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Newcomers: Everything you need to know about buying a home

21 February 2020 by National Bank
Home buying 101 for newcomers in Canada

Are you a recent immigrant? You need to be well-prepared when you move to a new country. The same goes for buying your first home in Quebec or Canada. It’s an important step that helps you feel right at home, and you can get there easily if you follow this step-by-step guide to buying a home.

Newcomers starting a new life in Canada who want to buy property need a temporary resident visa (also called a visitor visa) as well as a work permit, or a permanent resident visa.

You cannot buy property if you are a non-resident or if you’ve come to Canada for your studies.

Rest assured: as a newcomer, almost nothing changes for you insofar as the process for buying property goes; your mortgage advisor will simply give you advice suitable to your situation. Immigrants who fulfill the conditions listed below can buy property, same as all Canadian citizens. But there are some key steps to follow before settling into your future home.

Getting familiar with mortgage-related terminology

Each country and financial institution is different when it comes to mortgage loans (commonly called mortgages) and the related terminology, so it’s helpful to get familiar with the language before even meeting with your mortgage advisor.

“The first time we meet, we usually talk about the required documentation, the down payment, and the difference between the two kinds of loans: conventional and insured,” explains Nicolas Stephan, mortgage development manager at the National Bank. We’ll also take some time to describe fixed rates and variable rates and how the mortgage term, down payment and amortization are defined, because they can often be confusing,” the expert continues.

Mortgage loan

In Canada, for a conventional mortgage loan, the down payment amounts to 20% or more of the property’s purchase price. For a loan insured by the CMHC (Canada Mortgage and Housing Corporation) or Genworth, the down payment amounts to between 5% and 19.9% of the property’s purchase price. You cannot buy a home without a down payment.

Amortization

Amortization is the number of years over which the mortgage loan is contracted. It generally falls between 15 and 25 years.

Term

The repayment period for a mortgage loan (amortization) generally corresponds to 25 years (sometimes less) and is separated in terms (usually in five terms, with each term lasting five years). A term refers to the period during which you will have to pay off your mortgage at the interest rate fixed in your contract. At the end of the term, the interest rate for the next term is recalculated and a new contract is signed. In France, mortgages are generally spread over 30 years at a fixed rate, so there are no terms.

Interest rate

You can choose a fixed rate or a variable rate. A fixed interest rate remains the same throughout the duration of the term. It’s often a higher rate, because it’s less risky. Conversely, variable rates are lower than fixed rates and they fluctuate with the ebbs and flows of the market.

For more definitions, read this article detailing other mortgage-related terms.

Fulfilling the required conditions for buying property

Now that you’re more familiar with the topic, the next step is to fulfill the requisite conditions in order to buy a home:

  1. You must have a visitor visa (temporary resident) or be a permanent resident (student visas do not make you eligible).
  2. You must have the right to work in Canada and have had a full-time job that generates income for at least three months. 
  3. You must have all the required documentation if you still have assets, debts and bank accounts abroad (e.g. bank statements, a reference letter from the financial institution, etc.).
  4. You must prove that you have enough money for the down payment. You must have the down payment in your possession for three months while your file is being analyzed. Even if the money comes from abroad, you must have it in your possession and be able to prove where it comes from.
  5. You must have a bank account, a credit card and good credit. Signing up for a credit card will allow you to build credit with the credit bureau, which is required by the bank and the CMHC. Most financial institutions grant credit cards to newcomers without imposing many restrictions. It’s possible that you don’t have a credit file or that your credit file is in another country; if that’s the case, that file is not transferred to Canada.

“Your credit score must be generated by a Canadian credit bureau, hence the importance of getting a credit card as soon as possible. Two to three months of using it is enough to build a credit history. But never exceed the limit and pay the minimum amount every month,” details Nicolas Stephan.

Other documents may be required so the advisor can evaluate your credit file and debt-to-income ratio. “The client must also be able to show their creditworthiness through timely payments to their public accounts (rent, Hydro-Québec electricity, etc.) in the last 12 months,” Nicolas Stephan explains. Please also note that it’s not a requirement to have rented a place before being able to buy property.

Evaluating your borrowing capacity

Once you’ve qualified, your mortgage advisor will be able to determine your borrowing capacity and give you a mortgage preauthorization before you start looking at properties. Mortgage preauthorization is indispensable and facilitates your process in three ways: it determines the amount you can borrow for a mortgage, it gives you better negotiating power over the buyer, and it guarantees your mortgage interest rate for 90 days.

Determining the state of the real-estate market

Whether you’ve just moved to Canada or been living here for a few years, it’s important to analyze the real-estate market before buying a condo or house, or deciding to rent.

You need to ascertain if the market’s on the rise, if it’s going down, or if it’s relatively stable. This can differ from one province to another, and from one neighbourhood to another. “When demand is very high, you often see overbidding, especially in Montreal, Toronto and Vancouver,” says Nicolas Stephan. “The longer you wait to buy, the more the market rises, and so do the prices. If a buyer is looking for a main residence to live in and they have no intention of returning to their home country, it may be a good time to buy.”

Conversely, when the real-estate market is slowing down or on the decline, prices tend to go down. It could be a good time to buy, hence the importance of sniffing out opportunities so you can take advantage of them at the right time.

Getting the help of a real-estate agent

Even if a mortgage advisor can give you advice on buying a home, a real-estate agent is one of the best allies you can have when buying future property, according to Nicolas Stephan. “Your agent will support and guide you from start to finish, depending on your needs.” They’re very knowledgeable about the real-estate market, promising cities and neighbourhoods, requisite inspections, etc. Your mortgage advisor will be able to help you find a good agent if you don’t know how to find one.

There are as many cities and neighbourhoods to live in as there are needs particular to each individual. Speak with your agent and tell them about your priorities as well as what you’re willing to let go (proximity to main roads and public transit, nearby businesses, services, schools and daycare centres, lively neighbourhood, architecture, etc.). You should also visit the areas you want to move into, and don’t limit yourself to just one neighbourhood. This is important especially if you’re a newcomer buying your first home.

Following the rest of the steps to finalize the purchase of the property

“Whether you’re a first-time homebuyer or a newcomer, we all need reassurance. These next steps apply to everyone, regardless of status,” Nicolas Stephan points out.

Once you’ve met all the required conditions to buy, your finances have been evaluated and you’ve received a mortgage preauthorization, a mortgage advisor will meet with you to talk about budgets and perform a mortgage simulation to determine the added costs on top of the mortgage: municipal and school taxes, insurance, transfer taxes (welcome tax, notary fees, moving fees, etc.).

At the same time, you can start shopping for a home. Once your purchase offer on a property has been accepted by the seller, you’ll have to prove that you have the financing. This proof is emitted by the financial institution.

“Finally, there’s one last meeting to go over the final purchase price, the down payment, the interest rate, the term and the amortization. Then you go to the notary and finalize the transaction,” Nicolas Stephan concludes.

Each of these steps is detailed in this article. Now, you should finally be ready to contact a mortgage advisor and buy property.

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