It is not news that many new immigrants to Canada face an uphill task trying to adjust to the Canadian lifestyle. Relocating from one country to another is a huge change, most new immigrants find it hard to put down roots and contribute to their new society without some intervention.
But how does this relate to buying a property in Canada? Well, the fact is, immigrants can qualify for the New Immigrant Mortgage Program. Canada, as a country, understands the difficulty newcomers face when they try to adjust to a new way of life. Some of the challenges include language barriers, food, getting to grips with the financial system, as well as securing housing.
As a new immigrant in Canada, you’ll need housing but it can be difficult for you to navigate the Canadian real estate market. Apart from this, you’d have to decide whether or not you want to buy a home or rent. And even when you choose to buy, you’d have to face the hurdle of applying for and securing a mortgage. If the big financial institutions and lenders have rejected you due to your status as a new immigrant, there are still other options open to you.
Let’s start with terms.
Mortgage: Understanding the Basics
It is possible as a newcomer you’ve never used or heard of the term “mortgage.” Well, a mortgage is money you borrow from a financial institution that helps you finance the property you intend to purchase. Once secured, you make monthly payments to the financial institution (which includes interest rates) over some time to offset the principal before owning your home once the mortgage period is over.
The down payment is a chunk of the home’s total value. You pay this money upfront. The larger the amount of money you pay, the lesser you have to borrow and the better your mortgage rates.
A credit score is a number that reflects the more detailed information found in your credit report. Learn more about credit score.
Calculating your Mortgage
The following information is necessary for you to calculate your mortgage correctly:
- The principal
- The interest rate
- The amortization
- The term
- The type of mortgage
- The market value of the property
- Monthly income
Because most mortgage loans are fixed-rate, we’ll use that as an example:
Let’s say the value of your home is C$500,000, and you’re using the Scotia Flex Value Mortgage – Closed 5 Year Term of 5.750%. The amortization period is 25 years, with a term of 5 years. Your total payments will be C$937533, with total interest standing at C$437533. You’ll have to pay C$3125.11 each month to own 100% equity of your home.
Let’s use the Royal Bank of Canada’s present 5 Year Fixed Special offer at 3.240%. On a property valued at C$500,000 and an amortization period of 25 years, your monthly payments will stand at C$2428 with a total interest of C$228,468.
Remember that this is just an example, and the actual fees may be higher or lower than the figures shown here. It’s also imperative you use a mortgage calculator, so you know what you’re paying for.
Some of the terms you may come across when you’re interested in buying property in Canada include:
The total amount you’re expected to pay minus the down payment.
Yearly interest for your mortgage.
The duration of time within which you have to pay off the mortgage.
The payment type stipulates how many times in a month or in a year you have to make payment. A monthly payment type means you have to make payment twelve times in a calendar year. Other payment types include:
- Bi-monthly – 24 times
- Bi-weekly – 26 times
- Weekly – 52 times
There’s also the accelerated options for weekly and bi-weekly payments. You calculate this payment by using only four weeks equivalent to a month. This means in a weekly payment where you have to pay 52 times; you pay 48 times. The extra four payments go directly into offsetting the principal. The accelerated option allows you to save thousands of dollars in interest rates and ensures you pay off your mortgage at a faster rate.
The total payment is the total amount of money you pay throughout the mortgage. It is based on the assumption you have no subsequent prepayment on the principal.
The total interest is the overall amount you pay as interest throughout the term of the mortgage. It is calculated on the assumption you won’t have a prepayment on your principal.
Just like payment type, the prepayment options include weekly, monthly, semi-monthly, bi-weekly, and one-time payment.
This is the amount of money that is applied as the prepayment on the mortgage. The prepayment type determines what you pay.
The total amount of money you save on your mortgage.
The New Immigrant Program
Once you decide to apply via the new immigrant route, your chances of securing a mortgage will largely depend on three critical factors:
- Your PR status
- Your credit score
- The size of your down payment
Among these three factors, the one you should pay the most attention to is your credit score.
Building Your Credit Score for Mortgage
As a newcomer to Canada buying a house, you likely have no Canadian credit rating. What this means is you need to begin building your credit score. Below is a list of ways to bolster your credit rating.
- Credit Cards: Make sure you apply for credit cards and use them. Your credit card debt must be paid off on time each month. Failing to do that will hurt your credit rating. Unused credit cards also affect your credit score. Avoid this by applying for cards you intend using.
- Small Loans: Take loans from your community bank and make your payments regularly and promptly. Loans that are paid on time give the impression that you are financially responsible, which is good for your score.
- Bills: Take care of your bills. These include utility and phone bills. Missing payment will bring down your credit score.
- Employment: Working for the same employer over a long period is a reliable indicator that you have a dependable source of income that can help you secure your mortgage. Some of the documents you need to supply include proof of employment history, employment contracts, as well as the payslips from previous or present jobs.
Building your credit score is a long process. And you need this before you can qualify for a loan. If spending two years seems long for you, there are alternative ways to show you have a strong credit history to your lender. Some of the lenders who provide a New Immigrant Mortgage Program and who accept alternative proof of credit include:
- Genworth Canada
- Canada Guaranty
- Canadian Mortgage & Housing Corporation (CMHC)
The documents you need to provide depends on the lender. However, these are some of the documents you may have to provide:
- Valid work permit.
- Proof of employment or income.
- Bank Statement.
- Reference letter from financial institution.
- Letter from landlord showing your rental history
- Billing Statement, e.g., telephone, hydro, and cell phone bills
- Credit report from an international financial institution showing good credit standing.
Each of these documents can help you access a mortgage with a down payment of just 5%, although it is always advisable to make bigger down payments where possible.
How Soon Should You Buy A House?
Although the Canadian property market is on the rise due to low-interest rates, it can be challenging to decide whether to buy a house or rent one. If you are relocating to a new city and you intend to stay for more than five years, then its advisable to buy a home.
Pros of Buying a Home
The most significant advantage of owning your own home over renting is the pride of establishing new roots. It gives you a sense of belonging, allowing you to make a down payment on your mortgage. Over time, you’ll be able to create wealth and have total equity in your property.
Pros of Renting
If you are in a city for a short duration, for example, a contract lasting only a year or two, then it is recommended for you to rent.
Lifestyle change is a big challenge for those who are making their way from renting property to buying one. There are many financial obligations and hurdles you’ll need to scale through before you can beat your chest as a homeowner in Canada. It is essential to set aside an emergency fund that you can draw upon in your time of need. For example, you may encounter problems in your home, which may need minor repairs or extensive renovation. Some of these problems include flooded basements, broken pipes, or a leaking roof. The repairs can set you back hundreds if not thousands of dollars.
Putting Together Your Real Estate Team
A vital step to take before buying your first home as an immigrant is to assemble a team of real estate experts who will assist you in getting the deal over the line. Some of the experts in your group must include:
The realtor does the legwork by helping you find the perfect home for you. They’ll also take you to the homes for inspection and give your purchase price to the seller.
- Mortgage Broker
The broker is a specialist who helps you to qualify for your mortgage. Brokers either work for financial institutions and lenders or independently.
- Property lawyer
The real estate lawyer ensures all legal fees are duly paid, and every procedure followed is according to the law.
- Home Inspector
The inspector looks at the property and ensures it is in good condition before giving you the go-ahead to make an offer.