Carving out your home in a new country is daunting enough - navigating the real estate market is an entirely different challenge. Many newcomers to Canada are keen on becoming homeowners - but some may be better off renting as a lack of credit history can mean paying a much higher mortgage rate. Here, pro poster Pracheer Saran shares why his family chose to buy rather than rent.
From Bachelor to Home Buyer
Sitting on my couch watching NBC’s Dateline with a beer in hand, admiring the fabulous view of the CN Tower from my balcony, is how I used describe my Saturday nights to friends. And I was perfectly happy and content with this scenario... until I got married. Maybe it was due to the daily overdose of Canadian home shows like Love it or List It and Property Brothers - but my wife wanted us to buy a house.
Don’t get me wrong; I think it is every immigrant’s dream to have the whole nine yards: a house with white picket fences, a car, kids and a dog like we have seen in Hollywood films. Many immigrant families come to Canada with nearly all their savings and consider it a smart choice to invest in something tangible, even if they are bombarded with huge interest rates. Often, little research is done prior to taking the giant leap into real estate.
Homeownership isn't the best option for every newcomer. Let's assess whether you should take the plunge - or are better off renting.
So, You Thought Renting Was the Easy Way Out?
Getting a rental apartment is quite a task; in the city, there are often many contenders for the same unit, and you must act fast to provide what you need to get approved. Proof of income and reference from previous landlords are key in qualifying for a rental unit. The competition gets fiercer if you are looking for a place in a ‘desired’ neighbourhood.
It can be extremely difficult for a new immigrant to get a reference due to the fact they don't know anyone who can vouch for their credibility. Those with kids find themselves in a thicker situation as they may like to rent an entire unit for themselves - not an easy feat without a reference.
Newcomers Can Expect to Pay Higher Interest Rates on a Mortgage
The road to homeownership is also paved with many challenges for immigrants, especially those still building their credit scores.
The importance of your credit score and history becomes paramount when you go mortgage shopping; your score, which is calculated by looking at your credit history, will determine the interest rate that a mortgage agent can offer you.
Your credit history develops when you use a credit card or take a loan. For new immigrants, it is an uphill battle to have a strong credit score and get a low mortgage rate. This was enough reason for me to try to convince my wife to continue renting for a few more years. However, if I thought I had a case I was so wrong.
Take Advantage of Programs that Help
To encourage first time home buyers, banks and other financial institutions are providing several subsidies. The Federal Government provides the First Time Home Buyer’s Tax Credit of $5,000 and at the lowest tax rate of 15% you will receive $750 back in taxes. If you live in Montreal there is even more to smile about; first-time buyers with families are now entitled to a $12,500 subsidy if they purchase a three-bedroom home under $295,000.
Down Payment Savings Struggles
It is always advisable to put 20% of the total purchase price of your desired home towards the down payment. Since we could not afford the recommended down payment (I thought) it was a pretty good reason to not buy a house.
However, you can still be eligible with the minimum 5% down, but at the cost of paying a slightly higher premium - CMHC insurance kicks in as you are considered a high-risk mortgagee. You can add the fee to your mortgage but then as part of your closing cost you have to pay the PST on it upfront.
Other Homeownership Considerations
In addition to financial stability, there are other factors to consider: for example, how long do you intend to stay in the country? If it's for five years or less, it's likely a better idea to rent. However, if you plan to stay in Canada permanently, the amount you would pay toward rent can instead be put towards a mortgage. This in turn can be a good investment.
Utilities and Other Home Costs
The other thing to consider while renting is that electricity and water is included, but not when you’re a homeowner - you will then have separate utility bills to pay that can disturb your budget.
Last but not the least, consider your lifestyle – are you a couch potato or do you enjoy physical challenges? –Do you like mowing the lawn and shoveling the snow? If not, renting or buying a condo or townhouse could be a better fit - and be prepared for the steep condo or maintenance fees.
Suburb or City?
Most immigrants think they can get value for their buck if they buy a house in the suburbs, which means availability of public transport is not as frequent as in the city. Cars suddenly becomes necessary and not a luxury - and that significantly increases your monthly cost.
Making the Right Decision
Looking back, I feel buying a home has been a wise decision, though it has made a dent in our monthly savings and we don't travel as often. However, instead I have a place to call home, with a child and two dogs - I think we have almost started living the North American dream.
About the Author: Pracheer Saran
I am a travel enthusiast and a freelance writer who loves to write about my escapades, from travel to beer – but when it comes to finances, I still had a lot to learn. I first moved to Canada five years ago, and as a new immigrant, getting a credit card to building a credit history was a mammoth task for me. I mostly learned from trial and error – and am still learning! There is some homework a new immigrant can start a few months before moving to Canada to ensure a smoother settlement. So fasten your seat belts and join me for an informative ride as I share the challenges of managing my daily finances, hunting for my first job, battling high car insurance rates, buying my first house and securing a mortgage.
