Many think it is nearly impossible for a new immigrant to Canada to begin investing in real estate. This idea is simply not true. However, as with all investment opportunities, one of the most important factors to consider is financing. If you are an immigrant and do not have the money to pay for the desired investment property outright, you will likely require a mortgage from one of Canada’s many lenders. The amount of the needed mortgage will be the difference between the cost of the home, and what is provided from your own savings.
While there are many different options to consider, for the purposes of this article, the assumption is that you wish to have the real estate investment financed by either a mainstream lender, such as a bank or financial institution, or an alternative lender, such as an insurance firm or trust company. The best choice of lender type will depend on your unique situation.
Here’s how to go about securing financing for an investment property in Canada as a new immigrant:
Most major commercial lenders have the same list of requirements for borrowers who hope to obtain financing for a real estate investment. It is true that you may find securing a mortgage with a good interest rate is a little more difficult than it would be for a native Canadian. However, by understanding what the potential lender will require, you can improve your chances of getting financing, and save yourself time and heartache by entering into negotiations with everything already in order.
Here are the top 3 things lenders will look for:
1) Proof of income
Lenders will invariably require proof of how much money you are earning in order to understand how you will make your payments and how much you can afford to pay on a monthly (or other) basis. If you are a salaried worker, a letter of employment showing full time employment for at least 3 months, plus your most recent pay stub, will be necessary. If you are self-employed, you’re going to need to show a longer history of steady earnings – ideally two years of income from your business. Obtaining financing if you are self-employed is a little more complicated and time-consuming, so start working on this early.
2) Good credit history
As a new immigrant, you probably won’t have a long track record of borrowing and repayment in Canada so you’ll want to start establishing a credit history as soon as you arrive. How? The easiest strategy includes opening a Canada-based bank account and using it regularly, consistently paying all your bills on time and obtaining a credit card. If you can’t get a major credit card (MasterCard or Visa) from your local bank, a secured credit card from a company like Capital One or Home Trust is a good alternative. The key to building credit with credit cards (and not building tons of unwanted debt) is to use them regularly to pay for items you would normally buy with cash, and then pay them off in full each month.
If possible, provide the lender with a copy of your credit report from the previous country that you lived in (preferably in English). In their effort to understand your creditworthiness, lenders may also ask for a letter of reference from your landlord confirming that you have been a reliable tenant, 12 months’ worth of utility bills showing timely payment, or your bank statement confirming regular savings deposits.
3) Source of down payment.
If you are a newcomer to Canada with permanent resident status and are planning to live in the home you will be financing, you will need to provide at least 5% of the purchase price from personal savings. If you are not yet a permanent resident, you will need to provide at least 10% of the purchase price. And, if you are purchasing a true rental property (i.e. one in which you won’t reside), the requirement is a down payment of at least 20%. The larger the down payment amount that you can provide the better. For instance, having a down payment of 35% or more will make qualifying for financing much easier.
Please note that the above are not always hard and fast rules – in some situations the lender will show some flexibility. However, the stronger you can be on each of these points, the easier it will be for you to qualify.
