Getting a Mortgage in Canada as a New Immigrant
Summary of Key Points:
In Canada, getting a mortgage is essential for buying a home, enabling buyers to spread the high cost of property purchase over time.
Special mortgage programs are available for new immigrants in Canada, aimed at helping them acquire mortgages and establish a credit history in the country.
Eligibility for these mortgages typically requires a certain residency period in Canada, landed immigrant status, and stable employment. Permanent residency often leads to better mortgage terms.
The mortgage application process involves gathering necessary documents like down payment records and employment history, understanding your affordability, building a Canadian credit history, and obtaining mortgage pre-approval.
Finding a real estate agent is a crucial step in the home-buying process. For new immigrants seeking permanent residency, it's important to schedule an Immigration Medical Exam (IME)—contact Panel Physician to book an appointment.
Getting a Mortgage in Canada As a New Immigrant
Homeownership is a key pillar of building long-term wealth and prosperity in Canada—and getting a mortgage is an essential part of the process. However, getting a mortgage can be different for new immigrants than it is for people who have lived here their entire lives.
As a new immigrant, navigating the mortgage system can be a complex process—but our team at Panel Physician is here to show you how. This article provides a comprehensive guide to understanding and successfully applying for a mortgage in Canada.
Note: Most new immigrants to Canada require Immigration Medical Exams (IMEs). If you’re still in the process of immigrating to Canada, schedule your IME here to ensure you submit a complete application.
Why You Need a Mortgage for Home Ownership in Canada
A mortgage in Canada is a loan arrangement for buying property like houses or condos. It allows buyers to acquire real estate by paying over time, rather than upfront, making homeownership more accessible. The property serves as collateral, securing the loan for the lender.
Mortgages vary in terms, including interest rates, down payments, and repayment periods, depending on the lender and the buyer's financial status. A mortgage is usually a required step for entering the Canadian housing market, since it bridges the gap between the high costs of property and a buyer's immediate financial capabilities.
New Immigrant Mortgage Programs in Canada
Various Canadian financial institutions work with the government to offer various programs to assist new immigrants in settling down. These vary from one institution to another but are often called New Immigrant Mortgage Programs, or New to Canada Programs. They are specifically designed to help new immigrants acquire mortgages, build Canadian credit history, and adjust to life in Canada.
Preliminary Qualifications for New Immigrant Mortgage Programs
To qualify for these programs, immigrants should:
Enter Canada either through a permanent residence visa or a temporary work permit. Those with permanent residence enjoy better rates and more relaxed requirements.*
Reside in Canada for at least 60 months (in most cases) with landed immigrant status.
Have a minimum of three months of full-time employment. Stable employment significantly affects credit scores and mortgage eligibility.
Why Permanent Residency Helps When Applying for Mortgages
You don’t necessarily need permanent residency to buy property in Canada, but it helps. As a permanent resident, you’ll most likely qualify for better terms and a lower down payment on your mortgage.
See Also:
Mortgage Eligibility Requirements for New Immigrants
Eligibility for a mortgage varies, but here’s a list of the minimum requirements you should be able to meet as a new immigrant to Canada:
Status and Residency: Newcomers must have landed immigrant status and should have been resident in Canada for a specified period (usually 5 years for permanent residents and 2 years for temporary residents).
Employment History: A stable employment history is crucial. Some programs require at least two years of employment history in Canada, although this can be waived with a larger down payment in some cases. Learn how to find a job in Canada as a new immigrant here.
Proof of Income: Banks need assurance of a steady income stream to approve a mortgage. This impacts both the loan size and interest rates offered.
Down Payment: The minimum down payment required varies, generally ranging from 5% to 35%, depending on one's residence status and the property value. For instance, permanent residents with standard income confirmation may only need a 5-10% down payment, while those without income but with high net worth might need to put down 35%.
Credit History: While having a Canadian credit history is advantageous, banks may consider alternative forms of credit worthiness for newcomers, like a 12-month history of rent and regular monthly obligations in Canada. In cases where there is no Canadian credit history, a higher down payment is often required, and additional documents, such as a letter of reference from a financial institution or six months of bank statements, might be necessary.
How to Successfully Apply for a Mortgage as a New Immigrant
Documents Required
To apply, you'll need:
Down payment records
Purchase and Sale Agreement (you’ll usually get this from your real estate agent once you’ve made an offer on a property and it’s been accepted)
Employment history
Proof of rental payments
Reference letters from financial institutions
Bank statements
The Process
Find Out What You Can Afford
It's essential to understand how much mortgage you can afford. This step involves estimating your monthly living expenses, including any additional spending that lenders typically don't assess when determining mortgage affordability.
Online mortgage affordability calculators, like those from NerdWallet Canada or CMHC, can be a helpful tool. They consider your annual income, monthly debts, living expenses, and additional costs associated with homeownership (such as utilities, property taxes, condo fees) to give you a realistic picture of what you can afford.
Build Canadian Credit History
Your credit history in Canada plays a crucial role in your mortgage application. It's advisable to start building this as soon as possible. Simple actions like paying your phone or cable bills on time, and obtaining a credit card, can help establish a credit history.
Remember, a credit score of at least 600 is typically required for participating in CMHC insurance programs, allowing for a down payment as low as 5%.
Get Mortgage Pre-Approval
Mortgage pre-approval indicates the maximum amount a lender is willing to loan you for a mortgage. This process includes an assessment of your financial situation, such as your income, debts, and credit score.
Mortgage lenders use your gross debt service ratio (GDS) and total debt service ratio (TDS) to determine your affordability. The GDS ratio, which includes your mortgage principal and interest along with your taxes and heating expenses, should not exceed 39% of your annual income. The TDS ratio, which includes broader expenses, should not exceed 44%.
Find a Real Estate Agent
Once you have a clear idea of your budget and mortgage pre-approval, the next step is to find a real estate agent. They can assist you in finding a home that fits within your budget and help with making an offer. An agent's expertise can be invaluable, especially when navigating the Canadian real estate market as a new immigrant.
Immigrant-Friendly Banks in Canada
TD Bank: Offers comprehensive support for newcomers, including banking packages and resources in multiple languages. Explore TD’s banking products for newcomers to Canada here.
RBC Royal Bank: Provides mortgages for newcomers with competitive rates and solutions for those with limited Canadian employment or credit history. Explore RBC’s mortgage options for newcomers to Canada here.
Other Institutions: Sagen, Canada Guaranty, and Genworth Financial are among the institutions offering newcomer-friendly mortgage options.
Take the Next Step on Your Journey Towards Home Ownership in Canada
The path towards home ownership in Canada involves many steps for new immigrants—from submitting a complete application for permanent residency to arriving in Canada, obtaining employment, building your credit history, and ultimately applying for a mortgage.
Use the guidance we’ve provided here to navigate the process more smoothly and increase your chances of owning a home in Canada. And remember, having permanent residency can make many parts of the mortgage process easier. If you still need an IME to complete your application for permanent residency, book an appointment with a Panel Physician here.
