Newcomers to Buying Canadian Real Estate

Newcomers to Canada face many choices including one of the most important—where to live.  Buying a home, whether it is a suburban house, an apartment, a farmhouse, a townhouse or cooperative housing, can be a different experience from other countries.  For example, zoning regulations, fees, taxes, mortgage requirements and even customs can vary.  Understanding these differences before entering the real estate market can help to ensure a positive experience.

Real estate transactions have certain customs that may be strange to first-time buyers in Canada.  A good example involves show suites in new strata complexes.  These suites are likely to have the best flooring, cabinets and countertops, high-end appliances, decorator paint colours and even special lighting fixtures.  When buyers move into their own unit, the designer pizzazz has vanished, typically taking the custom features and even the appliances with it!  When buying a home under construction, find out exactly what is included and be sure that the items are listed in the offer and purchase contracts.  A refrigerator, stove, washer, dryer and dishwasher will cost approximately $4,500.  When buying an older home, appliances are usually included but again, be sure everything agreed upon is in the contract.

In some parts of the world, homes are sold complete with furniture and even some decorative accents such as lamps and artwork.  This is not typically the custom in Canada although some people may be willing to selling them.  

Another uniquely Canadian aspect of real estate is the Goods and Services Tax (GST).   Buyers of new homes are required to pay the GST.  This is a one-time tax.  Buyers must budget for GST, land transfer taxes and annual property taxes.  Property taxes vary greatly across the country.

Any buyer who intends to have a home connected to a business such as a farm, an apartment above a store or restaurant, or a home office for professional services should make their intentions clear to their REALTOR®.  Zoning restrictions are in place in almost every Canadian municipality and a real estate professional can help to find suitable options.  Properties that combine home and business functions may also be taxed differently.  In the case of farming, there are often tax benefits.  For details, contact an accountant, the local municipality and/or Canada Revenue.

Canadian banks have strict mortgage lending guidelines.  Everyone who applies for a mortgage in Canada, regardless of their place of birth, will undergo a credit check and must provide lenders with several documents including identification, proof of income (e.g., T-4 slips from employers, investment income, personal holdings and rental income) and details of assets and liabilities.  A high-ratio mortgage (a mortgage with a down payment of less than 20% of the home’s value) requires mortgage insurance.  Lenders obtain this insurance from the Canada Mortgage and Housing Corporation (CMHC) or other organizations then typically pass the costs onto homebuyers.  For condominium purchases, lenders may require a copy of the strata association’s financial statements. Lenders also protect their investments by requiring buyers to pay for professional home appraisals and inspections.

In Canada, mortgage interest rates can be fixed, variable or protected variable. A fixed rate does not change during the life of the mortgage.  A variable rate changes along with the prevailing market rate.  Although the monthly payment may stay more or less constant as rates fluctuate, the variability will be reflected in the amount of a payment that goes to the principal and the amount to interest.  A protected (or capped) variable rate sets a limit on how high a homeowner’s interest rate will rise; lenders often charge a premium for this protection.   The length of a mortgage can be from six months to 25 years.  At the end of the term, a buyer can pay off or renew the mortgage.  When renewing, new terms and conditions can be negotiated.  As CMHC notes, generally, the longer the term of the mortgage, the higher the interest rate.

Newcomers may also find Canadian neighbourhoods to be quite different.  In this young and geographically large country, many cities and towns developed over vast areas requiring transportation to get around.  Explore a potential neighbourhood to check out the public transit and road systems.  Proximity to grocery stores, sports facilities, parks and cultural attractions may also be important considerations.  Some communities can have restrictions such as a noise limit at certain hours, rules about dogs and exotic pets, lawn watering times, etc.

Something all first-time buyers have in common is their tendency to overlook moving costs.  Along with mortgage payments, taxes and fees, buyers should set aside approximately $150 per hour for movers when relocating within the same community.  Moving from another province will cost at least $3,000.  Transporting belongings from another country will be much more.  Always get quotes from at least three movers before making a decision.

Buying a new home can be confusing; a REALTOR® will provide valuable expertise.