If you are new to Canada and need a mortgage to finance a home purchase, there are a number of decisions you will need to make and supporting documentation you may need to provide.
The first thing you should do is start building credit as early as possible. There are a number of ways to do this, but the first and foremost is to apply for a credit card. By using and paying off your credit card each month, you’ll build your credit score quickly and effectively.
Here are some additional ways you can build your credit score:
- Pay your bills in full and on time, including rent, utilities and telecommunication services
- Apply for small loans from your bank, to begin proving you can pay them back on time
- Prove that you have a consistent source of income, by staying with the same employer for an extended period of time
Supporting Documentation for a New to Canada Mortgage
You can obtain a New to Canada Mortgage with similar terms to a typical mortgage application, but you’ll need to ensure your chosen lender is approved by the Canada Mortgage and Housing Corporation (CMHC) New to Canada Program. CMHC is Canada’s leading mortgage insurance provider and institutes Canadian mortgage requirements.
After you have verified that your lender is approved, you should be prepared to provide documentation supporting your credit history as well as your ability to repay a mortgage loan. You will need to provide income verification, via an employment contract and/or salary deposits, and a valid work permit or landed immigrant status. Depending on your individual situation and the lender, there is an array of other supporting documentation that you may be required to provide.
These documents may include, but are not limited to:
- Proof of 12 months of rental payments and/or confirmation letter from a landlord
- Regular payments towards utilities, telecommunications, insurance, etc. and/or confirmation letter from service provider(s)
- Letter of reference from a recognized financial institution
- Several months of bank statements
- Documented regular savings for 12 months
- International credit report
How New to Canada Mortgages Work
There are a few other things you should know about how mortgages work in Canada:
Canadian regulations require you to put down at least 5% of the purchase price as a down payment. CMHC will insure newcomers with permanent resident status with as little as 5% down, while non-permanent residents must have a 10% down payment to purchase a home.
If you have a down payment worth 20% or more of the purchase price, you will qualify for a conventional mortgage and will not need to purchase mortgage insurance.
You can obtain a mortgage through a traditional lender, such as a bank or credit union, or you can do so through a Canadian mortgage broker. Mortgage brokers provide an origination service and will guide you through the mortgage process. Mortgage brokers also have access to many lenders and products and, therefore, supply very competitive mortgage rates.
The amortization period is the length of time it will take to pay off your mortgage in full. As of July 9th, 2012, the maximum amortization period for mortgages that require mortgage insurance is 25 years. A longer amortization period will reduce your monthly mortgage payments by spreading them over a longer time frame, but will result in more interest paid over the life of the mortgage.
The mortgage term is the length of time you commit to the contractual provisions and a mortgage rate with your lender. Term lengths vary between 6 months and 10 years, with 5 years being the most common. When your term expires, you will need to negotiate a new term with new conditions and a new mortgage rate. You will likely have many terms throughout the amortization period of your mortgage.
Interest Rate Type
The final major mortgage decision you will need to make is the type of mortgage rate you want. Mortgage rates can be either fixed, at a constant rate of interest over the mortgage term, or variable, fluctuating with the Prime rate. This is a personal decision based on your unique tolerance for risk and expectations of future interest rate increases or decreases.
For more information on the standard mortgage process and additional homebuyer resources, please visit RateHub.ca’s comprehensive Education Centre.