Buying a home is an exciting milestone in life, but it can come with its fair share of challenges, particularly when it comes to securing financing. What are the financing options for different types of homebuyers; such as self-employed individuals and newcomers to Canada? What unique challenges will they face when applying for a mortgage?
How do new immigrants to Canada, or self-employed entrepreneurs prepare to be approved for a mortgage?
In past blogs, we’ve covered “typical” mortgages and what’s involved. You’ll need to provide proof of income, your credit rating and more to pass a “stress test” with your lender. This will determine how much money you’re eligible to receive as a loan towards your home purchase.
For information on those nitty-gritty details and how to find the mortgage that suits you best, check out our blog: Mortgage 101.
However things can work a little differently when you’re a self-employed entrepreneur, or a new resident in Canada.
Financing Options for Self-Employed Homebuyers
Self-employed individuals often face hurdles when it comes to traditional mortgage financing due to fluctuating income and the lack of traditional employment documentation. Here are some financing options to consider:
a) Stated Income Mortgages: With a stated income mortgage, self-employed individuals can provide a reasonable estimate of their income without extensive documentation. During a standard mortgage application process to get a traditional mortgage, the lender considers your net income from your last tax return. Self-employed individuals usually have a lower figure as a result of claimed expenses and tax deductions. A stated income mortgage in Canada considers this factor and usually allows the prospective borrower some flexibility when reporting their income.
b) Business-for-Self (BFS) Programs: These programs often allow self-employed borrowers to qualify for a mortgage without the typical documentation requirements of a salaried individual. This is done to allow flexibility for BFS applicants who may have business deductions or other circumstances that make their income hard to qualify.
c) Alternative Lenders: Self-employed buyers can explore alternative lending options, such as private lenders or credit unions, which often have more flexible lending criteria and are willing to consider non-traditional income sources.
Financing Options for Newcomers to Canada
Newcomers to Canada often face unique challenges, such as limited credit history and unfamiliarity with the Canadian financial system.
Becoming a permanent resident makes it possible for new Canadians to apply for standard mortgages. If you are not a permanent resident of Canada yet, but you hold a current work permit and have submitted an application for permanent residency, you can still apply for a standard mortgage.
If you are thinking of applying for permanent residency, bear in mind that you must have been physically present in Canada for at least 730 days in the past five-year period. This means that applicants must have lived in Canada for 2 years minimum — or longer if you frequently travel outside the country.
a) Newcomer Programs: Some banks and lenders offer specific mortgage programs tailored for newcomers. These programs take into account alternative credit history, such as rental payment records, overseas credit history, or a letter of reference from a recognized financial institution in their home country.
b) Down Payment Assistance: Certain provinces and municipalities in Canada offer down payment assistance programs for newcomers, providing financial support in the form of grants or loans to help with the initial home purchase costs. This can be an incredible help to getting financing secured on a home.
c) International Mortgage Transfers: In some cases, newcomers who have an established relationship with an international bank may be able to transfer their credit history to a Canadian financial institution, which can help strengthen their mortgage application.
Of course, it is recommended that individuals consult with a qualified mortgage professional or financial advisor to explore the specific financing options available to them based on their individual circumstances.
Financing a home purchase can be challenging for different types of buyers, but with the right knowledge and resources, these challenges can be overcome. Self-employed individuals can explore stated income mortgages, BFS programs, and alternative lending options, while newcomers to Canada can take advantage of newcomer programs, down payment assistance, and international mortgage transfers.
It’s important for these buyers to work with experienced mortgage professionals who understand their unique needs and can guide them through the financing process. Remember, homeownership is within reach, and these financing options can help turn dreams into reality.
Give The Kate Broddick Team a call to get you started on your home buying journey!