Have you just immigrated to Canada? Are you interested in buying a home? Canadian newcomers are welcome but might experience different terminology, financial requirements, and documentation than your country of birth.
The good news is that Canada is an immigrant nation, with Edmonton becoming one of the most diverse cities in the country. According to the 2011 National Household Survey, the Canadian Housing and Mortgage Corporation (CMHC) says that 20.4% of Edmontonians are immigrants from countries such as India, Philippines, China – among several others.
Canada has done its best to assist immigrants qualifying for a mortgage with its New to Canada Program. Canada receives its vitality from its immigrant population.
Time is also an issue for Canadian mortgages. The lenders want you to have been in the country and demonstrated prompt payment of loans for specified periods of time. We, at Advantage Mortgage, will provide you with tips to make the home buying process smoother in this New to Canada Mortgage Guide.
Canada’s housing market is booming
You are not the only one who is considering buying a home in your new country: Canada. Canada has a booming property market attracting more attention from people all over the world. For many Canadian newcomers, home ownership demonstrates a successful permanent immersion into the community of the new country.
Two-thirds of Canada’s population growth is due to immigration. The country adds hard-working people with a diverse culture to the fold. Canada needs immigrants and immigrants need Canada.
There are many types of people who have immigrated to Canada. There might be some very well-established retired immigrants who want to spend their Golden Years in Canada. They might be rich in assets, but lack proof of liquid income.
A working family might have plenty of work stubs to show that they have liquid assets. Lenders want you to have unencumbered cash flow to pay off your mortgage. And, lenders want you to have at least a portion of your assets in Canada.
Immigration status matters
Let’s be honest. It would be nice to believe that the Canadian government and lenders place everyone in the same category, but that just isn’t true. All have the opportunity for home ownership.
But, your income, assets, immigration status and amount of time spent in the country have a tremendous bearing on whether you qualify and what interest rate is charged. There are different thresholds based on whether you are a native-born Canadian, permanent resident (Permanent Resident Status) or temporary resident (Landed Immigrant Status or Work Visa).
With the Permanent Residence Status, the lenders believe that you have been in the country for more than five years, have stable employment, paid off your bills and are committed to staying permanently. You have started or even completed a portion of the process for becoming a full Canadian citizen. Therefore, as a permanent resident of Canada, you have more rights and privileges. Learn more about applying for Permanent Residency in Canada.
The Landed Immigration Status will include those on a Work Visa. You may not have been in the country as long as the more permanent immigrants. You might not be sure about whether you want to become a citizen; but, you have a stable job, asset base and wish to purchase a home.
Tip: Permanent residency will lower your down payment requirements.
Risk management is a critical element of the mortgage industry. Lenders want to ensure that you will stay in the country and repay their loans. They deem it a higher risk for immigrants to buy homes because they can leave Canada for another country, where it will be difficult for the lender to get his money back.
Therefore, the more that you can prove that you are financially stable, committed to staying in Canada and responsible for repaying the loans, the higher are the chances of you qualifying for a mortgage.
What percentage of down payment is required?
Canada requires homeowners to place a down payment on the home to establish equity. A down payment on your mortgage proves adequate financial well-being and commitment to repay the loan. Different lenders will need you to set a different down payment percentage based on your immigration status and financial wherewithal.
Is it true that a 35% down payment is required for immigrants?
The Canadian standard for a non-resident down payment is 35% – immigrants have a higher threshold. The standard for Canadian citizens is only 20%. The lender believes that immigrants are a higher risk in comparison to Canadian citizens.
That is why the New to Canada Program is so critical. If you satisfy the requirements, you can dramatically reduce your down payment, sometimes to as little as 5% to 10%.
So, how can you do this?
The benefits of permanent residency for mortgage approvals and home financing
Permanent residency allows you to qualify for better mortgages and lower down payments. The Canadian government and financial institutions believe you are a lower risk.
Under the law, Permanent Resident Status may allow you to qualify for a housing loan with a minimum of a 5% down payment. The money source can be your income, a family gift, loans or a corporate subsidy.
The other category for immigrants is Landed Immigrant Status. The law requires you to put down a minimum down payment of 10% with 5% of your resources (income, personal savings or investments). The additional 5% can be from a family gift or corporate subsidy. This rule is meant to prevent money laundering.
Tip: Open a Canadian bank account.
Once you settle in Canada, it is wise to open a Canadian bank account. Canadian lenders want to see your money in the country. Opening a bank account will also trigger your credit score – the bank will share your account information with the credit reporting bureaus – Experian and Transunion.
Develop a high credit score
Canadians place a great deal of importance on the credit score. Your credit score is also referred to as your credit history or credit rating.
What is a credit score?
Your credit score is meant to measure your creditworthiness. Creditworthiness suggests that you will take your mortgage seriously and repay it, on time. The banking industry created the credit score to help determine the level of risk you are when applying for a mortgage in Canada.
Anytime you fill out a loan application, the information can be sent to the credit reporting bureaus – Experian and Transunion. They will then share this information with lenders to help them determine if you would be a good risk for a loan.
Tip: Sign up for a Canadian credit card.
Your credit history can be very complicated but consists of five rating factors, including repayment history, type of credit and credit amount available.
The most important thing that you can do is to pay your bills on time.
A high credit score increases your chances of loan approval and having a lower mortgage interest rate. You might want to sign up for a credit card to build up your credit score. Do this as soon as possible.
Pre-Approval vs. Pre-Qualification
Every nation has its special terminology, which can be confusing. The Canadian mortgage market is no different. Canada has a very formal step-by-step process that includes the confusing terms, “pre-qualification” versus “pre-approval.”
These terms are unclear because, in standard English, they are interchangeable synonyms. In the Canadian mortgage industry, they might represent different steps in the process.
First, you must prove that you can afford a mortgage – submit your income records for pre-qualification. Pre-Qualification provides you with a range of property prices, which you can afford. It is NOT a promise by the lender.
Second, pre-approval is a “conditional commitment” from a lender with an exact amount. A pre-approval allows you to look for houses and speed up the buying process. This is closer to a real promise from the lender.
Which financial documentation is required for a mortgage application?
Each lender will require different specific documents for mortgage applications from two broad categories: 1. Identification (ID) and 2. Financial. Here are just a few of the documents that you should prepare:
- Bank Account Statement
- Work Stubs
- Utility Bills
You can add other mortgage application documents, such as international credit bureau check, bank reference letters or a landlord recommendation. You should have all of your financial documents translated into English.
Time requirement is a factor
Another issue for mortgage applications is time. You can be the wealthiest man on Planet Earth, but if you have not fulfilled specific time requirements, you still might not qualify for a mortgage in Canada. The time required in Canada can be one of the frustrating parts of the Canadian mortgage process.
Usually, a lender will want to see a 12-month credit history with at least two loans. Any money for a down payment must have been transferred to Canada more than 30 days ago.
Welcome to Canada homeownership!
If you are new to Canada and are ready to buy a home in the greater Edmonton area (Edmonton, Leduc, or Devon), contact us today for a free consultation. We know that parts of the process to apply for a mortgage can be confusing. That is why we are here – to help guide you through the process step-by-step. Make sure to read the reviews of past clients regarding our services and commitment to helping them achieve a successful outcome.
Furthermore, we harness the power of multiple lenders, which allows you to get a suitable mortgage product with far less hassle.
Gain the Advantage of life in Canada with the help of Advantage Mortgage.
Canadian newcomers, welcome to Canada homeownership.