Buying Homes for Newcomers in Canada: What You Need to Know

Canada Mortgage and Housing Corporation (CMHC), Canada's national housing agency, has been assisting Canadians and newcomers in gaining access to information, videos, and tools to help them make educated decisions on homeownership. 

The good news is newcomers are not barred from purchasing a home in Canada, even immediately upon arrival. Barring a few exceptions which usually involve foreign buyer taxes, even a non-resident or non-citizen can purchase real estate in Canada provided they can afford it.

Most people looking to buy a home, especially in a new country, would require financing. This usually comes in the form of a mortgage, and here is where newcomers may encounter difficulties in purchasing a property due to their lack of Canadian credit history, as well as a lack of Canadian employment history.

Can New Immigrants Get a Mortgage in Canada?

Yes, new immigrants can get a mortgage in Canada, and many financial institutions offer specialized programs to address the unique challenges newcomers face, such as limited Canadian credit history or employment records.

Most mortgage programs for newcomers are available to:

• Permanent residents, landed immigrants, and temporary foreign workers: You don’t need to be in Canada long to qualify. Some lenders accept applications from newcomers who have been in the country for as little as three months.
• Non-residents with valid work or study permits: Mortgage programs are available even without established Canadian credit, as many lenders accept international credit reports or other forms of credit verification.

The down payment required for newcomers typically ranges from 5% to 35% of the home's purchase price, depending on your financial history and the lender’s criteria. Proof of income and additional documents, like a work or study permit, may also be required.

While each lender has different requirements, researching various programs and lenders will help you find the best option for your situation.

Getting Pre-Approved for a Mortgage An important step for newcomers seeking a mortgage is to obtain a pre-approval. A mortgage pre-approval is an evaluation by a lender that determines how much money you can borrow, what interest rates you qualify for, and what your mortgage payments would be. For newcomers, getting pre-approved can be particularly beneficial as it:

1. Demonstrates to sellers that you're a serious buyer
2. Gives you a clear budget for your home search
3. Helps identify any potential issues in your application early in the process

While the pre-approval process for newcomers may require additional documentation, such as international credit reports or proof of foreign income, many lenders are experienced in working with new immigrants and can guide you through the process.

How Long Do You Have to Live in Canada to Get a Mortgage?

The good news for newcomers is that you don't necessarily have to live in Canada for a long time to get a mortgage. Many lenders offer mortgage products specifically designed for newcomers, even those who have just arrived in the country.

Here are some key points to consider:

1. Immediate eligibility: Some lenders offer mortgages to newcomers who have been in Canada for as little as 3 months. This means you could potentially qualify for a mortgage soon after arriving in the country.
2. Permanent residents and landed immigrants: If you have permanent resident status or are a landed immigrant, you may be eligible for a mortgage immediately upon arrival in Canada.
3. Work permit holders: For those on work permits, many lenders require that you have at least 1 year remaining on your work permit to qualify for a mortgage.
4. Improved terms with longer residency: While you can apply for a mortgage soon after arrival, living in Canada longer can improve your chances of getting better mortgage terms. This is because:some text
   • You'll have more time to establish a Canadian credit history (e.g., through responsible use of a Canadian credit card)
   • You may have a longer employment record in Canada
   • You might be able to save for a larger down payment
5. New to Canada programs: Many major banks offer "New to Canada" programs that cater to newcomers who have been in the country for 5 years or less. These programs often have more flexible requirements regarding credit history and employment.
6. Alternative lenders:  If you don't qualify for a traditional bank mortgage, there are several alternative paths to homeownership, regardless of how long you've been in Canada:some text
   • B-lenders: These are financial institutions that specialize in providing mortgages to borrowers who don't meet the strict criteria of major banks. They often have more flexible requirements but may charge higher interest rates.
   • Private lenders: These are individuals or companies that offer private mortgages. They typically have less stringent qualification criteria but usually charge higher interest rates and fees compared to traditional lenders.
   • Private mortgages: These are short-term loans secured by real estate, often used when traditional financing isn't available. They can be a good option for newcomers with substantial assets but limited Canadian credit history.
   • Rent-to-own programs: Companies like Requity Homes offer rent-to-own options that allow you to rent a home with the option to buy it later. This can be an excellent way to work towards homeownership while building your credit history in Canada.

Remember, while you can apply for a mortgage soon after arriving in Canada, it's important to take the time to understand the Canadian housing market and ensure you're financially ready for homeownership. Consider factors such as job stability, savings for a down payment, and your long-term plans in Canada before committing to a mortgage.

Mortgages for Newcomers in Canada

If you're a newcomer with limited employment or credit history in Canada, securing a mortgage may seem challenging. However, there are alternatives and flexible options designed specifically to help newcomers.

The Canada Mortgage and Housing Corporation (CMHC) recognizes the unique needs of immigrants and offers programs that allow lenders to assess creditworthiness using alternative methods. For instance, newcomers may provide a letter of reference from their financial institution in their home country to establish their financial standing.

Since creditworthiness often cannot be transferred directly through international credit records, Canadian banks and lenders may accept these letters and other forms of verification to assess your financial history.

Many financial institutions offer newcomer mortgage programs that accommodate the specific needs of immigrants by relaxing certain requirements. These programs may involve additional conditions, such as a larger down payment or proof of financial stability from the borrower’s country of origin. This flexibility makes it easier for newcomers to navigate the home-buying process.

What is a Newcomer Mortgage?

A newcomer mortgage is a specialized mortgage program designed for immigrants and newcomers to Canada who may not have an established Canadian credit history or employment record. These programs typically offer flexible qualification criteria, allowing newcomers to obtain a mortgage by providing alternative documentation, such as proof of financial standing from their home country or a larger down payment.

Key Features of Mortgages for Newcomers in Canada:

1. Flexible credit requirements: Lenders may accept international credit reports or alternative forms of credit verification.
2. Special down payment options: Some programs allow for lower down payments or accept foreign funds for down payments.
3. Employment considerations: Lenders may be more lenient with employment history requirements, considering jobs held in other countries.
4. Competitive interest rates: Many newcomer mortgage programs offer rates comparable to standard mortgages.
5. Additional support: Some lenders provide extra guidance and resources to help newcomers navigate the Canadian housing market.

What is the 35% Down Payment Rule?

The 35% down payment rule applies to newcomers to Canada who may not yet have a Canadian credit history or sufficient employment history to qualify for a standard mortgage. In such cases, many lenders require that newcomers put down at least 35% of the home's purchase price as a down payment.

This higher down payment helps offset the risk for the lender since the borrower may lack traditional indicators of creditworthiness in Canada. By offering a larger down payment, newcomers demonstrate financial stability and reduce the lender's exposure to risk.

Here’s a breakdown of how the 35% down payment rule works:

• When it applies: This rule typically applies to newcomers who have not established a Canadian credit history or who have less than two years of Canadian employment history.
• Amount: For homes under $500,000, you will need to provide at least 35% of the home’s purchase price as a down payment if you do not meet standard mortgage qualification criteria.
• Lender flexibility: While the 35% down payment is a requirement for some, other lenders may accept alternative documentation such as foreign credit reports, which could reduce the need for such a large down payment.

Meeting the 35% down payment requirement can help you secure a mortgage in Canada even if you're still building your credit and employment history in the country.

Popular Newcomer Mortgage Programs

Several major Canadian banks offer specific mortgage programs designed for newcomers, with each one tailored to address the unique challenges faced by new residents. These programs often feature flexible qualification criteria, lower down payment options, and dedicated support to help newcomers navigate the home-buying process.

Some of the most popular newcomer mortgage programs include:

• CIBC Newcomer to Canada Mortgage Program
• RBC Newcomer Mortgage Program
• TD New to Canada Mortgage Program
• Scotiabank StartRight Mortgage Program

These programs are designed to help you secure a mortgage, even if you don’t have an extensive Canadian credit or employment history.

How to Qualify for a Newcomer Mortgage in Canada

Once you’ve determined that you meet the key criteria for a mortgage, the next step is to begin searching for a home within your budget. Working with a real estate agent can be incredibly beneficial, especially for newcomers unfamiliar with the Canadian real estate market. A real estate agent can help you find homes that match your budget, guide you through the offer process, and negotiate on your behalf to get the best deal possible. Additionally, they will assist you in coordinating with lenders, ensuring you are pre-approved and ready to make an offer.

Here are the conditions to qualify for a newcomers mortgage in Canada, which we consider the 5 L’s:

1. Legal status

You must be either a permanent resident or landed immigrant, or have a work permit if you are a non-permanent resident. Otherwise, your stay in Canada does not meet the  legal requirements for a newcomer’s mortgage.

2. Length of residence

If you have immigrated to Canada and stayed here for longer than five years, you no longer have newcomer status.

3. Length of employment

Unless your present employer is relocating you to Canada, this mortgage requires you to have a full-time employment for at least three months in Canada. Obtaining pre-approval can show the lender that you have the income and stability needed for a mortgage. 

4. Liquidity for 5% to 35% down payment

For a home price of less than $500,000, you must have your own saved money to make a down payment of at least 5%. The minimum down payment increases as the home  price increases. Canadian lenders will also require you to obtain proof of your source of funds from savings, chequing, cash gifts, & non-Canadian funds. For newcomers without  2 years of employment or credit history, a minimum of 35% down payment will be required. A mortgage pre-approval can help clarify the exact amount you will need based on your situation.

5. Lower qualification ratios

Your debt service ratio shows how much of your income goes to service your debt. The lower this ratio is, the more helpful it will be with your application for a newcomer’s mortgage. A gross debt service ratio (GDS) of 39% or less, and a total debt service ratio (TDS) of 44% or less is required.

Once these conditions are met, the process for buying a home is mostly the same: once you know how much you can borrow from your chosen mortgage lender, it gives you a home budget you can work with. Upon selecting the house you want to live in, you check it out, make an offer, then finalize your financing with the bank. 

We realize that this seems to be a lot of information to gather before you begin looking for your first house. However, bear in mind that banks that provide mortgage programs for newcomers are aware of the difficulties you may experience. As a result, they frequently have specialized mortgage professionals who will work with you to identify what is best for your specific circumstances. 

As easy as all of this sounds though, a lot of this still involves a whole lot of paperwork that you might not be familiar with. Combine that issue with the additional requirements often imposed on newcomers, you will definitely encounter a few inconveniences that can be best handled by a trusted professional more attuned to financial institutions’ predilections.

Buying a home with a study permit or work permit

Newcomers in Canada with study permits or work permits can also explore homeownership opportunities. While buying a home as a student or worker in Canada may seem complicated, it’s entirely possible if you meet certain requirements.

How to buy a home with a study permit:

1. Legal status: As a student with a valid study permit, you can purchase property in Canada. However, you may face restrictions based on your status as a temporary resident.
2. Mortgage options: Some Canadian financial institutions offer mortgage programs to students. You may need a co-signer or guarantor, such as a parent, to secure the mortgage.
3. Down payment: In many cases, students may be required to provide a larger down payment, often up to 35%, due to the lack of a stable income or credit history.

How to buy a home with a work permit:

1. Work permit requirements: Temporary workers in Canada can qualify for a mortgage if they hold a valid work permit with at least one year remaining. Banks typically require proof of full-time employment in Canada.
2. Mortgage options: Several Canadian banks offer mortgage options for temporary workers. The qualification process is similar to that for permanent residents, though a larger down payment may be required if you don’t have sufficient Canadian credit history.
3. Permanent residency: If you are on a path to permanent residency, lenders may be more flexible in offering mortgage terms based on your anticipated legal status.

Tax and Legal Considerations for Non-Residents and Temporary Residents

When purchasing property in Canada, particularly as a non-resident or temporary resident, it’s important to be aware of additional taxes and restrictions that may apply. Two major considerations are the Non-Resident Speculation Tax (NRST) in Ontario and the Federal Foreign Buyer Ban. Both policies aim to regulate property purchases by foreign nationals and ensure housing availability for Canadian residents.

What is the Non-Resident Speculation Tax (Ontario)?

The Non-Resident Speculation Tax (NRST) is a 25% tax imposed on the purchase or acquisition of residential property located in Ontario by individuals who are not Canadian citizens, permanent residents, or exempt from the tax under certain agreements. The NRST applies to the value of the consideration for the residential property.

Who pays the NRST?

• The NRST applies to foreign nationals, foreign corporations, and taxable trustees purchasing residential property in the Greater Golden Horseshoe Region in Ontario.
• If you are a temporary resident with a work or study permit, you may be exempt from the NRST under specific conditions.

Key considerations for NRST

• The NRST is in addition to the land transfer tax and applies to both direct and indirect purchases of residential property.
• Temporary residents with study or work permits should consult with a tax professional to determine if they qualify for an exemption.

Federal Foreign Buyer Ban

In January 2023, Canada introduced a federal foreign buyer ban, which prohibits non-residents from purchasing residential property in the country for two years. This ban was put in place to curb housing price inflation and improve housing affordability for Canadian residents.

Who is affected by the federal foreign buyer ban in Canada?

• Foreign nationals who are not permanent residents or Canadian citizens are barred from purchasing residential properties.
• Temporary residents, such as those with work or study permits, are exempt from the ban if they meet specific criteria.

Exemptions from the foreign buyer ban:

• Temporary residents working in Canada with a valid work permit.
• International students studying in Canada, subject to specific limitations on property value and conditions.
• Diplomats, consular officers, and other individuals with special status.

Temporary residents should ensure they meet all legal requirements before attempting to purchase property to avoid penalties under the foreign buyer ban.

How Rent-to-Own Programs Offer An Alternative Path for Newcomers

Buying a home in Canada as a newcomer can be a complex, difficult, and often frustrating process. From navigating mortgage qualification requirements to understanding additional taxes and legal restrictions, the journey to homeownership may feel overwhelming. For those who face challenges with traditional mortgage paths—whether due to lack of credit history, employment records, or high down payments—a rent-to-own program provides an accessible and flexible alternative.

Requity Homes offers a practical solution for newcomers, helping to ease the hurdles of homeownership. Our rent-to-own program gives you the chance to secure the home of your dreams while gradually building the credit history and savings needed to qualify for a mortgage. Over a period of two to three years, your monthly rent payments are reported to the credit bureau, allowing you to build your credit score. This means that as you live in your future home, you’re simultaneously improving your financial standing, step by step, without the immediate pressure of meeting traditional mortgage criteria.

Here’s how renting-to-own with Requity Homes makes the home buying process easier for newcomers to Canada:

• Build credit with rent-to-own: Your rent payments help boost your credit score, making you more attractive to mortgage lenders over time.
• Save for a down payment: Each month, you’re saving for your future home without needing to provide the large upfront down payment required by many lenders.
• Guided support: Requity Homes provides guidance throughout the process, helping you navigate the complexities of homeownership with confidence.

Instead of delaying your dream of homeownership, Requity Homes lets you live in the house you want now, while working toward full ownership over a two- to three-year period. For newcomers, this alternative path can offer much-needed flexibility and peace of mind during the transition to life in Canada.

Use our rent-to-own affordability calculator to get started and see how much you can afford.

Once you’re ready, sign-up to get pre-qualified for rent-to-own in Canada. There’s no cost or obligation to get started.