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7 Steps to Securing a Mortgage in Canada as a Non-Resident

Obtaining a non-resident mortgage in Canada might seem daunting if you’re eyeing the attractive real estate market in the country. However, it’s completely feasible if you understand the process. This guide will take you through seven crucial steps to secure a mortgage in Canada, designed to clear your path toward owning your dream property.

If you want to invest as an expat or high-net-worth individual, you can email me (advice@adamfayed.com) or use these contact options.

Understanding the Canadian Mortgage System

When you’re seeking a mortgage in Canada as a non-resident, familiarizing yourself with the country’s mortgage system is a crucial first step.

Unpacking Mortgage Types in Canada

Fixed-rate Mortgages

A fixed-rate mortgage is a type of mortgage where the interest rate remains constant for the loan term. This is a popular option among borrowers as it provides stability and predictability. When you choose a fixed-rate mortgage in Canada, you lock in your interest rate, ensuring your payments stay the same over the term of your mortgage.

Variable-rate Mortgages

In contrast to fixed-rate mortgages, variable-rate mortgages have interest rates that fluctuate based on the lender’s prime rate, which is typically tied to the Bank of Canada‘s overnight rate. If you opt for a variable-rate mortgage in Canada, your payments can change over time. However, these types of mortgages can potentially save you money if rates decrease over your term.

Adjustable-rate Mortgages

An adjustable-rate mortgage is a type of variable-rate mortgage in Canada. The difference is that your payments will change along with the interest rate with an adjustable-rate mortgage. This type of mortgage in Canada can be beneficial if you believe that interest rates will decrease in the future.

Role of the Canada Mortgage and Housing Corporation (CMHC)

Understanding the role of the CMHC in the mortgage landscape is pivotal for anyone seeking a mortgage in Canada. The CMHC is a federal corporation that insures Canadian mortgages, thereby reducing risks for lenders. This is especially beneficial to non-residents as it may make securing a mortgage in Canada more attainable.

As a non-resident, you should note that the CMHC insures mortgages where the buyer has less than a 20% down payment. Although, as a non-resident, you’re typically required to put down more than 20%, knowing that such a system exists proves the robustness and flexibility of the Canadian mortgage system. Plus, it could indirectly benefit your mortgage application process, demonstrating lender confidence in the housing market.

Can You Apply for a Mortgage in Canada as a Non-Resident?

The eligibility to apply for a mortgage in Canada as a non-resident isn’t as complicated as one might imagine. The residential status of the applicant is an essential criterion that lenders consider. Canadian banks and other lenders extend mortgage services to non-residents, allowing them to invest in the Canadian real estate market. However, non-residents need to understand that the terms and conditions of a mortgage in Canada may differ from those applied to Canadian residents.

A crucial factor for non-residents is the type of visa they hold. Those with a work permit can often access a larger array of mortgage products than those on a tourist or visitor visa. So, understanding the implications of your residential status helps you manage expectations while applying for a mortgage in Canada.

Importance of Credit History and Score

A credit score plays an undeniable role in determining your eligibility for a mortgage in Canada. It essentially reflects your borrowing and repayment history, informing lenders about your financial reliability. Therefore, a good international credit history can significantly assist non-residents in securing a mortgage in Canada.

mortgage in Canada
The eligibility to apply for a mortgage in Canada as a non-resident isn’t as complicated as one might imagine.

Lenders typically look for a credit score of 680 or more for the best rates, but some may approve scores as low as 600. As a non-resident, if you have an established credit history in your home country, you can request an international credit report from a major credit bureau, which Canadian lenders can consider.

Income Verification for Non-Residents

Apart from your credit score, verifying your income is also a significant step in securing a mortgage in Canada. Lenders need assurance that you can manage regular mortgage payments and other living expenses.

You’ll need to provide proof of income, typically through tax returns or pay stubs. The requirements might be more stringent if you’re self-employed or earn a non-traditional income. You may need to provide additional documentation, like bank statements or financial statements, to prove your income.

What to Expect When Applying for a Mortgage in Canada

When you decide to take the plunge and apply for a mortgage in Canada, understanding the financial implications will aid in navigating the journey smoothly. From higher down payments to variable interest rates and potential taxes, let’s take a detailed look at what to expect.

Down Payment Expectations

As a non-resident, you need to be prepared for the fact that your down payment on a mortgage in Canada will likely be more substantial than that of a resident. Where Canadian residents may be able to secure a mortgage with a down payment as low as 5%, non-residents should anticipate a higher requirement.

The minimum down payment typically expected of non-residents ranges from 20% to 35% of the property’s purchase price. This requirement varies between lenders and depends on the specifics of the property, such as its value and location. Thus, a significant part of planning to secure a mortgage in Canada as a non-resident involves saving for this hefty down payment.

Interest Rates Variations

Another critical financial factor when considering a mortgage in Canada is the interest rate. The interest rates for non-residents tend to be higher than those for residents. This is because lenders perceive a higher risk when lending to non-residents. However, do not let this discourage you. With a solid financial profile, including a strong credit score and stable income, you can negotiate competitive interest rates for your mortgage in Canada.

Interest rates fluctuate based on market conditions and the Bank of Canada’s overnight rate, which is why it’s important to stay updated with the latest economic news. As of mid-2023, the average mortgage interest rate in Canada hovers around 3.5%, but this can vary for non-residents.

mortgage in Canada
Another critical financial factor when considering a mortgage in Canada is the interest rate. The interest rates for non-residents tend to be higher than those for residents.

Potential Taxes and Fees

Securing a mortgage in Canada comes with additional costs that you should anticipate as part of the process. Beyond the down payment and interest, you must also budget for potential taxes and fees.

One significant cost is the provincial Land Transfer Tax (LTT), which applies upon purchasing a property. The tax rate varies by province and depends on the property’s purchase price. For instance, in Ontario, the LTT rate ranges from 0.5% to 2.5% of the property’s value.

Additionally, as a non-resident, you might be subject to the Non-Resident Speculation Tax (NRST). The NRST is a 15% tax on the purchase or acquisition of residential property located in the Greater Golden Horseshoe Region by individuals who are not citizens or permanent residents of Canada.

Other costs associated with securing a mortgage in Canada include home inspection fees, legal fees, mortgage default insurance if your down payment is less than 20%, and appraisal fees. By considering these potential costs in your budgeting, you’ll be better prepared for your journey to secure a mortgage in Canada.

Steps to Securing a Mortgage in Canada

Securing a mortgage in Canada as a non-resident involves a detailed process that includes pre-approval, document preparation, and application finalization. Here, we will dive deeper into these steps to give you a clearer understanding and better prepare you for the journey ahead.

Pre-Approval: The First Step Towards Your Mortgage in Canada

The pre-approval process is the starting point for securing a mortgage in Canada. During this step, you provide financial information to prospective lenders, such as your income and savings and investments. In turn, the lender will review this information to determine the mortgage amount you might qualify for.

By obtaining pre-approval, you gain a realistic understanding of your affordability range. This not only guides your property search but also strengthens your position as a buyer. Sellers often prefer buyers with mortgage pre-approval, as it indicates a lower risk of the sale falling through.

Document Preparation: Laying the Groundwork for Your Mortgage in Canada

Proper documentation plays a pivotal role in the process of securing a mortgage in Canada. As a non-resident, you should be prepared to provide extensive documentation to demonstrate your financial stability and capacity to meet mortgage obligations.

Proof of Income

Proof of income is critical for securing a mortgage in Canada. Lenders need to verify your ability to meet your mortgage payments consistently. This may come in tax returns, pay slips, or official documents showing your business income if you’re self-employed.

International Credit Reports

As a non-resident, you’ll also need to present international credit reports when applying for a mortgage in Canada. A strong credit history enhances your credibility and demonstrates your likelihood of repaying your mortgage.

Bank Statements

Bank statements are another form of documentation that lenders require. They show your financial habits, existing liabilities, and overall capacity to save and manage money effectively.

Finalizing the Application: The Final Step in Securing a Mortgage in Canada

Once you gather all the necessary documents, you can proceed to the final step of securing your mortgage in Canada – finalizing the application. Filling out a mortgage application form that your chosen lender provides is part of this process.

You will need to supply all requested information accurately and in full. This includes personal information, details about the property you wish to purchase, and comprehensive financial information. Once you submit your application, the lender will review it, conduct their due diligence, and approve or reject it.

mortgage in Canada
Once you gather all the necessary documents, you can proceed to the final step of securing your mortgage in Canada – finalizing the application.

Working with Canadian Banks and Lenders

Taking on the venture of securing a mortgage in Canada as a non-resident requires you to work closely with Canadian banks and lenders. They are the cornerstone of your property acquisition process.

Selecting the Right Bank or Lender

A critical first step involves selecting the right bank or lender for your mortgage in Canada. Canadian banks and financial institutions, including Scotiabank, HSBC, BMO, and others, offer mortgage programs tailored specifically for non-residents.

Evaluating Mortgage Programs

Each mortgage program comes with its own unique terms and conditions. Some offer lower interest rates with higher down payment requirements, while others may have a more flexible policy regarding international credit histories. In-depth research into these programs helps identify a mortgage in Canada that aligns with your financial circumstances.

Navigating Online Platforms

The digital age has simplified this process further. Banks and lenders have online platforms with detailed information about non-resident mortgage programs. You can compare terms, check eligibility criteria, and even apply for your mortgage in Canada online. But remember, while the internet is a powerful tool, consulting directly with a bank representative can provide personalized insights.

Building a Relationship with Your Banker

Building a relationship with your banker is an often overlooked yet vital part of securing a mortgage in Canada.

The Role of Your Banker

Your banker plays a key role in the mortgage acquisition process. They can guide you through the various steps, clarify doubts, and offer advice based on your circumstances. Furthermore, they are instrumental in negotiating mortgage terms, potentially leading to more favorable conditions for your mortgage in Canada.

Communication is Key

Open and regular communication with your banker can significantly streamline the process. Ensure you promptly provide any requested information, and do not hesitate to ask questions. Remember, your banker is your ally in securing a mortgage in Canada, so keep the lines of communication open.

Understanding Property Laws and Regulations

When you decide to secure a mortgage in Canada as a non-resident, the property laws and regulations might appear complex. However, understanding these laws is crucial to ensuring a smooth and legal transaction.

Engaging a Real Estate Lawyer

A real estate lawyer plays an integral role in your journey to secure a mortgage in Canada. They will assist you in navigating the legal landscape, simplifying complicated legal jargon into understandable terms, and ensuring all your property transactions adhere to Canadian law.

Why a Real Estate Lawyer?

A real estate lawyer does more than just represent you in legal matters. They conduct a title search to confirm the seller legally owns the property, verify there are no liens against the property, and facilitate the transfer of ownership. Additionally, they will clarify any legal ambiguities you might encounter, especially as a non-resident applying for a mortgage in Canada.

Choosing a Real Estate Lawyer

In choosing a real estate lawyer, ensure they are well-versed in real estate law and experienced in assisting non-residents secure a mortgage in Canada. A competent lawyer will protect your interests and ensure that your property transaction remains compliant with all Canadian laws.

Understanding Land Transfer Tax

Land Transfer Tax is a fee you pay upon purchasing a property in Canada. This tax varies from province to province and is calculated based on the property’s purchase price.

Land Transfer Tax is typically a percentage of the property’s purchase price. Different provinces have different brackets for how they calculate this tax. Be sure to include this cost in your budget while planning to secure a mortgage in Canada.

The Non-Resident Speculation Tax (NRST)

Some provinces, like Ontario, levy a Non-Resident Speculation Tax (NRST). This tax applies to non-residents who purchase property in certain regions.

NRST can significantly impact your budget. In Ontario, for instance, non-residents pay a 15% NRST on the purchase price of certain properties. If you plan to secure a mortgage in Canada, especially in regions with NRST, plan your finances accordingly.

mortgage in Canada
In choosing a real estate lawyer, ensure they are well-versed in real estate law and experienced in assisting non-residents secure a mortgage in Canada.

Common Challenges and How to Overcome Them

Securing a mortgage in Canada as a non-resident undoubtedly presents unique challenges. However, by understanding these challenges and equipping yourself with the right tools and strategies, you can successfully navigate the path to home ownership in Canada.

1. High Down Payment

Non-residents typically face higher down payment requirements when applying for a mortgage in Canada. This stems from the fact that lenders see non-residents as higher-risk borrowers compared to their resident counterparts.

Overcoming High Down Payment

Proper financial planning is the key to managing the high down payment required for a mortgage in Canada. Start by identifying your financial goals and creating a savings plan that aligns with them. Regularly review and adjust your savings plan to remain relevant and effective.

Engaging the services of a financial advisor can also be beneficial. They can provide you with tailored advice and strategies to help you reach your financial goals and manage the high down payment required for a mortgage in Canada.

2. Proving Creditworthiness

As a non-resident, proving your creditworthiness to Canadian lenders might be tough. This is mainly because your credit history from your home country may not be fully recognized in Canada.

Building Credit History in Canada

Building a strong international credit history is one of the most effective ways to prove your creditworthiness. You can start building your credit history in Canada by opening a Canadian bank account or getting a Canadian credit card. Make sure you manage your credit responsibly by paying off your balance in full and on time.

Remember, a strong credit history will not only help you secure a mortgage in Canada but also attract better mortgage rates.

3. Understanding and Adhering to Regulations

Another challenge non-residents face when applying for a mortgage in Canada is understanding and adhering to Canadian property laws and mortgage regulations. These can be complex and are subject to changes, making it hard for non-residents to keep up.

Seeking Expert Advice

Engaging a financial advisor or a mortgage specialist who has experience helping non-residents secure a mortgage in Canada can be invaluable. These professionals deeply understand the Canadian mortgage system and can guide you through the process, ensuring you understand and comply with all necessary regulations.

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Adam is an internationally recognised author on financial matters, with over 760.2 million answer views on Quora.com, a widely sold book on Amazon, and a contributor on Forbes.

This website is not designed for American resident readers, or for people from any country where buying investments or distributing such information is illegal. This website is not a solicitation to invest, nor tax, legal, financial or investment advice. We only deal with investors who are expats or high-net-worth/self-certified  individuals, on a non-solicitation basis. Not for the retail market.

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