Are You Newcomer to Canada and Wanting to Buy a Home?
Canada is the land of opportunity and you may very likely qualify for a mortgage, but as a newcomer you also have some extra hoops to jump through to get there.
Whether you are looking to provide a home for your family, enjoy your own space, or build equity...here’s what you need to know to get started on buying a home of your own:
Costs of buying a new home
First of all, consider the price of the home that you want to buy. Depending on where you’ve come from, our housing prices may seem extremely high. Costs to think about that come with owning a home include:
- Available down payment
- Monthly mortgage payment
- Closing costs and legal fees
- Property Taxes
- Heating, electricity, water, internet, phone, etc
- Home insurance
- Land transfer taxes
You don’t have to be able to pay for a home entirely upfront in Canada. You do need to have a certain amount of money ready for a down payment, 5-35% of the home value depending on your situation, and the rest can be borrowed from a lender such as a bank or other mortgage financing company. This loan is called a mortgage.
What is a mortgage?
A mortgage is a loan from a lender such as a bank or mortgage financing company that you then have to start paying back on a monthly basis. Surprisingly, your monthly mortgage payment may be less then your current monthly rent.
If you qualify for a mortgage, you will sign an agreement with the lender to pay back this loan with interest, usually over 25 years but can be as short as 15 years. You may also be able to pay it off sooner without penalty, if you have the money, but you should find out the details from your lender or mortgage broker.
What is a
mortgage broker and how can they help you?
A mortgage broker is someone who can make your life so much easier when you are looking to buy a home. They will walk you through all the important steps to qualify for a mortgage by doing all the paperwork, crunching the numbers, explain the process, and finding the best interest rate available for you at that time. All you have to do is give them the information they ask for.
You don’t have to pay a mortgage broker for their services and you don’t have to accept any offer they get from a lender for you. You can change your mind and walk away without penalty.
How can you qualify for a mortgage in Canada?
As a newcomer to Canada you face some unique challenges while starting a new life in a new country. You will need to provide proof that you can afford it, in order to qualify for a mortgage.
Proof of income:
You may need to show having 12 months worth of mortgage payments ready in your Canadian bank account and that it has been there for at least 30 days (overseas net worth does not count).
If you own your own business and are self employed you will need to provide a 2 year history showing your income. This may mean waiting for 2 full years minimum before you qualify.
If you work for an employer (aka are salaried), you will have to be able to show at least 3 months of income statements in your Canadian bank account.
For those that are corporate relocation, no probationary period is required and might be able to buy day 1 in Canada.
All mortgage loan applicants go through a credit screen no matter where they’re from. Lenders prefer a 12 month history as Canadian credit track record or loan payments, with no late payments. If you don’t have a major credit card then two alternatives are acceptable as well, such as 1) a 12 month rent payment history from your landlord, and 2) bill statements showing on time payment (such as utilities, phone, or car insurance).
Although a Canadian credit history is preferred, some lenders may accept a good international credit history by a trusted bureau such as Equifax or TransUnion.
This is a lump sum of your own money that has been in your Canadian bank account for at least 30 days. This cannot be a gift from someone else because the lender wants to know that you yourself can actually afford to pay back the mortgage loan.
Your down payment is generally referred to as a percentage of the mortgage. For example, let’s say you are buying a house at $350,000 with a 5% down payment. That means your down payment amount would need to be $17,500.
What percentage of down payment do I need to have ready?
If you have a 2 year income history AND a 20% down payment ready you can qualify for what’s called a “conventional” mortgage. This is good because you do not need to apply for default insurance.
If your income history is less then 2 years, have less then 35% down payment ready, and are a permanent resident, you may qualify for a high-ratio mortgage but will need default insurance.
Default insurance, such as offered by GenWorth, is mortgage insurance required federally whenever the downpayment is less then 20%. This protects the lender in case you cannot make payments but also allows them to offer you the same low interest rate as anyone else.
Residents versus non-residents
Having permanent resident status is a huge bonus to buying a home in Canada because it makes you a much smaller risk in the eyes of the lender.
Only having a temporary work visa makes it possible to get approved for a mortgage but not as likely. Why? Because the lender considers it possible you could leave the county without paying back the loan in full once your work is done.
Non-residents, generally will need to have 35% down payment ready to qualify.