Moving to Canada is an exciting journey, but settling in comes with many challenges, including securing a home. One of the biggest questions for newcomers is: How do I get a mortgage in Canada? If you’re new to the country, you may not have a Canadian credit history, making the process seem overwhelming. However, many lenders offer mortgage options specifically designed for newcomers.
In this guide, we’ll walk you through everything you need to know about getting a mortgage in Canada as a newcomer, including eligibility, required documents, and tips to improve your chances of approval.
Understanding the Canadian Mortgage System
In Canada, a mortgage is a loan used to purchase a home. The mortgage is paid back over time with interest, typically in bi-weekly or monthly payments. Most mortgages in Canada have terms of 25 years (referred to as amortization periods), though other options exist.
Key Mortgage Types:
- Fixed-Rate Mortgage: Your interest rate remains the same for the term of the loan.
- Variable-Rate Mortgage: Your interest rate fluctuates based on the market.
- Open Mortgage: Allows early repayment without penalties.
- Closed Mortgage: Lower interest rates but restrictions on early repayment.
Mortgage Options for Newcomers
Canada has programs tailored for newcomers, even if they don’t have an established credit history. Banks and lenders recognize that immigrants play a vital role in Canada’s economy, so they offer flexible mortgage solutions.
Newcomer Mortgage Programs
Many major Canadian banks, such as RBC, TD, and Scotiabank, offer New to Canada mortgage programs that cater to individuals who have been in Canada for five years or less. These programs allow new residents to qualify for a mortgage with alternative proof of creditworthiness.
Eligibility Requirements for a Mortgage
To qualify for a mortgage in Canada as a newcomer, you’ll need to meet certain requirements:
a) Proof of Employment and Income
Lenders want to ensure you have a stable income to repay the loan. You’ll need to provide:
- Employment letter from your employer stating your salary and position
- Recent pay stubs
- Notice of Assessment (for self-employed individuals)
b) Down Payment
Newcomers typically need a minimum 5% down payment if the home price is under $500,000. If the price is between $500,000 and $1 million, a 10% down payment is required on the portion above $500,000. For homes over $1 million, a 20% down payment is necessary.
If your down payment is less than 20%, you must get mortgage loan insurance from Canada Mortgage and Housing Corporation (CMHC), Sagen, or Canada Guaranty.
c) Credit Score and Alternative Credit History
Since newcomers often lack a Canadian credit history, lenders accept alternative documents, such as:
- Rental payment history
- Utility bill payments (electricity, phone, etc.)
- International credit reports
d) Residency Status
Most lenders offer mortgage options to permanent residents (PR), temporary residents, and work permit holders. If you’re a non-resident, you may need a larger down payment (typically 35%).
Documents Required for a Mortgage Application
When applying for a mortgage, you must submit the following:
- Valid identification (passport, PR card, work permit)
- Proof of employment (job letter, pay stubs)
- Bank statements (showing savings and down payment source)
- Credit history or alternative credit references
- Property details (purchase agreement if you have chosen a home)
Steps to Get a Mortgage as a Newcomer
Step 1: Determine Your Budget
Before applying for a mortgage, assess how much you can afford using a mortgage affordability calculator. Consider all costs, including property taxes, maintenance, and insurance.
Step 2: Save for a Down Payment
Start saving for your down payment early. Consider using programs like the First-Time Home Buyer Incentive, which provides shared equity loans to reduce mortgage payments.
Step 3: Improve Your Credit Score
If you have little or no Canadian credit history, build one by:
- Getting a secured credit card
- Paying bills on time
- Keeping a low credit utilization rate
Step 4: Get Pre-Approved for a Mortgage
Mortgage pre-approval gives you an estimate of how much you can borrow. It also shows sellers that you’re a serious buyer. Approach banks, credit unions, or mortgage brokers for pre-approval.
Step 5: Find a Home and Make an Offer
Once pre-approved, start house hunting! Work with a real estate agent to find a home within your budget. When you find the right home, submit an offer and negotiate terms.
Step 6: Finalize Your Mortgage
After your offer is accepted, finalize your mortgage details with the lender. Ensure you review the interest rate, mortgage terms, and conditions before signing.
Step 7: Close the Deal and Move In
Once everything is in place, sign the final paperwork, pay the closing costs, and get the keys to your new home!
Tips to Increase Mortgage Approval Chances
- Work with a mortgage broker: Brokers have access to multiple lenders and can find the best rates.
- Maintain steady employment: Lenders prefer applicants with stable jobs.
- Choose a co-signer if needed: A co-signer with good credit can strengthen your application.
- Pay off debts: Lowering your debt improves your mortgage affordability.
Common Challenges and How to Overcome Them
- No Canadian credit history? Use alternative documents (rental history, international credit report).
- Struggling with a down payment? Consider government assistance programs like the First-Time Home Buyer Incentive.
- High home prices? Look at properties in suburban areas for affordability.
Buying a Home in Canada as a Newcomer
Buying a home in Canada as a newcomer is possible with the right approach. By understanding mortgage options, preparing the necessary documents, and working with professionals, you can successfully secure a mortgage and own your dream home.
If you need personalized mortgage assistance, Ingram Mortgage Team in Surrey is here to help! Contact us today to get started on your homeownership journey.