New immigrants: here’s how to buy your first home in Canada

By
Millicent Wong
-
0
251
financial contribution

  1. Real Estate
  2. Mortgages

No house yet? These tips will help you buy your first property

Published Jun 19, 2023  •  Last updated 8 hours ago  •  7 minute read

A 'for sale' sign is displayed in front of a house in the Riverdale area of Toronto. A ‘for sale’ sign is displayed in front of a house in the Riverdale area of Toronto. Photo by Evan Buhler/The Canadian Press files

Gokul Prasad, a 31-year-old digital marketer originally from India, came to Canada in January 2021 with one main goal in mind: owning a home.

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He’s watched some of his friends, who also recently immigrated to Canada, make the “mistake” of spending their savings on new cars and renting either a bigger apartment or one in a more expensive area that’s either in, or close to, an urban core.

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“I would really like them to think about (buying) a home first because it’s getting tougher and tougher,” Prasad said. “If you’re renting, that’s like an expense that you will not be getting back.”

After the housing market’s correction last year, residential real estate is beginning to pick up again. The national average home price in May increased more than three per cent year over year, the first time that has happened in a year, and the number of sales increased 1.4 per cent, the first year-over-year gain in almost two years.

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At the same time, the country is experiencing a housing affordability crisis. Last year, a Canada Mortgage and Housing Corp. (CMHC) report said an additional 3.5 million units would need to be built by 2030. That’s on top of its projections that the housing stock would need to increase by 2.3 million units during the same timeframe to “restore affordability.”

A lack of rental units is also putting strain on affordability, according to a March report by Royal Bank of Canada. In 2022, dedicated rental housing, also known as purpose-built rental stock, grew by 2.4 per cent, its fastest pace since 2014, and vacancy rates dropped to a 20-year low, but the report flagged that a 25,000- to 30,000-unit shortfall already exists.

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“Without a significant boost in rental stock, Canada’s rental housing gap could exceed 120,000 by 2026 — quadrupling the current deficit,” economists Robert Hogue and Rachel Battaglia said in the report.

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Robert Hogue and Rachel Battaglia

The federal government’s push to bring in more than one million newcomers by 2025 will also increase demand for housing, said Robin Cherian, chief executive of The Canadian Home Realty Inc., which runs an online platform for property listings and rentals.

“We are expecting that more than 30 per cent of the Canadian population will be immigrants by 2036 and if that many immigrants are coming, they should definitely understand … how (to) get yourself prepared for the buying process,” he said.

But what works for newcomers also often applies to younger generations born and raised here, said Zac Lofeudo, a mortgage agent at BRX Mortgage Inc.

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Build credit

The No. 1 tip for immigrants who want to buy a home in Canada is to begin building credit as soon as they settle in the country since mortgage lenders only approve prospective homebuyers who have good credit scores, both Lofeudo and Cherian said.

They advise newcomers and young people alike to apply for a credit card with one of the Big Six banks and start using it as much as possible for daily spending, from buying groceries to paying bills.

They added it’s also important to not get approved for multiple credit cards at once and to avoid going into debt, especially at the beginning of their credit-building journey, because that can negatively impact their credit score. Using only 30 per cent of your monthly credit limit shows lenders you can responsibly handle access to credit.

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“History is one of the most important pieces of your credit (profile),” Lofeudo said. “As long as you don’t abuse it.”

Whenever I get an opportunity of credit from the bank, I don’t hesitate in taking it

Gokul Prasad

Prasad also took advantage of lines of credit that his bank qualified him for to buy an old Honda Civic, which further boosted his credit score.

“Whenever I get an opportunity of credit from the bank, I don’t hesitate in taking it,” he said.

Lofeudo said taking out other loans helps “thicken” a person’s credit profile, another positive lenders like to see when it’s time to get a mortgage.

A line of credit can be especially useful in building up a credit profile since you don’t have to use it and its mere existence helps boost your credit score, he added.

Use incentives

Researching and taking advantage of various government incentives is another way to become a homeowner sooner, Cherian said.

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“(We) always recommend our prospective clients start an RRSP (registered retirement savings program) account,” he said. “The best part of one of the programs by the government to support first-time homebuyers is that you can actually use up to $35,000 from your RRSP savings to use as your down payment.”

Cherian is referring to the federal government’s Home Buyers’ Plan, which lets Canadians withdraw funds from their RRSP to increase the amount of money they can put down on a home before getting a mortgage.

A person has up to 15 years to pay back the full amount taken out of their RRSP before the withdrawal is taxed, and repayments kick in at the start of the second year after the home purchase.

Ottawa also launched the first home savings account (FHSA), which combines some features of both RRSPs and tax-free savings accounts (TFSAs) to help first-time buyers purchase a new home.

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A prospective homeowner can open a FHSA with an accredited bank and contribute up to $8,000 yearly, to a lifetime limit of $40,000, and contributions to and withdrawals from the account are tax free.

Lofeudo said depending on a person’s unique financial situation, it could be better to choose the FHSA than use their RRSP to fund a down payment through the Home Buyers’ Plan.

“Let’s say you were even going to buy this year,” he said. “You could put that $8,000 into the first home savings account, get a tax refund the following year and be able to pull that out whenever you want for a purchase right away.”

With RRSPs, the money you take out must have been in the account for a minimum of 90 days, he said.

Secure a stable job

It can sometimes be tempting for newcomers to pick a contract job that might offer higher wages compared to permanent positions, but job security is more certain with the latter, Cherian said.

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“From a housing perspective, when you apply for a mortgage, lenders will always look for a full-time, (permanent) job,” he said about getting approved. “It’s more of a stable profile.”

The type of job a person has can impact how quickly they can get into the housing market.

If they opt for contract jobs, a mortgage lender requires at least two years’ worth of tax documentation before approving a loan. If they get a full-time, permanent position, they just need to make it through the probationary period — which is typically three to six months — at work before applying for a mortgage, Cherian said.

Though Prasad had several years of digital marketing experience from working in Dubai, he decided to do a postgraduate program in digital media marketing at George Brown College in Toronto to help him enter the Canadian job market and land a secure position.

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“I thought that it would be good if I had a Canadian degree because that has more recognition in the market,” he said. “I did my co-op, so that definitely increased my job profile.”

After his program, Prasad landed a full-time job at a marketing agency in the city and saved up for a down payment while renting out a one-bedroom basement apartment. He said he also received money from family and friends to help him come up with the initial payment.

A few months after his probationary period ended in 2021, he got a letter of pre-approval for a mortgage in November that year and began looking for a home to buy.

Hunt for housing

By May 2022, Prasad closed a deal on a 700-square-foot, one-bedroom condo in Hamilton that he purchased for $500,000.

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It would have been ideal to get a place in Toronto closer to his work, he said, but he had to “sacrifice” in order to get a home and to begin building his family once his wife, also from India, came to Canada in the spring of 2022.

As appealing as it is to buy a home in a major city, Lofeudo said newcomers and young Canadians shouldn’t discount looking for homes in up-and-coming areas and places further away from urban cores.

It’s easier to find cheaper homes outside major city centres because of simple supply-and-demand dynamics, he said. Furthermore, regulations allow for a five-per-cent down payment on a $500,000 home. If the price of the property is $1 million or higher — which is about the average home price in Toronto as of May — the required minimum down payment is at least 20 per cent.

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It’s “slim pickings” in the Greater Toronto Area (GTA) for homes costing less than $500,000 or so, Lofeudo said.

“If you go further outside the GTA … you’d have the smallest amount of money that you need to save to get into the real estate market as quickly as possible,” he said.

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For example, Cherian said the Kitchener-Waterloo region in Ontario, which has several post-secondary schools, is one place where he sees the potential “for a lot of growth” and development to better connect it to the GTA.

“The core GTA won’t be able to accommodate everyone,” he said. “People will start moving to the outskirts and so it’s really important to understand which are the growing outskirts you should invest in.”

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