If you have just recently moved to Canada and are considering the purchase of a home, it is a good idea to familiarize yourself with the process and rules that New to Canada mortgage loans involve in this country. If you have just moved here from the United States, for example, the principal difference has to do with the length of a mortgage. While it is possible to amortize a mortgage payment schedule out over 30 years in Canada, in the U.S. it is possible to get a fixed rate on a loan for the entire life of that mortgage without a prepayment penalty. In Canada, the longest loan term that you can sign is 10 years, and if you want the option to pay early without a penalty, you would choose an open mortgage, which has a higher interest rate than a closed loan — so knowing the terminology is important.
Several Mortgage programs exist for new comers
The good news is that several programs exist for new comers seeking a new to Canada mortgage to help them purchase a home. Because many people new to Canada mortgage holders may have difficulty qualifying or a loan initially, institutions like Canada Guaranty have come up with special guidelines. When the loan-to-value ratio is 90 to 95 percent, the lender looks at scores from the international credit bureau or the past year of rental payments, backed by a letter from the landlord, as well as a year of bank statements that confirm those rental payments, as well as a year’s worth of utility statements confirming regular payment. When the loan-to-value ratio is 90 percent or less, the bank needs six months of verifiable bank statements from a bank in the immigrant’s country of origin or a recognized financial institution in Canada. Alternatively, a reference letter from the borrower’s bank in the country of origin confirming at least six months of a satisfactory banking connection works.
These programs are generally eligible for immigrants who arrived in Canada no more than five years ago, and at least 5 percent of the down payment must originate in the borrower’s resources. The borrower must have a valid work permit, landed immigrant status or permanent resident status. Unless the borrower has been relocated by his company, he must have worked full time in Canada for at least three months.
When it comes to lending requirements, though, Canadian banks are similar to those in the U.S. and other countries. Banks and other traditional lenders generally have three requirements: a down payment, a credit score within a certain range, and proof of a steady income. The down payment can be as little as 5 percent in some cases, but if you can put 20 percent down, you can avoid paying mortgage insurance for the life of the loan. The premiums for the insurance make each monthly payment more expensive without adding to your equity in the house. When it comes to verifying income, banks like third-party proof that you make enough money on a regular basis to pay your mortgage each month without creating a debt-to-income ratio that is too high, and without creating too high of a burden for housing cost within your total income. Third-party proof means verification from an employer and from tax documents, such as annual returns you filed in your last country of residence.
NEW-TO-CANADA EQUITY LENDING
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Do you have 25%** down payment or greater to buy a home?
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Of course, not everyone can provide all those items. Some people are self-employed, which means that their income may be ample but does not come in regularly each month, and that they cannot provide independent verification of their income. Self-employed people often have to provide a greater documentation of assets and other ability to pay the loan in order to gain bank approval. Still other people have a steady career that provides more than enough money each month to pay the mortgage — and a series of pay stubs and tax returns to prove it. They have also saved up enough to make a down payment, but they have had some financial setbacks in their past, such as a layoff or lengthy period of disability, and as a result they fell behind on a lot of their debts. Car payments, credit card payments and other debts that go unpaid can wreak havoc on one’s credit score, even for a few years after you’ve paid them off. This means that quite a few people who have the finances in place to pay for a home can’t get a bank to touch their application.
This is where Amansad Financial has helped many clients in western Canada. We refer people to “C” or private lenders if those potential clients have at least 25 percent to put down and have adequate income to make payments on the house. These mortgages cost more in terms of interest rate, but the shorter term of these loans (1 to 2 years at most) is designed to give you time to get your finances in order so that you can qualify for a bank mortgage by the time the loan comes due. In the meantime, many private lenders only require you to make interest payments, with the principal due at the end, giving you more flexibility to deal with remaining debts and add more to the amount you have saved for that next down payment. Other private lenders allow you to make payments on a 20 or 25-year amortization schedule.
If you are new to Canada and are worried about qualifying for a mortgage, get in touch with one of our private lending specialists today. We will provide a personalized analysis of your situation and make recommendations about the best way for you to invest in Canadian real estate for the first time.