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- Ottawa revamps mortgage rules
- First-time buyers - SAVE PTT
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- Common Home Buying & Mortgage Terms
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New Residents to Canada
If you are planning a move to Canada or if you have recently arrived, you already likely expect or have experience challenges. Canada‘s legal system and mortgage industry is likely much different than that which you are accustomed to. If you are going to be financing the purchase of your new home in Canada, then you should be familiar with some of the fundamentals that prevail in mortgage financing in Canada. There are countless lenders in Canada, from big banks, B Lenders to private mortgage funds. Each has their own policy and internal rules, and this is especially true when it comes to lending to non-residents and new immigrants. Knowing who to speak to can make a big difference in the rates and terms you can negotiate. Canadian Permanent Resident Status As a Canadian Permanent Resident (also known as a landed immigrant) who has begun to establish themselves in Canada, most financing opportunities and best mortgage rates are available to you. Any mortgage exceeding 75% of the purchase price or value of the property is required by law to be insured. Currently there are three insurers in Canada who insure mortgages (CMHC, AIG and Genworth Financial) and their rates and policies are very comparable. The insurance premium is added to the amount borrowed and repaid over the period of the mortgage. Applicants must have verifiable Canadian generated income, a down-payment, and a satisfactory credit rating in Canada to meet the approval of both the lender and the insurer. If you are putting 30-35% towards the purchase as your down-payment, then some lending institutions may wave the requirement to confirm employment or income i.e., income can be earned offshore. All borrowers must, prior to obtaining the financing, must present themselves to a bank in Canada with two pieces of identification, and open a bank account.
Non-Residents to Canada
If a person living outside of Canada wishes to apply for a mortgage in Canada, they will be treated as a non-resident. This can even apply to Canadian citizens who have been living abroad, do not earn income in Canada or, do not pay income taxes in Canada. If you are a Non-Resident, the financial institutions see you as a greater risk. Accordingly, they will lend only as high as 65% to 70% at their best rates. If you wish to obtain up to 75% the interest rate charged will likely not be discounted by the lender as much (this is subject to the work permit section below). However, each lender will examine the mortgage application on a case by case basis. A banker's letter of reference provided by an applicant's previous bank or a credit report from the applicant’s country of origin may influence a lending institution with respect to both the approval of the mortgage application and the interest rate charged. Typically for Non-Resident mortgage applications, the economic rent, as indicated in the appraisal which must be done as part of the financing requirements, must be sufficient to cover the costs of financing the mortgage (i.e. the monthly mortgage payments). Work Permit Those persons who would otherwise be considered Non-Residents but who have valid Canadian work permits are eligible for financing not otherwise available to them. In fact, some lending institutions will lend up to 90% of the purchase price (or value of the property) to an applicant who has a valid work permit and is working in Canada, if the mortgage is insured. CMHC guidelines for granting mortgage insurance to persons with a valid work permit restrict financing to purchases only, not refinancing. Secondly, the mortgage must be amortized; a secured line of credit is not available. Lastly, the property purchased must be only one unit and owner occupied.
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