New to Canada
If you are new to Canada and looking to obtain a mortgage, there are several key factors you need to understand. The Canadian mortgage process can be different from other countries, and lenders may have specific requirements for newcomers. Here’s a guide to help you navigate mortgages as a new immigrant to Canada:
Challenges for Newcomers
Limited Credit History: Since you may not have a Canadian credit history, lenders may view you as a higher risk. Establishing a credit history in Canada is important, but there are ways to get a mortgage without one, especially if you are a permanent resident or have stable employment.
Foreign Credit History: Some lenders may accept your foreign credit history as part of their assessment, but this varies between institutions.
Types of Mortgages for Newcomers
Lenders in Canada offer specific mortgage programs for newcomers, including:
- Newcomer Mortgage Program: Many banks and mortgage providers in Canada have special programs designed to help new immigrants get approved, even without an extensive Canadian credit history. These programs often require proof of stable income, employment, and a significant down payment.
- Insured Mortgages: If you have a smaller down payment (less than 20%), you’ll need mortgage default insurance through Canada Mortgage and Housing Corporation (CMHC), Sagen, or Canada Guaranty. Some of these insurers have products tailored for newcomers.
Residency Status and Mortgage Eligibility
Permanent Residents: If you are a permanent resident (PR), you are eligible for the same mortgage options and rates as Canadian citizens, provided you meet income and down payment requirements.
Temporary Residents: If you are a temporary resident (e.g., on a work permit or study permit), some lenders will still offer mortgage options, but you may need a larger down payment (e.g., 35%) and demonstrate a strong financial position.
Non-Residents: If you are a non-resident or foreign buyer (living outside Canada but purchasing property in the country), you can still qualify for a mortgage, but the requirements are stricter, including a down payment of 35% or more.
Down Payment Requirements
Permanent Residents: If you are a permanent resident, you can access mortgage options with as little as 5% down for homes valued under $500,000. For homes between $500,000 and $999,999, you need 5% on the first $500,000 and 10% on the remaining value.
Temporary Residents and Non-Residents: Lenders typically require a higher down payment from temporary residents and non-residents, usually 20% or more, depending on your specific circumstances and lender policies.
Income and Employment Verification
Stable Employment: Lenders prefer applicants with steady, full-time employment. If you have been working in Canada for at least three months, this can strengthen your mortgage application.
Job Offer or Employment Contract: For newcomers, providing a job offer or employment contract can help demonstrate financial stability.
Self-Employment: If you are self-employed or earn a non-traditional income, lenders may require additional documentation, such as business financials or proof of income over a longer period.
Establishing a Canadian Credit History
Open a Canadian Bank Account: Many lenders require you to have a Canadian bank account for mortgage payments. Opening a bank account as soon as you arrive in Canada is a good first step.
Get a Canadian Credit Card: A Canadian credit card will help you build a credit history, which is critical for securing better mortgage terms. Make small purchases and pay them off each month to build a good credit score.
Utility Bills: Paying your phone, internet, or utility bills on time can also help establish a credit history.
Mortgage Rates and Terms
Fixed vs. Variable Rates: In Canada, you can choose between a fixed-rate mortgage (where the interest rate stays the same for the term) or a variable-rate mortgage (where the interest rate fluctuates with the market). Fixed-rate mortgages offer more stability, while variable-rate can provide decreasing payments (reduction in interest rate) and lower interest paid over the life of the mortgage. Most lenders will allow you to convert your variable-rate to a fixed-rate, if you change your mind in the future (lender conditions apply).
Mortgage Terms: Mortgage terms in Canada typically last 1 to 5 years, after which you can renew or refinance. The overall amortization period (how long it takes to pay off the mortgage) is usually 25 years, though 30-year amortizations are possible.
Mortgage Stress Test
Qualifying Rate: All homebuyers in Canada must pass the mortgage stress test, which ensures you can afford the mortgage even if interest rates rise. You’ll need to show you can handle payments at the Bank of Canada’s qualifying rate or 2% above your mortgage rate—whichever is higher.
Impact on Mortgage Size: The stress test might limit the size of the mortgage you qualify for, so it’s important to budget accordingly.
Working with a Mortgage Broker
Brokers for Newcomers: Mortgage brokers can be particularly helpful for newcomers, as they have access to a wide range of lenders, including those with specialized programs for immigrants. A broker can guide you through the process and help you find the best terms.
Alternative Lenders: If traditional lenders (like banks) reject your application, alternative or private lenders may be more flexible, although they often charge higher interest rates and fees.
Additional Costs to Consider
Closing Costs: In addition to the down payment, you will need to budget for closing costs, which typically range from 1.5% to 4% of the home’s purchase price. These include legal fees, property transfer taxes, and home inspections.
Land Transfer Tax: Most provinces in Canada charge a land transfer tax when you purchase a home. Some provinces (like Ontario and British Columbia) offer rebates for first-time homebuyers, which you might qualify for as a newcomer.
Property Taxes and Maintenance: As a homeowner, you’ll be responsible for property taxes, utilities, and ongoing maintenance costs. Make sure to account for these in your budget.
Government Programs for Newcomers
The Canadian government offers several programs to assist newcomers with homeownership:
Home Buyers’ Plan (HBP): The HBP allows first-time homebuyers to withdraw up to $60,000 from their RRSP (Registered Retirement Savings Plan) to buy a home. However, you need to be a permanent resident or Canadian citizen to take advantage of this program.
GST/HST New Housing Rebate: You may be eligible for a rebate on part of the GST or HST paid on the purchase of a new home.
First-Time Homebuyer Benefits
First-Time Home Buyers’ Tax Credit: You may qualify for a $5,000 non-refundable tax credit, which can save you up to $750 in federal taxes if you purchase a home in Canada as a first-time buyer.
Provincial Incentives: Some provinces offer additional programs for first-time homebuyers, such as land transfer tax rebates in Ontario or the BC Home Owner Grant.
Finding the Right Home and Budgeting
Affordability: As a newcomer, it’s important to budget carefully. Work with a real estate agent and mortgage broker who understand the unique challenges faced by immigrants. Consider not only the cost of the home but also ongoing expenses like property taxes, utilities, and insurance.
Real Estate Agent: A knowledgeable agent can help you navigate the local housing market, understand neighbourhoods, and identify homes that fit your budget and lifestyle.
Consider Rent-to-Own Options
Rent-to-Own: If you’re not ready to buy right away, consider a rent-to-own option. This allows you to rent a property with the option to buy it later. Some of the rent you pay goes toward the eventual purchase, giving you time to save for a down payment or establish a credit history in Canada.
While the process of obtaining a mortgage as a newcomer to Canada may have additional challenges, it is still achievable with careful planning and understanding. Establishing a Canadian credit history, demonstrating stable employment, and working with mortgage professionals who understand newcomer needs can help you secure a home in Canada.
ADDITIONAL RESOURCES:
Prohibition on the Purchase of Residential Property Act
Government announces two-year extension to ban on foreign ownership of Canadian housing
Ensuring housing market remains available to Canadians
Additional property transfer tax for foreign entities and taxable trustees
