Are you a newcomer to Canada? Here’s how to get a mortgage

Being able to buy a home is  one of the most exciting moments in one’s  life. But, for newcomers, it can be one of the most daunting tasks. 

Immigrating to Canada is a big step. It can feel overwhelming not knowing where to start. But if you’re already angling to own a home, here's everything you need to know as a newcomer. 

Fact or fiction: Here’s what you need to know as a newcomer 

In Canada, there are generally a couple things you’ll need to access a conventional mortgage. These include: 

• Two years of employment history in Canada to indicate you have a stable income.
• A Canadian credit history that shows lenders how you handle credit and debt and how responsible you are with your finances. 

However, if you don’t have both of these, that doesn’t mean all is lost. Although it’s a little harder to access a mortgage, it’s not impossible. In fact, about 18% of mortgage consumers in most provinces are new to Canada. As long as you meet other eligibility requirements, there is still a chance you can qualify for a newcomer mortgage. 

In some cases, a newcomer mortgage is a special mortgage program offered by some lenders for those new to Canada. 

Are you eligible for a newcomer mortgage?

In order to qualify for a newcomer mortgage, just like any other mortgage, there are a couple requirements. In fact, you must: 

• Have immigrated to Canada within the last five years.
• Be in Canada as a permanent resident, landed immigrant, or a non-permanent resident with a work permit.
• Be employed full-time in Canada for at least three months.
• Have a down payment of at least 5%, although this minimum requirement will be higher if the home you want is over $500,000, with some lenders requiring a minimum of 35% if you don’t have a Canadian credit history. However, if you are only able to provide less than 20% as a down payment, you will mandatorily need to get mortgage insurance, which is a premium added onto your monthly mortgage payments.  
• Have a gross debt service ratio (GDS) of 39% or less and a total debt-service-ratio (TDS) of 44% or less. These ratios calculate how much of your income covers your housing costs and any other debts, respectively. This also includes any foreign debt you may have incurred.

It’s also important to note that for some lenders, guarantors cannot be included on this application and foreign diplomats who don’t pay taxes in Canada are ineligible for newcomer mortgages. 

Understanding Mortgages in Canada

Navigating through the mortgage process in Canada can be intricate, especially for newcomers. A basic understanding of how mortgages work in Canada can significantly ease the process.

Down Payments:

The down payment prerequisites for newcomers hinge on their status as permanent residents:

• Permanent Residents necessitate a minimum down payment of 5%.
• Non-Permanent Residents are obligated to provide a minimum down payment of 15%, comprising 5% on the initial $500,000 and an extra 10% on any remaining amount.

Regardless of resident status, any home with a purchase price exceeding $500,000 mandates a minimum down payment of 10%. If you've set aside a down payment that's less than 20% of your potential property's purchase price, you'll typically need CMHC mortgage default insurance.

Fixed vs. Variable Rate Mortgages:

• Fixed Rate Mortgages: Lock you into a set mortgage rate for the term of your mortgage, providing stability and predictability in your payments.
• Variable Rate Mortgages: Have interest rates that can fluctuate during the term of your mortgage, which means your payment amounts can vary.

Mortgage Terms and Amortization Period:

• Mortgage Terms: The duration for which the interest rate, payment, and other mortgage conditions apply. Common terms include two, three, or five years.
• Amortization Period: The time it will take to repay the mortgage in full, with common periods being 10, 20, and 25 years.

What documentation will you need to get a newcomer mortgage in Canada?

As with all mortgages, there will be a bit of paperwork involved. To qualify for a newcomer mortgage you’ll need a: 

• Letter of reference from a recognized financial Institution, or
• Six months of bank statements from your primary account

You may also need to provide: 

• Your international credit report, which should be high standing, OR
• Two alternative sources of Canadian credit that show you’ve made your payments on time over the past year. These alternative sources can include: 

• A rental payment history confirmed from a letter from your landlord and 12 months of your bank statements. If providing a letter from your landlord, the letter must include your name, length of tenancy, and payment history. 
• One other alternative source, like hydro/utilities, telephone, cable, cell phone, and auto insurance, which you also need to have confirmed by letter from the service provider or 12 months of billing statements

How to improve your chances of getting a mortgage in Canada

Above all, it’s important to start building your credit once you’ve arrived in Canada. Generally, you need a credit score of 680 to qualify for a mortgage, and to build this up to show at least two-years’ worth of credit, you can: 

• Get a secured credit card to improve your chances of a mortgage approval. A credit card is the best way to build your credit history–as long as you pay it off on time. 
• Get a cell phone. Subscribing to a monthly phone plan is a great way to build your credit history, as paying your bills also helps contribute to your credit history. 
• Pay your bills on time. Paying your bills on time–and in full–will also reflect nicely on your credit history. On the flip side, if you don’t pay your bills on time or in full, you’ll negatively impact your credit score. 
• Maintain a Low Credit Utilization Rate. Keeping your credit utilization rate below 30% is typically recommended. Managing your spending and possibly requesting a credit limit increase from your credit card company can assist in maintaining a low rate.

Can you qualify first-time home buyer incentives as a newcomer?

If you’re a permanent resident of Canada, the answer is yes. Luckily, as a permanent resident you can qualify for first-time home buyer incentives, like land transfer tax rebates.  However, if you’re a non-permanent resident, i.e. a temporary worker or an international student, some provinces might not offer this incentive. 

The home-buying journey can feel daunting, especially in a new place, but it doesn’t have to be. 

If you’re ready to really make Canada your home but you have more questions about newcomer mortgage programs–or if you’re eligible–feel free to fill in Pine’s easy, online application and one of our expert advisors will be in touch to help.