Mortgages for Newcomers in Ontario

(Eight minute read time)

Canada is a country of newcomers. Buying a home is one of the biggest goals for both new Canadians and those born here. Read on, and you’ll learn about the most important things you need to know before you can buy a home in Canada as a recent immigrant.

What is a Newcomer Mortgage?

A mortgage is a loan that most homebuyers will use to purchase a home. For many, the requirements for getting a mortgage can be challenging, especially in the first few years after moving here. For certain homebuyers who have recently immigrated to Canada, there are special programs created to help make it easier to get a mortgage and buy your first home in Ontario. A newcomer mortgage works the same way as any other mortgage, except the rules for getting approved can differ. This kind of flexibility can help you realize your dream of home ownership much faster, allowing you to stop paying rent and start building equity for yourself and your family.

Mortgage Programs For Newcomers

Many of the best Canadian lenders and banks have options that are meant specifically for those who are new to Canada. If you have been living in Canada for less than 5 years, you might qualify for a newcomer mortgage with as little as a 5% down payment.

If you qualify for a newcomer mortgage, you can purchase any of the following types of property:

• A new build home as long that comes with a Tarion Warranty

• A resale home that you purchase from the owner

• A home that includes a second unit for renting, like a duplex or accessory apartment

• Your home can be a single detached, semi-detached, townhouse, or apartment-style

• If your down payment is less than 20%, the property must be purchased for less than $1 million.

How to Qualify for a Mortgage as a Newcomer

Here’s where things get interesting for anyone who has recently immigrated to Canada. You could qualify for a mortgage to purchase your first home in as little as three months after moving to Canada. If you have been living in Canada for more than 3 months and less than 5 years, you could qualify for a mortgage here. In some cases, you may not need to wait for 3 months and could potentially buy a home much sooner. If you have been relocated to Canada by your employer, you do not need to wait for 3 months. Note that if you have lived in Canada for more than 5 years, you will usually need to qualify using the same rules as other Canadians who have been living here for a long time.

Note that your mortgage broker or bank will need to understand all your debts inside and outside Canada. If you don’t file taxes in Canada, then you aren’t eligible for this program.

Criteria to Qualify for a Newcomer Mortgage:

Income Criteria

You’ll need to have a minimum of three months of full-time employment here in Canada (unless you were relocated by your employer). If your employer pays you a salary, or if you get paid by the hour and your hours are guaranteed each week, then your income could be eligible to qualify you for a mortgage. You cannot be on probation with your employer when you apply. Homebuyers can qualify with a valid work permit or permanent residency here in Canada. You do not need to be a Canadian citizen to get approved for a mortgage here in Canada.

If you are self-employed, you are not eligible for most newcomer mortgage programs. However, you may still be able to purchase a home as long as you have more than a 20% down payment and a two-year history of filing income taxes in Canada.

Down Payment Criteria

You can get a mortgage to purchase a home in Canada with as little as a 5% down payment. If the purchase price of your home is $500,000 or less, then you only need a minimum of 5% down payment. If you are purchasing a home that costs between $500,001 and $999,999, you need to have at least 5% of the first $500k plus 10% of the purchase price above $500k as your down payment.

Example A: if you purchase a home for $450,000, then you need at least $22,500 for a down payment

Example B: if you purchase a home for $900,000, then you need at least $65,000 for a down payment

The first 5% of your down payment can come from your savings or from the proceeds of another property you sold. You cannot use any borrowed funds for your down payment. If you are putting more than 5% as a down payment, you can also use a gift from immediate family, or a corporate subsidy for the down payment amount above 5%

Example: If you purchase a home for $900,000 and decide to put down $65,000, then the first $25,000 must be from your own resources (no gift or subsidy). The other $40,000 can be from a family gift or subsidy.

You can use a down payment of any amount larger than 5% as long as you follow the guidelines above.

Credit History

For many newcomers to Canada, there is not much credit history yet. This means that your credit profile needs more information to help banks and lenders decide if you are likely to repay the mortgage on time. A lack of credit history can make getting approved for most mortgages difficult. In a newcomer mortgage, you could still get approved to purchase a house even if you don’t have a long credit history.

If your down payment is at least 5% but less than 10%, then you could get approved using either of these two sources of credit history. You need to have at least one of these.

1. An international credit report from Equifax or Transunion which shows that you have a strong credit profile. OR

2. Two alternative pieces of information that will show the mortgage lender that you are likely to repay the mortgage on time. Examples of an alternative could be 12 months of rent payment history with 12 months of utility payment history or auto insurance history. This information must come from institutions in Canada

If your down payment is more than 10%, you can use either 6 months of bank statements from your primary bank account or a letter of reference from a recognized financial institution.

Suppose you have been in Canada for long enough to build up a credit history here in Canada. In this case, your mortgage lender can use that information instead, and you may not need to provide any alternative information or an international credit report.

Documents for a Newcomer Mortgage

Everyone applying for a mortgage in Canada needs to provide their mortgage broker or a bank with some documentation so they can review your application and approve your mortgage.

If you’re applying for a mortgage as a newcomer to Canada, here is a list of the most common documents that you’ll need:

• Government-issued photo ID

• Valid work permit or proof of permanent residency

• Bank statements to document your down payment

• A gift letter if any of your down payment is a gift

• Letter of employment from your employer and a recent pay stub

• Copies of utility bills or other documents to support your credit history as outlined above, unless you have enough information in your Canadian credit profile

• Your mortgage broker or bank might ask for some additional documents if needed to assist your application

4 Steps to Getting A Mortgage In Canada

It’s a good idea to start getting prepared early for your first home purchase in Canada. Many homebuyers make the mistake of skipping the mortgage process only to discover that they might not get approved. Here’s how you can be ready to buy a home in Ontario.

1. Start building your Canadian credit history right away. This means you should have your utility bills and other expenses paid on time. You can also use a credit card to build your history as long as you use the card and pay the bill on time.

2. Find out how much you can afford. Before looking at houses, you need to understand what your mortgage approval will look like. Speak to a knowledgeable and trustworthy mortgage broker who can help you get started

3. Get pre-approved for a mortgage. Once you are comfortable with your potential home purchase amount, then it’s time to start the official process with a pre-approval. A mortgage pre-approval is an excellent way to confirm that you will get approved. With it, you can feel confident that you’re ready to purchase a home when the time comes.

4. Begin the home search process. Looking for a home can be fun and exciting, but it can also be stressful. Sometimes you need to be patient until the right house comes along. Find a licensed real estate agent who works in the local area where you want to live. Ask them to explain how they will help you as a new homebuyer. Consider speaking with a few different realtors and then pick the one you think would be best for you.

How to Get the Best Mortgage Rates for Newcomers

In Canada, you have many choices for where to get your mortgage. The two main options are a mortgage broker and your bank branch. A mortgage broker is a licensed expert who can connect with many banks and lenders simultaneously to compare them and find the best deal for you. A mortgage broker usually does not charge you for their service or advice. For more information on costs, read this article How Much Does a Mortgage Cost. You could also get your mortgage directly from a bank. The person at the branch can show you all the mortgage options available from their bank, and you don’t have to get a mortgage from the same bank you use every day.

It is a good idea to get mortgage information from more than one source so that you can feel comfortable and compare the available options. Start the mortgage discussions before you start house hunting so that you’ll have enough time to get all the right information and be prepared for your first home purchase in Canada.

Are You Ready for Home Ownership?

Buying a home is a big decision. Sometimes you should rent your home instead of buying one. Try our Rent vs. Buy Calculator to find out.

Newcomer Mortgage FAQ