Grasping the dynamics of the housing market in Canada is not only a fundamental step for any newcomer but also a source of empowerment that can boost confidence and make you feel more in control of your housing decisions.
This guide reassures you that you can confidently navigate the process, easing overwhelming feelings.
We’ll explore the different types of homes, the essential documents you’ll need to rent or buy, and the key costs you should be prepared for.
Before we delve into the details, it’s crucial to grasp the significance of the decision to rent or buy a home in Canada.
This decision is not just significant; it’s monumental and hinges on two key factors: your long-term plans and affordability.
Pros and cons of renting
| Pros | Cons |
| Flexibility: You can move quickly without worrying about selling a home. | No Equity: You don’t build ownership or equity in the property. |
| Lower Upfront Costs: You usually need less money upfront, like a security deposit, than a large down payment. | Rent Increases: Depending on your lease agreement, your rent can increase over time. |
| Less Responsibility: Your landlord handles maintenance and repairs. | Less Stability: You may have to move if the landlord decides to sell or not renew your lease. |
Pros and cons of home ownership
| Pros | Cons |
| Equity: You build equity over time, which can increase your wealth. | High Upfront Costs: You need a sizeable down payment and must cover closing costs. |
| Stability: You have a stable place to live without worrying about a landlord. | Maintenance Costs: You are responsible for all repairs and maintenance. |
| Customization: You can make changes and improvements to your home as you like. | Less Flexibility: It can be harder to move because selling a home takes time. |
Renting vs. buying: in favour of renting for newcomers
Canada may not have the largest population, but there is lots of land.
While most Canadians live within a few hours of the US/Canadian border, each province has its own features and benefits.
It’s crucial to delve into each province’s unique features and benefits to find the one that aligns with your lifestyle. Whether it’s Vancouver for its majestic mountains, Toronto for its vibrant diversity, or Halifax for its serene ocean views, each province has something special to offer.
That said, anyone looking to rent or buy should rent first.
Renting can also be a good choice if you want more flexibility and mobility in your location. It’s hard to know where to live until you arrive. Vancouver vs. Toronto is one thing, but even in these big cities, there are a lot of differences between neighbourhoods.
Renting is a good option for young people who need the flexibility to change jobs quickly without worrying about their commute.
Renting also eliminates the responsibility of property maintenance and repairs—leading to a more carefree living experience. You’ll likely have to pay for heating, electricity, and water, but you don’t have to buy a new furnace or fridge when it breaks down.
Owning a home requires a significant financial commitment. Unfortunately for newcomers, you’ll need more than
Barriers for Newcomers to Canada, whether renting or buying
- Lack of Canadian credit history: You must start building credit upon arrival. You can do so with a secured credit card, or sometimes banks, like Scotiabank, offer Newcomers credit to overcome this hurdle.
- Limited employment opportunities or unstable job situations: Economic conditions and certification requirements may delay your job prospects.
- Absence of local references or rental history: A landlord wants references, but without a history in Canada, you may need to provide alternate options such as friends and family.
- Difficulty understanding the Canadian real estate market: Where to live, housing options, and more can complicate your discovery. FOr this reason, we recommend real estate agents and recommendations from friends and family.
- Higher upfront costs due to lack of credit (e.g., larger security deposits): Without credit, your landlord may require a large deposit, essentially a lot of money up front.
- Limited knowledge of legal and regulatory requirements: Canada’s rules and regulations are likely different than your home country and without the knowledge gained mostly through experience, you may get into something you don’t want (again, we recommend real estate agents)
- Language barriers impacting communication with landlords or real estate agents: Yes, Canada is diverse, and many languages are spoken here, but much is lost in translation. You might consider hiring an interpreter to navigate these challenges.
- Discrimination or bias from landlords or sellers: Unfortunately, despite our diversity, not everyone is welcome to others.
- Limited access to financial products or mortgages designed for newcomers: We recommend speaking to a financial advisor at Scotiabank to help you navigate these challenges. Bring all your questions. Their advice is free.
- Challenges in navigating different cultural expectations and norms: First and last month’s rent and 20% down on a home purchase is normal. Again, work with a real estate agent who can work through these challenges with you at no cost.
Ready to buy? Here are some recommendations
If you feel you’re ready to buy, a common rule of thumb, a simple guideline that helps you make decisions, is that buying is a good option if you plan to stay in the home for five to seven years.
A rule of thumb is not a law but a guiding principle, and there are many when it comes to buying a home.
A rule of thumb is a simple guideline or principle that helps you make decisions. It’s not a strict rule, but it helps make quick choices.
Let’s discuss some other rules of thumb for renting or buying a home in Canada.
Renting vs. Buying rule of thumb: The 5% rule
Buying might be better if the annual costs of owning a home (like mortgage payments, property taxes, maintenance, and other fees) are less than 5% of the home’s value. If these costs are more than 5%, renting might be smarter.
Example 1: Buying is Better
| Cost | Amount |
| Home Value | $400,000 |
| 5% of home value | $20,000 per year |
| Mortgage Payment | $12,000 per year ($1,000 per month) |
| Property taxes | $4,000 per year |
| Maintenance | $2,000 per year |
| Other fees | $1,000 per year |
| Total costs | $19,000 per year |
In this example, the total costs ($19,000) are less than 5% of the home value ($20,000), so buying might be a better option.
Example 2: Renting is Better
| Cost | Amount |
| Home Value | $600,000 |
| 5% of home value | $30,000 per year |
| Mortgage Payment | $24,000 per year ($2,000 per month) |
| Property taxes | $6,000 per year |
| Maintenance | $4,000 per year |
| Other fees | $2,000 per year |
| Total costs | $36,000 per year |
In this example, the total costs ($36,000) are more than 5% of the home value ($30,000), so renting might be a better option.
Renting vs. buying rule of thumb: 30/30/3
The 30/30/3 rule is a guideline to help you decide whether you can afford to buy a home. It consists of three parts:
- 30% of Monthly Income on Housing: Spend no more than 30% of your gross monthly income on housing costs, including mortgage payments, property taxes, and insurance.
- 30% Down Payment: Aim to save at least 30% of the home’s value for a down payment. This helps reduce mortgage costs and provides a financial cushion.
- 3 Times Annual Income: The price of the home should be at most three times your annual gross income. This helps ensure the house is within your financial reach.
Example
Let’s say your annual gross income is $100,000.
| Rule | Calculation | Result |
| 30% of Monthly Income | $100,000 / 12 * 0.30 | $2,500 per month |
| 30% Down Payment | Home value * 0.30 | $150,000 (for a $500,000 home) |
| 3 Times Annual Income | $100,000 * 3 | $300,000 |
In this example, if you follow the 30/30/3 rule, you should:
- Spend at most $2,500 per month on housing costs.
- Save at least $150,000 for a down payment on a $500,000 home.
- Consider buying a home priced around $300,000 based on your annual income.
Renting vs. buying rule of thumb: The Price-to-Rent Ratio:
The Rent vs. Buy Price-to-Rent Ratio helps you decide if buying or renting is better based on the cost of a home and renting a similar property.
Here’s how it works:
Divide the price of a home by the annual rent of a similar property. If the ratio is below 15, buying might be a good option. If it’s above 15, renting might be better.
- Calculate the annual rent: Multiply the monthly rent by 12.
- Calculate the Price-to-Rent Ratio: Divide the price of the home by the annual rent.
If the ratio is below 15, buying might be a good option. If it’s above 15, renting might be better.
Example
Let’s say you’re looking at a home priced at $450,000 and a similar property that rents for $2,500 monthly.
- Calculate the annual rent:
- Monthly rent: $2,500
- Annual rent: $2,500 * 12 = $30,000
- Calculate the Price-to-Rent Ratio:
- Home price: $450,000
- Annual rent: $30,000
- Price-to-Rent Ratio: $450,000 / $30,000 = 15
In this example, the Price-to-Rent Ratio is 15. According to the rule, since the ratio is exactly 15, buying could be a reasonable option, but it’s also worth considering other factors. If the ratio were significantly below 15, buying is better. Above 15 and renting might be the better choice.
We need to talk about the affordability of renting vs. buying.
Understanding affordability is crucial when deciding between renting and buying a home in Canada. Home prices in Canada have risen significantly due to various factors, making the real estate market challenging for newcomers.
Key factors driving up home prices in Canada:
- High demand and low supply: Canada has a substantial housing shortage. With more people looking for homes than are available, the competition drives prices up. The Canada Mortgage and Housing Corporation (CMHC) reports that an additional 3.5 million affordable housing units are needed by 2030 to stabilize prices.
- Immigration: Canada’s friendly immigration policies have led to high immigration rates and increased housing demand. Approximately one in five Canadians is foreign-born, putting pressure on the housing supply and increasing prices.
- Urbanization: Over 80% of Canadians live in urban areas, primarily along the US-Canada border. This concentration in cities like Toronto, Vancouver, and Montreal results in high demand for homes in these areas, pushing prices up
. - Rising material costs: The cost of building materials has increased due to global supply chain issues and the need for high-quality materials to withstand Canada’s harsh climate. This increases the overall cost of new home construction.
- Foreign investments: Real estate is a popular investment, and foreign investors often buy properties to protect their wealth. This reduces the number of homes available for Canadian buyers and increases prices. The Canadian government has introduced policies to curb foreign investments, but their impact is still unfolding.
- Inflation and mortgage rates: Inflation affects the buying power of the Canadian dollar, making homes more expensive. Additionally, fluctuating mortgage rates can either increase or decrease affordability for buyers, depending on the current economic conditions.
Understanding these factors can help you better navigate the Canadian real estate market. By considering the immediate and long-term financial impacts, you can make a more informed decision about whether renting or buying is the right choice for you.
Average cost of living in Canada
Canada’s living costs are generally high, especially in major metropolitan areas like Toronto, Vancouver, and Montreal. However, they vary widely by province and city.
| Province | Average Rent Cost (1-Bedroom, City Centre) | Average Home Price | Average Monthly Grocery Bill |
| Alberta | $1,667 | $459,000 | $864 |
| British Columbia | $2,900 | $996,000 | $813 |
| Manitoba | $1,587 | $350,000 | $761 |
| New Brunswick | $1,450 | $281,900 | $800 |
| Newfoundland and Labrador | $1,500 | $300,000 | $650 |
| Nova Scotia | $1,475 | $400,000 | $800 |
| Ontario | $1,800 (Ottawa) to $2,900 (Toronto) | $835,000 (Toronto) | $795 |
| Prince Edward Island | $1,400 | $325,000 | $800 |
| Quebec | $1,150 (Montreal) | $465,000 (Montreal) | $750 |
| Saskatchewan | $1,300 | $290,000 | $720 |
Notes:
- Average Rent Cost: Based on 1-bedroom apartments in city centres, varies slightly by city within the province.
- Average Home Price: Reflects typical home prices in major cities within each province.
- Average Monthly Grocery Bill: Based on general estimates for a single person.
Types of homes and accommodations to rent or buy in Canada
Choosing the right kind of home in Canada depends on your needs, lifestyle, and budget.
Apartments and condos offer convenience and amenities suitable for city living, while townhouses and detached houses provide more space and privacy for families.
Semi-detached homes and duplexes/triplexes can be a middle ground, offering affordability and the potential for rental income.
By understanding the pros and cons of each type, you can make a more informed decision that suits your situation.
| Type of Home | Description | Pros and Cons |
| Apartments | Self-contained units within a larger building typically offer shared amenities like laundry rooms and gyms. | Pros: Lower maintenance costs, often include amenities, and are suitable for city living. Cons: Limited privacy and potential noise from neighbours. |
| Condos (Condominiums) | Individually owned units within a larger building, with monthly maintenance fees for shared services and amenities. | Pros: Ownership builds equity and access to shared amenities, often located in desirable urban areas. Cons: Monthly condo fees and limited control over building management. |
| Townhouses | Multi-floor homes that share walls with adjacent properties but have their own entrances. | Pros: More space than apartments or condos, private entrances, and sometimes small yards. Cons: Shared walls with neighbours, potentially high maintenance costs. |
| Duplexes and Triplexes | Buildings are divided into two (duplex) or three (triplex) separate units, which can be rented or bought as investments. | Pros: Potential rental income if you own the property, which is more affordable than buying multiple separate homes and suitable for multi-generational living. Cons: Shared walls and common areas, maintenance responsibilities for all units. |
| Semi-Detached Houses | Houses that share one wall with another house but have their separate entrances and yards. | Pros: More affordable than detached houses, some level of privacy, ownership builds equity. Cons: Shared walls can lead to noise issues and limited yard space compared to detached houses. |
| Detached Houses | Standalone properties that do not share any walls with neighbours, often with private yards and more living space. | Pros: High level of privacy, more space indoors and outdoors, ownership builds equity. Cons: Higher maintenance and repair costs and more expensive to buy. |
How to search for rentals in Canada
When searching for rental properties in Canada, prioritizing safety and security is crucial, especially for newcomers.
Immigration.ca recommends starting by hiring a real estate agent who specializes in rentals.
They can provide access to exclusive listings only sometimes available to the public, assist with negotiations, and guide you through the rental process, ensuring a smooth and secure experience.
While Facebook groups, Realtor.ca or Padmapper can be valuable tools, a real estate agent is free and can help you negotiate the rent cost and lease conditions.
Always prioritize safety by visiting properties in person before committing, verifying the legitimacy of listings and landlords, and never making payments before signing a lease. By following these methods, you can find a rental property that meets your needs while staying safe and secure.
The rental application process
When searching for a rental property, it is essential to tour it in person to check its condition and surroundings and ask questions about utilities, pet policies, parking, and neighbourhood amenities.
When you’re ready to apply, fill out a rental application form provided by the landlord or property management company, which typically includes your personal information, employment history, and rental history. Be aware that some landlords may charge a non-refundable application fee to cover the cost of background and credit checks.
Documents you’ll need:
- Identification: Provide a valid photo ID such as a driver’s license or passport.
- Proof of Income: Submit recent pay stubs, a letter of employment, or tax returns to demonstrate your ability to pay rent.
- Credit Report: Some landlords require a recent credit report to assess your financial reliability.
- References: Include references from previous landlords or employers who can vouch for your reliability as a tenant.
What to Look for in a Lease Agreement
- Rent and Payment Details: Verify the monthly rent amount, due date, acceptable payment methods, and late fees.
- Lease Term: Check the duration of the lease (e.g., month-to-month, six months, one year) and conditions for renewal or termination.
- Security Deposit: Understand the security deposit amount, the conditions for its return, and what it covers.
- Utilities and Maintenance: Clarify which utilities are included in the rent (e.g., water, gas, electricity) and who is responsible for maintenance and repairs.
- Rules and Restrictions: Review any regulations regarding pets, smoking, noise levels, and subletting.
- Entry and Privacy: Ensure the lease outlines the landlord’s rights to enter the property and the required notice period for entry.
- Termination Clauses: Check the conditions under which either party can terminate the lease and any associated penalties.
How to search for homes to buy in Canada
Using a combination of resources will help you find the best options when searching for a home in Canada.
Start by browsing real estate websites like Zolo, Point2Homes, Wahi, Realtor.ca, and Zillow. These platforms allow you to filter listings by location, price, type of home, and other preferences, making it easier to find properties that meet your criteria.
Once you’ve found the types of homes in your price range and the area you like, use a licensed real estate agent in the neighbourhood you want to live in. Real estate agents can provide access to exclusive listings, offer valuable market insights, and guide you through the buying process.
Some reputable real estate companies in Canada include Royal LePage, RE/MAX, and Century 21.
You can also attend open houses to view properties in person and get a feel for different neighbourhoods.
The home-buying process
The smartest move you can make is to get a mortgage pre-approval. A mortgage pre-approval shows sellers and real estate agents you’re serious, and you’ll know how much you can afford.
To get pre-approval for a mortgage, start by researching lenders to compare mortgage rates and terms from different banks, credit unions, and mortgage brokers.
Consider speaking to a financial advisor or mortgage agent at banks like Scotiabank for personalized advice and assistance.
Submit your application with necessary documents such as proof of income, employment history, credit report, and identification. Receiving pre-approval will give you a clear idea of your budget and show sellers that you are a serious buyer.
Once your offer on a home is accepted, hire a professional home inspector to evaluate the property’s condition. Review the detailed report provided by the inspector, noting any issues or necessary repairs. Use this information to negotiate with the seller if you can. Most homes in Canada don’t stay on the market long, and you may need to skip the inspection, but this can lead to complications and expensive repairs when you’re in the home.
To finalize the purchase, complete your mortgage application with your chosen lender to secure financing.
You’ll also need to hire a real estate lawyer to handle the legal aspects of the purchase, including title search, deed preparation, and registration.
Be prepared to pay closing costs, including legal fees, land transfer taxes, and other related expenses. On closing day, sign all necessary documents to transfer property ownership to you.
Documents you’ll need to buy a home in Canada
- Identification: Valid photo ID, such as a driver’s license or passport.
- Proof of Income: Recent pay stubs, tax returns, or employment letter.
- Credit Report: Your credit score and history, which lenders use to assess your financial reliability.
- Proof of Down Payment: Bank statements or other documents showing you have the funds for your down payment.
- Mortgage Pre-Approval Letter: A letter from your lender indicating how much you are approved to borrow.
So, will you rent or buy?
Deciding whether to rent or buy a home as a newcomer to Canada is a significant and personal decision. You must consider your long-term plans, financial stability, and the current housing market environment.
To help you, speak with a financial advisor at a bank (e.g. Scotiabank), who can answer your questions for free and help you assess your financial readiness.
Ultimately, the best choice depends on your unique situation and goals, but in today’s housing market, renting may be the more prudent option for most newcomers.
This article is provided for information purposes only. Any information, data, opinions, views, advice, recommendations or other content included in this article are solely those of the author and not of Scotiabank or its affiliates. It is not to be relied upon as financial, tax or investment advice or guarantees about the future, nor should it be considered a recommendation to buy or sell. Information contained in this article is subject to change without notice. All third party sources are believed to be accurate and reliable as of the date of publication.
