Housing: The advantages of buying or renting property in Canada
Canada is a popular destination that ranks high on quality of life. In both major centres and in the suburbs, houses and apartments come in a wide range of styles and prices. What are the advantages of buying or renting property? To answer this question, you’ll want to understand some of the nuances, ideally before you move to Canada.
Rent or buy?
The first piece of good news is that "Compared to many countries, especially in Europe, the cost of buying and renting is relatively reasonable," says Nicolas Fréchette, Manager of Home Financing Product Management at Desjardins.
He recommends having a clear picture of your cash flow, your current and projected income, and your family's needs. For example, you'll pay less to live in a suburb than to move into a condo in downtown Montreal or Toronto.
Your lifestyle might also dictate which option you choose. Fréchette points out that while many people benefit financially over the long term from owning, renters can also benefit from the savings generated by renting, by building up a financial cushion over time.
Renting in Canada: A key to peace of mind
What’s the main advantage? Renting an apartment is often the most economical option. There’s also less chance of financial surprises from month to month.
Renting is worth considering if you want to take the time to get used to your new life and neighbourhood. It’s also a smart move that allows you to build up your credit rating and set money aside for important financial goals, or to save up for a down payment on a home.
When renting, Fréchette points out the importance of being prepared to “show the landlord that you’re able to pay your rent every month. Transparency and good communication will make a big difference.”
Tips for renting a home in Canada
- In Quebec, many people move on July 1. That means you should start looking a few months before to increase your chances of finding the perfect place.
- You'll usually have to sign a 12-month lease.
- Rent often has to be paid on the first of every month.
- Make sure you have letters of recommendation, for example, from your financial institution or your current landlord, and, if you have it, proof of employment in Canada, along with proof of liquid assets or income. These documents could reassure your future landlord.
- Taking out tenant insurance is highly recommended and often required by landlords.
- When it's time to move out, the apartment must be restored to its original condition..
- The Tribunal administratif du logement du Québec offers a wide range of practical tools for tenants, in terms of rights and obligations.
- And of course, being respectful of your neighbours is expected!
Buying a property in Canada: Gateway to the future
If you can afford it, consider buying a home. You'll have the opportunity to move into a property that will increase in value. "In Canada, well-maintained homes are a good investment," says Fréchette. As a newcomer, you can buy real estate even though such purchases have been controlled by the Canadian government since January 1, 2023, in accordance with the Prohibition on the Purchase of Residential Property by Non-Canadians Act and regulations under the Act (see box).
When the time comes, buying real estate will allow you to diversify your assets, while creating tangible wealth. You'll be free to make many decisions regarding the layout and renovation of your home, unlike a rental.
Furthermore, because you'll pay less interest on a mortgage than on other kinds of financing, it will be easier to get credit for other kinds of projects. In other words, the better a buyer is at making their loan payments, the more likely financial institutions will be to lend to them in the future.
A prohibition on the purchase of residential real estate by non-Canadians came into effect on January 1, 2023 for a period of 2 years. This Act* and the first regulation under the Act set out exceptions for certain groups of individuals and property categories (rental and type of structure), in addition to excluding certain situations.
*The details of the Act and the regulations under the Act can be viewed on the Government of Canada's Justice Laws Website.
Tips for buying a home in Canada
- Calculate your ability to make your monthly payments, including taxes, start-up costs and possible renovations. For sound and comprehensive advice, check out the steps to follow when buying your first property.
- Get help from skilled professionals: brokers, appraisers, inspectors and notaries are all valuable partners. By exploring the websites of their associations, you can familiarize yourself with the roles and responsibilities of each one, including the benefits of dealing with these professionals.
- Check whether you and the property you want qualify as exceptions to the Prohibition on the Purchase of Residential Property by Non-Canadians Act and the regulations under the Act.
- When you deal with a real estate broker, they can recommend properties that fit your profile, expectations and budget. They'll be your intermediary in helping you find your dream home.
- An appraiser can confirm the market value of the property. Sometimes the seller will have had a preliminary appraisal completed. Don't rely on the municipal assessment, which is useful for determining the amount of taxes, but rarely for getting an accurate picture of the home's current value. However, keep in mind that Desjardins establishes the determined value of your property. This may correspond to the market value or any other considered value.
- When making an offer, make sure the asking price reflects the home's actual market value. Take the time to compare the asking price with other properties of similar size that have recently been sold in the area you're interested in.
- Before you close, the inspector you hire will confirm the quality of the property, or detect potential deficiencies, in which case you'll have a strong basis for negotiating a lower price or simply terminating the buying process.
- Mortgages are generally repaid over 25 years and, depending on the type of mortgage, the term can be anywhere from 6 months to 10 years. But you can repay your mortgage faster than expected or change the terms of the loan after you've taken it out, as long as you meet certain conditions.
- Note that you are expected to pay a down payment when you buy your home. It has to be at least 5% of the purchase price, but it could be more to meet certain conditions. If your down payment is less than 20% of the purchase price, your loan must be insured by the Canada Mortgage and Housing Corporation (CMHC) or Sagen. In that case, you'll have to pay for mortgage insurance.
It's important to note that for a period of less than one year in Canada (that is, less than one year of credit history), the down payment required varies between 20% and 35% depending on the application. After one year, you can reduce that amount to 5%, although every case is different: It all depends on the amount of the property’s price, the market value, your situation (whether or not you're employed) and your credit history.
It’s important to understand that one year of credit history could be enough if you have good credit card habits, use your credit card regularly and always make payments on time.
All you have to do is analyze your desires and needs, basing your choice on your financial situation and keeping in mind your new lifestyle in Canada! And remember: At every step of the way, a Desjardins financial advisor will be there to help guide you to your destination.