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?
I want to talk about the Prohibition on the Purchase of Residential Property by Non-Canadians Act before I get started because it can have an impact on newly arrived immigrants looking for housing. The law was enacted in January 2023 after being approved by Parliament in June 2022.
In an effort to ease pressure on the housing market and increase affordability, a temporary ban on foreign property purchases was imposed. The restriction basically prohibits non-Canadians and foreign corporations from buying a home and is in place for two years before it expires.
Strong demand and a dearth of cheap dwellings characterize Canada’s affordable housing crisis. According to analysts, one of the main causes of skyrocketing housing prices and rental rates(opens in a new tab) has been the current shortage.
In addition to the homes that are now being built, according to new data from the Canada Mortgage and Housing Corporation (CMHC), 3.5 million additional housing units must be developed by 2030 in order to restore affordability.
The foreign homebuyers prohibition is still in effect today, however immigrants who have acquired citizenship or permanent resident status are exempt. Other exceptions include:
- International students who fulfill certain criteria, such as having lived in Canada for the majority of the previous five years, are eligible to apply.
- foreign nationals with a temporary residency permit, such as those escaping international disasters and refugees
- Diplomats and employees of consulates
- holders of foreign work permits who have filed tax returns for at least three years
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
These are the most typical contracts you can pick from, whether you want to rent or buy a house.
1. Standard lease
Standard leases are fixed-term rental agreements that can be as long as both parties desire. Apartments typically have lease agreements that last three months to a year or longer. This written agreement sets forth the regular rent payments, utility obligations, and other rights, guidelines, and commitments that have been reached by the parties.
Keep in mind that the rights and obligations of landlords and tenants are governed by individual laws and regulations in each province and area. It’s usually a good idea to look up some of the most important laws in your province or territory so that you are aware of both your rights and the laws that apply to you.
As opposed to ending your current tenancy and hunting for a new rental property on the market, signing a longer-term lease or extending an existing one can lock you into a reduced rental rate. In many provinces and territories, landlords can raise rent for current renters once a year, and a number of governments have imposed caps on how much they can do so.
There are no restrictions on how much a landlord can charge a new tenant in some jurisdictions, including Ontario. Also keep in mind that there may be fees associated with early lease termination.
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(opens in a new tab) or 60 days’ notice(opens in a new tab) if they plan on leaving, regardless of whether they have a long-term or monthly lease.
However, in provinces such as Nova Scotia(opens in a new tab) and New Brunswick(opens in a new tab), 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.
With today’s high mortgage and interest rates(opens in a new tab), some buyers are considering rent-to-own agreements(opens in a new tab), which offer a compromise between renting and purchasing.
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 person, business, or other entity that owns a property and leases it to a tenant in exchange for rent payments is referred to as a landlord.
Landlords often require you to fill out an application form with your personal information when you apply to rent a property. Although landlord-specific documentation requirements may apply, most rental agreements call for prospective tenants to submit the following records:
- Identification by a passport, visa, or immigration document
- Proof of income in the form of bank statements, pay stubs, or a letter from your employer if applicable, references from prior landlords
- Additionally, a lot of landlords could ask for consent to run credit and background checks. If you’re a newcomer to Canada and have little to no credit history, your landlord can want a larger security deposit. A security deposit generally can’t be higher than one month’s rent(opens in a new tab), 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.