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When searching for your first home, here are five tips to ensure you get the best mortgage rates in Canada. And, to get the best rates will require you to research so you know how to select a mortgage that’s right for you. Many newcomers arrive with savings to own a home and establish roots in Canada. And getting the best mortgage rate can save you thousands of dollars over the course of your mortgage.
Buying your first home in Canada is an exciting time to make your dream of homeownership a reality. But at the same time, it can create stress and confusion. You may have questions about the real estate process in Canada, the lending process, or other important questions. And, buying a home is likely the largest and most important decision that you will make. So, it’s important to understand what’s involved, and how you can save thousands of dollars with the best mortgage rate.
A home purchase is a major investment. So, research the housing market in Canada and the lending and real estate process. Do your research so that you’re confident with the decisions you’ll have to make every step of the way. And, this includes understanding the different types of mortgages:
Your down payment is money you pay towards your home purchase. It is deducted from the purchase price of your home. And, the remaining amount will be covered by your mortgage loan.
A 2019 survey conducted by Royal LePage revealed that 75% of newcomers arrive in Canada with savings to purchase a home. And the great news is that those savings can help you to get the best mortgage rate.
You can get a conventional mortgage loan if you can pay 20% or more of the property value. But, with less than 20% of your down payment, you’ll get a high-ratio mortgage. And, high-ratio mortgages require home buyers to purchase mortgage default insurance.
This mortgage insurance allows homebuyers to buy a home with less than a 20% down payment of the purchase price. However, mortgage insurance only protects your lender. Therefore, it’s important to understand the terms and conditions of mortgage insurance if you’re unable to pay your mortgage.
Homebuyers require a minimum down payment of 5% of the home purchase price. So, if you have less than 5%, keep saving!
When you have a bigger down payment it can save you money over the lifetime of your mortgage. But, if you have less than 20% of the purchase price, your lender will require you to pay for mortgage insurance.
There’s nothing like a poor credit score to stand in the way of getting the best mortgage rates in Canada. The minimum required credit score to get a mortgage in Canada is between 620 – 679. But, with a good credit score (usually between 680 – 724 points), you may get better borrowing rates.
Although, even with a good credit score, it’s smart to practice good financial habits to increase your ability to borrow money. For example:
If you’re a first-time homebuyer, working with a mortgage broker can help you navigate the complexity of mortgage products, options, and features. A mortgage broker can access a broad range of financing options.
Buying your first home in Canada can come with uncertainty about unexpected costs, affordability, or paying too much for your home. And, you’ll likely have questions that a mortgage broker can answer.
A professional mortgage broker can inform you about mortgage options and features. Because different mortgage options may be more suitable for you based on your needs and plans. For example, you will need this information to help you make decisions related to:
In addition to knowledge and experience, mortgage brokers can:
Lenders may have important restrictions related to each mortgage option which can cost you more money. Working with a mortgage broker can save you thousands of dollars in costs.
When searching for your new home, it’s difficult to predict if mortgage rates will increase or decrease. So, a pre-approved mortgage can protect you against interest rate hikes while you search. With a pre-approved mortgage, you can lock in a mortgage rate for up to 120 days. In addition, getting pre-approved will help you understand how much you can afford to buy your first house in Canada.
You can get a mortgage from your bank or a mortgage broker. However, working with a broker who is a subject matter expert with specialized mortgage knowledge can offer several advantages. For example, you can:
A broker works with several lenders including top banks, credit unions, and other lenders to get you a more flexible deal. And with one single mortgage application, they get several lenders to “bid” for your business to get you the best possible rate.
In addition, a mortgage broker acts as a single point of contact who can manage everything from applying for the mortgage to negotiating your rate and disbursing the funds. All of this can create a stress-free experience, especially if you’re unfamiliar with the process.
Establishing roots in Canada through home ownership is exciting! Achieve your dream with the best mortgage rate to save you thousands of dollars for your mortgage.
One of the first things new immigrants want to establish when they move to Canada is somewhere they can call home. Your ability to buy a home and qualify for a mortgage is tied together if you do not have the funds to purchase a property outright.
You will need to meet certain financial criteria as set out by Canadian banks and financial institutions. This may seem intimidating and even challenging, largely because of misconceptions.
There is a belief that newcomers cannot get a mortgage from a Canadian bank, they won’t qualify if they don’t have a strong credit history or they won’t qualify until they have a couple of years of employment history in Canada. These are not true.
There are immigrants who qualify for mortgages every day. In fact, did you know that 18% of mortgage consumers are newcomers to Canada?
Financing is available to both permanent and non-permanent residents. However, qualifying for a mortgage will depend on your status. Here is an overview of mortgage requirements:
As a permanent resident, you will have access to a variety of mortgages and programs. You could qualify for a standard mortgage if you have a good credit rating. This means one of the applicants must have a credit score of 680 or higher. You will also require at least a 5% down payment.
If you do not have a good credit score, you can still qualify for a mortgage through a newcomer to Canada program. You will still require a minimum 5% down payment.
If you are paying less than 20% of the cost of the purchase price, you will have to get mortgage loan insurance.
Join us for an insightful webinar designed to help you navigate the various routes to owning a home in Canada. Whether you’re looking to buy your first home through a traditional mortgage, exploring co-ownership opportunities, or interested in rent-to-own solutions, this webinar will provide the information and tools you need to make informed decisions.
REGISTER FOR THE WEBINARAs a non-permanent resident, you have specific requirements to qualify for a mortgage. For example, you must:
With a good credit rating, you could qualify for a standard mortgage. If you do not have established credit in Canada, you may have to get a letter of reference from your financial institution in your country of origin. You will need to qualify under a new-to-Canada program.
You will not qualify for a mortgage if you are not a permanent resident, have poor credit, or do not have at least a 5% down payment.
When applying for a mortgage, a lender will review your income. This can be from many sources as long as the income is plausible, such as income from full or part-time employment, self-employment, rental properties, support or alimony payments, or pensions.
The lender will require a letter from your full or part-time employer to confirm income, especially if you have had the job for less than two years. You should have copies of your last two years’ tax returns and be up-to-date with any outstanding taxes.
The lender will also look at your debts, including your proposed house payment, as well as monthly payments for loans, credit cards, car leases, or child support. It is important that you include all debts you have on your mortgage application, as they can impact your ability to borrow.
Evidence of regular income is another critical factor lenders consider. They are more inclined to favor applicants who have worked at one job continuously for several years or have remained in the same field. However, you can still qualify for a mortgage if you’ve changed jobs recently, as long as your new employer can prove your income with a Letter of Employment to confirm your:
Lenders may also ask for recent pay stubs to confirm your rate of pay.
If you’re self-employed or have worked at a job for less than two years, lenders may ask for additional information, such as federal income tax statements, to verify your income.
To qualify for a mortgage, a good credit rating is essential. In addition to reviewing your debt and income, a lender will also pull your credit report. The report details your payment history and how you’ve handled your past obligations. You can get a copy of your credit report before you apply for a mortgage to verify its accuracy or correct any errors before you apply for a mortgage. However, each credit “pull” will negatively impact your credit score for a short period of time, so avoid pulling your credit too often.
Qualifying for a mortgage ensures that you meet certain criteria set out by lenders. Here are the main steps you will need to take to qualify:
You will have to put money down on any mortgage. The more you save, the better position you will be in to qualify for a mortgage.
As soon as you arrive in Canada, it’s important to start building your credit history. A strong score will not only help you qualify for a mortgage, but it will also help you get a better rate. You can do this by paying your bills in full each month, using and paying off your credit cards, and maintaining a consistent source of employment income.
Lenders want to see proof of a stable financial situation. To do this, you can get a letter of reference from your financial institution, an employment letter from your employers, and show copies of recent pay stubs.
There are plenty of mortgage options. You can choose from traditional banks, to credit unions, and private lenders. You can also enlist the services of a mortgage broker to help you qualify. Brokers work for you, and they will shop around and compare options for you. They can be a big help to find the right mortgage for your specific needs.
A pre-approved mortgage indicates how much mortgage you can afford and guarantees a mortgage rate (usually for 90 – 120 days) while you look for a home.
A pre-approved mortgage can give you more credibility to sellers and real estate agents, and in bidding wars, common in hot housing markets, it can give you an advantage against competing home buyers. However, be sure to consider these tips:
Understand the difference between pre-qualification and pre-approval. For example, pre-qualification is less formal and confirms that you meet general lending guidelines. And sometimes you can obtain a pre-qualification over the phone or through an online assessment.
On the other hand, a pre-approval is a detailed process and takes more time to complete. You need to complete a mortgage application and provide documents to verify things such as your income, debt, employment, and credit history.
A lender will review your application before they pre-approve you.
Don’t let your guard down after you get pre-approved for a mortgage. Missing or skipping credit card payments, increasing debt, or changing jobs could void your pre-approval.
If rates remain low and you’re still searching for a home, you can reset your pre-approval every 45-75 days. Doing so will not only extend your rate hold but will also safeguard you against any mortgage rate hikes before you close. Although some lenders may restrict rate resets.
Shop around and choose pre-approval terms that offer you the most benefits. For example, opt for the longest rate hold (120 days), and other mortgage features such as the ability to make prepayments, fair penalties, and refinancing options.
Qualifying for a mortgage can be an intimidating process, but it does not have to be this way. There are countless ways for newcomers to get approved for a mortgage. It happens every day. You just need to know the steps and understand the financial criteria you need to meet to qualify. Start working toward qualifying from the day you move to Canada, and you will be a homeowner sooner than you think.
The question “how much mortgage can I afford?” is quite different from “how much mortgage can I get?” So, it’s important to understand the risks involved when a lender offers you a mortgage that is more than you need or expected. When buying a home for the first time, it’s important to consider all of the related costs and expenses. And, when you factor in all of the costs, you’ll be in a better position to answer, “how much mortgage can I afford?”
It may seem like great news to get approved for a higher mortgage amount than you expect. But, this can lead to overspending on housing when you get more money than you need.
Buying a home in Canada is a big dream for many newcomers! But, buying a home that is more than you can afford, can turn that dream into a financial nightmare. If you have a good credit history, and a healthy down payment, your lender may approve you for a mortgage that is higher than what you need. For example, you may have a personal budget of $800,000 to buy your home. And, your lender may pre-approve you for $1,000.000. To get a general idea of how much mortgage you can afford, use this mortgage calculator.
But, does that mean you should borrow that much so you can buy a more expensive home? You need to factor in other costs so that you can answer this key question: how much mortgage can I afford?
This is a common mistake that many first-time homebuyers make. And, this often leads homeowners to a situation where they are “house rich and cash poor”. In other words, they are spending between 30 – 40% (or more) of their total income on:
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When you spend too much of your income on housing, it means you’ll be “cash poor”. And this means you’ll have very little room to afford other expenses such as:
Or, you end up making these purchases on credit, increasing your debt level, and possibly affecting your credit history.
In addition, you need to consider your other expenses such as daycare, saving for retirement, or saving for your children’s education. All important expenses that you may also be saving for.
So, before buying your home, carefully consider how much you can afford and what other financial obligations you have.
Closing costs are typically paid at the end of the homebuying process. Often, people overlook the closing cost that can become expensive. You can expect to pay closing costs in the range of 1.5 – 4 % of the selling price of your home. So, it’s important to include these costs when calculating how much mortgage you can afford.
Closing costs are one-time only expenses that may include:
Getting a home inspection is not required. However, if you are buying a home, it may be a smart thing to consider. A home inspection can provide you with information about the state of the house. You may discover that you will have to spend money on repairs either in the short-term or long-term.
You also want to find out what recent repairs or renovations were completed. A home inspection can provide information about the: insulation; electrical work; and structure.
If the home inspection reveals costly defects, you can try to negotiate with the seller to make the repairs or reduce the selling price.
Homeowners in Canada must pay taxes to fund services such as police and fire, schools, public education, transit, parks and recreation, road maintenance, and many other services. And, property taxes are a major source of revenue for municipalities in Canada.
On top of your mortgage payments, you will have to pay property taxes. Most lenders will collect the property tax and this helps you to avoid a large and unexpected tax bill when your annual taxes are due. So, it’s important to factor your property taxes into your mortgage payments as well.
These legal costs include fees for services that your real estate lawyer will do such as:
This is a tax that home buyers in most provinces must pay. And, It is usually based on the purchase price of the home.
Since your lender has a large stake in your home, they will often require you to purchase insurance against fire and weather-related damage. It is also a good idea for you to purchase ‘contents’ insurance to protect your valuables.
This is special insurance coverage to cover the cost of your mortgage in the event of death or severe illness is available from most lenders.
Your moving costs will vary depending on whether you rent a truck and move your belongings yourself, or if your hire professional movers. If you hire movers, you can expect to pay a minimum of $1,000 depending on the weight of your belongings, travel distance, and even your moving date.
You can reduce your moving costs if you rent a truck, and kindly ask your friends and family to lend you a hand on moving day!
When you set up your utilities, you will be charged a deposit to hook up services and replace the previous owner’s name with your name on the bill.
Many potential homeowners overlook these additional costs, and they can quickly add up. So it’s important to include these costs when considering how much mortgage you can afford.
It’s important to manage all of the costs involved when buying a home. And, knowing how much mortgage you can afford can help you to make the best financial decision for you and your family.
Check out our financial first steps resource page for resources and information to help you achieve your financial goals in Canada!