With Canada Day around the corner, it has me thinking about those borrowers who are new to this great country. 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. If you have already decided where you want to live, home ownership could be the long-term solution you’re looking for, and below are 4 quick facts about qualifying for a mortgage when you’re applying under any of the New-to-Canada programs offered by the various lenders:
1. There are fewer credit requirements when qualifying as a newcomer
If you’re new to Canada, you will probably not have a Canadian credit history, which means you will not yet have a Canadian credit score. 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. To prepare, ensure your name is on the rental lease as well as on the car insurance and cell phone plan. If there’s no paper trail, it can’t be considered.
2. What amount of downpayment is required?
A downpayment is your financial contribution to the total purchase price of the home while the lender finances the remainder as a mortgage, which is registered against the property you are buying. The minimum amount of downpayment required is usually based on how long you have been in Canada and what your citizenship status within Canada is. It could be as low as 5% of the purchase price depending on the lender you choose to work with in securing your mortgage financing. With a number of lenders, your downpayment may have to come from your own resources; such as savings or an investment, however, with a different lender, it may be acceptable for you to have all or a portion of your downpayment gifted to you from an immediate family member.
If the lender where you have your bank accounts is not approving your mortgage application, I recommend you speak to an experienced mortgage broker who has the ability to work with a large number of lenders with different qualifying guidelines.
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.
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. If you have arrived in Canada than 5 years ago you have mortgage options under New to Canada programs. This means 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.
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 for 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.
If you are not presently living in Canada, and have no intentions to, you can still get a mortgage. Be prepared to have a minimum 35% downpayment to start, that could be higher depending on your Canadian credit situation, and the rates you get may be a bit higher than the best available. Document requirements will vary depending on where and how your qualifying income is derived from.
4. Be prepared to show a 2-year history of earnings if you are self-employed
If you are self-employed, have your most recent 2 years income tax returns handy as you will have to provide them along with your mortgage application to the lender. As the lender is already taking on more risk by relaxing credit score requirements, they will expect you to prove a documented history of your business-for-self earnings in order for you to qualify. If you can’t prove 2-years income history, you will most likely require a higher downpayment along with a Canadian credit report showing 2 years repayment history and a good credit score.
As you can see from details above, mortgage approval requirements for newcomers to Canada will vary depending on the lender and the borrower. For that reason, 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 be 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.
For all of your mortgage needs, contact Jackie at 780.433.8412 or email@example.com. Stay in the loop by following on Twitter @Mortgagegirlca.