgages usually require a down payment of at least 20 per cent of the home’s value. CMHC-backed mortgages may only require a five per cent down payment, but will involve a lengthier approval process and the purchase of additional mortgage insurance.
Here’s a quick breakdown of the fees associated with buying a home:
- Down payment: This is a percentage of the home’s purchase price that is paid prior to moving in. Providing a down payment allows you to secure your mortgage. Some lenders may ask for an even larger down payment based on your individual financial situation.
- Mortgage payment: This is the monthly amount you pay for your home loan.
- Mortgage insurance: A monthly insurance payment that provides coverage in the event that you default on your loan. This is usually optional for traditional mortgages but is always required for CMHC-backed loans.
- Homeowners insurance: This insurance covers you from unexpected damage to your home, such as hail, flooding, and natural disasters. This coverage can be obtained through insurance providers.
- Property taxes: These are annual taxes paid by property owners to the municipal government.
- Closing costs: These are additional expenses, aside from the cost of purchasing your home, that must be paid to complete a real estate transaction. They can include a land transfer tax, inspection fees, and other legal or administrative costs.
- Homeowners Association (HOA) fees: Homes in some neighbourhoods require monthly HOA fees, which go towards maintaining and improving common areas and shared structures within the community.
All of these fees can add up and contribute to a higher upfront cost than you may have expected. When determining your budget, take some time to look into the average prices of these fees based on where you’re located and the value of the property you’re looking at.
Once you’ve completed the mortgage financing process and paid your closing fees, you will have officially purchased a home.
Is it better to rent or buy in Canada?
If you’re new to Canada and have limited income and credit history, you may find it difficult to obtain a mortgage and purchase a home outright.
Before buying a house, you should put together a budget detailing your projected monthly expenses and research the average home prices in your area to better understand how much of a mortgage you can afford.
If you’re serious about buying a home, it’s worth getting in touch with a real estate agent. They will be able to show you your options based on your budget and can help you navigate the complexities of applying for a mortgage.
If you’re unable to get approved for a mortgage, it may be best to start by renting your home or enrolling in a rent-to-own agreement with your landlord. Both of these options provide flexibility while you take time to build your credit and income history.