If you’re new to Canada, one of your first priorities will likely be to find a place to live. If you’re uncertain about which city you want to reside in, renting may be a good idea at first as this will allow you to experience life in multiple locations without having to deal with the real estate market each time you want to make a move. However, if you’ve already decided where you want to live, home ownership could be the long-term solution you’re looking for. This week, I want to highlight 4 quick facts about qualifying for a mortgage when you’re applying under the New-to-Canada programs.
1. There are fewer credit requirements when qualifying as a newcomer
If you’re new to Canada, you will probably not have Canadian credit history which means you will not yet have a Canadian credit score either. As past credit repayment habits are important when qualifying for a mortgage, your potential lender may request alternative credit sources to confirm your previous payment history. Some of the acceptable credit documents are confirmation of last 12 months of satisfactory rent payments, car insurance and even cell phone bills.
2. Regardless of the amount of downpayment your mortgage may still have to be insured.
A downpayment is your portion contributed to the total purchase price of the home while the lender finances the remainder as a mortgage which is registered against that property. The minimum amount of downpayment required is based on many variables. Depending on your citizenship status within Canada, in most cases, your downpayment has to come from your own resources such as savings or an investment, however, under a different insurance company, it may be acceptable for you to have all or a portion of your downpayment gifted to you from an immediate family member. There are presently 3 different default insurance companies in Canada and very few lenders deal with all 3 of them. If you find the bank where you have your accounts is not approving your mortgage application, I recommend you speak to a mortgage broker who not only deals with a large number of lenders, but also has knowledge and access to the 3 different insurance companies.
3. Your Canadian citizenship status affects the mortgage requirements
How you are going to afford your monthly payments is important to your potential lender. As a newcomer to Canada, you are granted a work status within the country and this status will determine which guidelines you have to follow in order to be eligible for mortgage financing. Acceptable statuses are broken down into 3 categories, according to the mortgage insurance companies ;
A Valid Work Permit
This means you have an employer that has sponsored you to live and work within Canada for a set amount of time. It doesn’t matter when you arrived in Canada, as long as you have been here less than 5 years you have mortgage options within New to Canada products. You can qualify for a mortgage with a minimum 5% downpayment as long as you meet the other credit requirements. However, keep in mind your 5% downpayment must come from your own savings and cannot be a gift or borrowed.
Landed Immigrant Status
If you have been recognized by Canada as a landed immigrant, then you have to meet the same requirements as a borrower with a valid work permit. As long as you have been in Canada less than 5 years and meet the minimum credit requirements, you can buy a home with as little as 5% downpayment from your own resources.
When you are officially a permanent resident of Canada, you have a few more mortgage choices available to you than before. You can still get a mortgage with a minimum 5% downpayment, however, it now doesn’t necessarily need to be from your own savings. You can borrow your downpayment or have it gifted to you from a related family member. Do be aware if you have been in Canada longer than 5 years or have more than 2 years of Canadian debts reporting on your credit report you may not qualify under the New to Canada program.
4. Be prepared to show a 2 year history of earnings if you are self-employed
If you’re self-employed, have your most recent 2 years tax returns handy to provide along with your mortgage application. As the lender is already taking on more risk by relaxing credit score requirements, they will expect you to prove your business-for-self earnings in order for you to qualify. If you can’t prove 2-years income history, you will need at least a 10% downpayment from your own sources, and a Canadian credit report showing 2 years repayment history and a credit score of over 700.
As you can see from details above, mortgage approval requirements for newcomers to Canada will vary depending on the lender and the borrower and I believe it is important to work with a mortgage professional that is experienced when it comes to the new-to-Canada mortgage products available. This experience can result in time saved and the difference between a mortgage approval and a decline. Don’t hesitate to ask questions until you understand what is involved in the mortgage application and approval process and you are fully confident when it comes to purchasing a home and committing to a mortgage.