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Why live in Canada?

Canada is consistently considered to be one of the best places in the world to live. Its high living standards, education, and health care all make it an attractive place to live, grow a family and put down roots. It’s also helpful that Canada is very welcoming to newcomers - in fact, about half of all Canadians are born outside the country. 

Canada is a great place to call home, with a huge variety of housing types and locations. Between rural and urban areas and different property types, this country accommodates all preferences and needs. For those people who are new or returning to Canada, homeownership often ranks as one of their top priorities.

Mastering the Canadian housing market

While Canada is a great place to live, it also has one of the most challenging real estate markets in the world, especially in big cities like Toronto and Vancouver. Rising housing prices that outpace supply are becoming more common across the country. This is why the ability to find affordable mortgage financing to help people purchase homes here is especially important. Luckily, there are a number of mortgage products designed for this purpose. These products are specifically tailored to newcomers, either from the U.S. or even further abroad.

Finding the right information for these new-to-Canada programs can be very challenging, which is why I created this ultimate new-to-Canada guide. If you’re planning on making Canada your home, this is the perfect guide for you. Here, we’ll explore all the details you need to know in order to make a successful mortgage application for your Canadian dream home.

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If you’re a new Canadian hoping to buy a home, the first thing you have to do is define which “bucket” or category of new-to-Canada you fit into. Since people can come to Canada through different pathways, there are also different means of financing for Canadians. There are four buckets that new or returning Canadians may fit into, so it’s important to explore where you belong.

Non-residents

The first bucket is made for people who are non-residents of Canada. A non-resident may be a Canadian citizen or non-Canadian citizen who lives abroad and earns their income outside of the country (including in the U.S.).

Returning to Canada

The next group are Canadians who have been working and living abroad as ex-pats but have decided to return to Canada. In general, the application for this type of mortgage financing is more traditional and basic. However, certain areas like your credit history will likely be examined in greater detail when you’re looking to buy a home in Canada.

New Canadians with permanent residency status

The third bucket is for those who are truly new Canadians. These are people who live and work in Canada with a work permit or permanent residency status. Ideally, these people have been in Canada for at least 12 months. However, a time period of as little as one month can be accepted. Mortgage lenders and insurers have developed specialized products under the new-to-Canada banner to accommodate these types of borrowers.

New Canadians without permits or residency status

The final group are new Canadians who aren’t here on a work permit, and also don’t have any kind of permanent residency status here. Financing is the most challenging for this group - but it’s not impossible. This is where we start working with alternative lenders or private lenders to find a suitable solution for these borrowers. 

There’s another big detail borrowers need to keep in mind when they buy real estate in Canada. If you're not a Canadian citizen or permanent resident, you need to be aware of the non-resident speculative tax. Regions such as the Greater Toronto Area and Greater Vancouver Area have a 15% tax for non-Canadians. If you obtain permanent residency after making a home purchase, you may be able to get a rebate for the tax amount paid. More on that down the road!

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Down payments are an important part of buying real estate in Canada. Depending on which group or “bucket” you fit into, the down payment requirements will vary. Let’s give those a quick review.

Non-residents moving to Canada

As a quick reminder, a non-resident is a person who earns their income outside of Canada and does not pay income taxes in Canada. 

There are various scenarios that might relate to you as a non-resident. You might be a Canadian or a non-Canadian, and still be applying for a mortgage as a non-resident. Your location will be one of the biggest factors in determining your down payment amount. If you are earning your income in the United States, you are required to have at least a 35% down payment. If your income comes internationally beyond the U.S., your down payment must be at least 50%.

Returning Canadians

Next, we have Canadians who are returning to work in Canada. If you fit into this bucket, there’s generally no additional minimum down payment requirements. You would be treated like any other applicant in Canada and can go by the same standards. 

This means if the purchase price of your home is less than one million dollars, you can buy it with as little as 5% for your down payment. If you buy a home for over one million dollars, you’re required to pay a 20% down payment.

New Canadians with permanent residency status

The next group are new Canadians who are hoping to buy in Canada and live here with a work permit or have permanent residency. This bucket is for people who have been in Canada for less than five years. 

Moving to Canada with mortgage default insurance

If you find yourself in this category, there’s good news. You can also buy with as little as 5% down, as long as you also purchase mortgage default insurance. We sometimes call this a high ratio mortgage, or a CMHC (Canada Mortgage and Housing Corporation)-insured mortgage. 

Please note that if the purchase price of your home exceeds one million dollars, this insurance is not available. You will be required to make a 20% down payment.

New Canadians without permits or residency status

The last group we have are new Canadians who are here working as independent contractors, or perhaps are self-employed. These applicants don’t have any kind of permit or residency status, so securing a mortgage is the most difficult for this group. 

You will most likely be working with an alternative or private lender, and the down payment is very important for this category. Most likely, you’ll be expected to provide at least 35% for a down payment, depending on your application details.

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Paper, paper, paper

When you apply for a mortgage, it involves a lot of paperwork. We’re going to go over the main documents that will be expected from you as you prepare for your new-to-Canada mortgage.

There are three main areas where a lender will want information from you. They’re going to require details on your income, your liabilities and finally the source(s) of your down payment money.

Confirming income and employment information

Moving to Canada as an employee

To verify income, lenders will focus on your employment status. If you’re currently employed, this is simple. The lender will ask for a copy of your employment letter, and a copy of your most recent pay stub. You can also include variable income such as bonuses or commissions, but your main income will be the focus of your documentation.

Self-employed workers

If you are self-employed, the process becomes a bit more complex. The lender will focus on your tax returns, so they will need to see your two most recent T1 Generals, as well as your notices of assessment to confirm you don’t owe any taxes. 

What about non-residents moving to Canada?

Self-employed non-residents

For non-residents applying for mortgages, income verification can be even more complicated. If you are a non-resident and self-employed, there is no program or accommodation available - lenders will not be able to help you. 

Non-resident employees

However, if you are a non-resident working as an employee, the lender will look at your application. They will request your letter of employment, a pay stub copy, and 6 to 12 months of bank statements to show regular deposits of income. There might also be stipends covering living expenses, which is common for expatriates living outside the country.

Understanding your credit history

If you have been living in Canada for a while, it’s expected that you will have an established credit history. Ideally, lenders will want to pull a credit report for at least the last two years. 

What if you don’t have an established credit history?

If you’re very new to Canada and don’t have established credit, lenders will turn to alternatives. This could include letters from landlords to confirm rent payments, 12 months of utility bill payments, or maybe a cell phone bill, all to confirm you’re making payments on time. Lenders will also request 6 to 12 months of bank statements to prove sufficient funds, either in Canada or from back home.

If you’re coming to Canada from the United States, United Kingdom, or Australia, lenders will also require a credit bureau report.

Down payment money source

Lastly, you will have to provide information to show where your down payment money is coming from. In Canada, we have the Proceeds of Crime (Money Laundering) and Terrorist Financing Act. This requires lenders to ask for at least 90 days of history to show that you have accumulated the savings for your down payment. Typically, we will request three months of bank statements, either from your Canadian account or overseas account.

Can you move to Canada with a gifted down payment?

Gifted down payments are permitted in some cases, but you’ll have to check with your lender or broker. However, there will still be a focus and an expectation on providing transparency on the source of your down payment money.

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In Canada, we have three major buckets of lenders. For simplicity, we’ll call them Bucket A, Bucket B, and Bucket C. 

Bucket A

Bucket A contains traditional lenders and is generally the most desirable for borrowers. This is where you have banks offering the most favourable terms and conditions. Here in Canada, we have different types of A lenders. 

The 5 big banks

First, there are the five big banks - RBC (Royal Bank of Canada), Scotiabank, CIBC (Canadian Imperial Bank of Commerce), BMO (Bank of Montreal), and TD (Toronto-Dominion) Bank. In Canada, we only have these five “Schedule I” banks, meaning banks that are fully domestic and not associated with any international institutions. 

Additional lenders for new Canadians

Then, we have other types of lenders, such as monoline lenders and credit unions. Monoline lenders don’t offer any kind of banking or non-lending services, which separates them from big banks.

For new Canadians who are living and working in Canada, almost all A-type lenders can accommodate you. However, if you are a non-resident, only banks will have specific programs that will be suitable for your application. 

Bucket B

Next, we have B-type lenders. While these rates and terms might not be quite as favourable as those of A-type lenders, Bucket B lenders serve a very important role in the marketplace. They help borrowers who are self-employed, may not have perfect credit or have some other reason why their application might not be suitable for a traditional lender.

Bucket C

Finally, we have C-type lenders. These are what we call private lenders, or equity lenders. The focus for these types of lenders is on the underlying real estate, and the amount of equity or down payment you bring to the table. There is less focus on your income and personal circumstances. For many newcomers to Canada who have large down payments, but don’t meet the criteria for A and B type lenders, these home equity lenders are the way to go.

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I was lucky enough to be born in Canada. Both my parents immigrated to Canada to create a better life for themselves and their families. I’m very aware of the importance of having a solid foundation, and the struggles and bravery of newcomers to this country. As a Toronto-based mortgage broker, I’ve helped many newcomers to Canada navigate their different mortgage options to make their homeownership dreams a reality. 

Things to know about mortgage brokers

We are independent of banks

There are a couple of things I want to share with you about working with a mortgage broker like myself. First, as a broker, I am not an employee of a specific bank. This means I have no interest in selling you one particular lender’s product. It’s my role to understand who you are then making recommendations that might be suitable for you. 

Newcomers to Canada become lasting clients

The second thing you should know about working with a broker is the experience of filing your application is not simply a transaction. When you go directly to a bank, it’s often a very transactional experience. They take your application, and you’re just a number in a queue.

As a broker, I try to understand you better, get to know you, and create a lasting relationship that goes beyond arranging a mortgage. I like to be able to provide ongoing advice throughout your entire mortgage life here in Canada. 

How are brokers paid?

I’d also like to discuss how I get compensated as a broker. As a client, you do not have to pay for my services. The lenders we work with pay brokers a commission or a finder’s fee. Finder’s fees are the same pretty much across the industry, no matter which lender we work with. This means I don’t have a financial incentive to pull you in any specific direction. 

Moving to Canada? Get started with me today

My name is Chris Molder. I am a Toronto-based mortgage broker, and I hope you found some value in this series for newcomers to Canada, and how to apply for a mortgage from outside the country. If you have any questions, concerns, or comments, the door is always open. If you’d like to get started working together, I recommend you go to my contact page and fill in the contact form. I’ll be in touch with you quickly to start the process!